Name: Skyler Sherman

Fiscal and Monetary Policy, Exam 3 Due by email 4/24

1. What are the two goals of fiscal and monetary policy?
The goals for fiscal and monetary policy are relatively stable inflation and low
unemployment.

2. Assess the current state of the US economy. Use the following links
to look at the latest information on the US economy. (CTRL click to
follow links from Word.)

Employment Situation Summary from the Bureau of Labor Statistics

at http://www.bls.gov/. Look for Unemployment Rate on the right
side and click on News Release.

GDP and Income from the Bureau of Economic Analysis at

http://bea.gov/index.htm. Look for Current Releases on the left side
and look at National releases.

The Beige Book from the Federal Reserve at fed beige book at
http://www.federalreserve.gov/. Look for Beige Book under recent
developments, or search.

Are we achieving both goals? Which one are we closer to achieving and
which one are we failing to achieve?
We are closer to achieving the low unemployment goal
because unemployment is at 8.8% which a decrease of .1% from a month ago. The
GDP was up 3.1% for its fourth quarter and income was up by .3% for the month of
February but failing to achieving the low inflation goal because its rate is 2.7%
which is a increase of .6% from the previous month.

3. Whats the standard Keynesian fiscal policy response to our current

economic situation? Mention both tools.
In a recession Keynesian fiscal policy says to run a budget deficit
by increasing government expenditures in excess of current tax receipts. The
increase in government expenditures should be sufficient to cause the aggregate
demand to increase or shift to the right. An example of this when the government
paid $787 billion dollars to stimulate the economy. Which had exceeded taxes.

4. Whats the standard monetary policy response to our current

economic situation? Be specific about each tool.
When an economy is in a
recession the federal reserve will use its four tools to help get it under control. The
four tools are reserve ratio, discount rate, open market operations, and Interest on
Required Balances and Excess Balances. When a recession hits the economy the fed
will lower reserve ratio and discount rate and increase open market operations as
well as Interest on Required Balances and Excess Balances. The fed is currently
keeping the discount count rate at .75%. The last time the rate changed was back in
dec of 2008. When its rate was .50% so the fed has actually increased the discount
rate by .25% in the last 3 years. The reserve ratio is currently at 58.8 million which
is an increase from december 31, 2009 that was 55.2 million which is an increase of
3.6 million with in the last two years. Open market operation today is at a level of 0
to .25% when the last time the rate changed was on october 29 of 2008 and the
level was at 1 percent. The interest on required balances and excess balances
happen now is at a rate of .25% which is a decrease from the 1% rate that was set
back in December 10, 2008.

5. What are some problems with using the policies you mentioned in #3
The problems with this policy is that it is deficit spending and it causes
inflation if the government doesnt start to decrease its spending and it is not a
guarantee that people will start spending.

6. What are some problems with using the policies you mentioned in #4?
The problems are liquidity traps due to interest rates hit 0% and
increased inflation because there is to much money in the economy.