Economics Essay Example | Topics and Well Written Essays - 1500 words - 8

economic science - Essay ExampleAs a way of influencing the demand and supply of coin in the economy, the federal official Reserve use either contractionary or expansionary money policy. Because, the interest rates are low on that point is a high availability of money supply in the economy as a result, in that location is moderate inflation occurrence that is currently at two percent. As the Fed chairperson, the use of confining monetary policy measures ensure s there is a steady flow of money in the economy during the period (Bartolotti, 2006). This is because restrictive monetary policy ensures that there is a higher level of alluviation interest rate for commercial banksas it borrows money from the Federal Reserve banks as they keep their reserves at the authorized level. In addition, it is critical to increase the open market operations by ensuring the citizens with extra money to save can invest in it because of the highly expected returns ahead(p) to money being course out of the economy. As a result, the banking institutions will change a higher rate as it lends less(prenominal) money with increased reserve requirement thus, individuals will seek alternatives for seeking funds rather than borrow money. In addition, the government can make investments with the funds collected from open market operations leading to increased gross internal product (GDP) growth. With an unemployment rate that is quite high, there is a need to withstand out measures that will influence the growth of employment levels in the economy. Concerning, the new classical economists notion on unemployment and inflation, they highly advocate for a stable inflation-unemployment trade-off that is achievable through the Phillips convolute. base on the Philips curve the trade off is achievable on the assumption of changes in the price level in the personal sector freely. This is because the Philips curve enhances the relationship between inflation and unemployment because of pecuniary and monetary policy changes (Knoop, 2004). Nonetheless, the classical economic science argue based on the conceptualization that the expectations-augmented in the Phillips curve emphasizes that the unemployment rate should not extend foster than the natural level as it could lead to increased inflation rates. More significantly, it is critical to implement fiscal and monetary policies to influence employment levels (Knoop, 2004). This is because the economy is recovering from a recession period and the economy tends to grow with the aggregate demand (AD) increasing therefore, the levels of employment will increase. Even though, there is an increased pressure for a raise in wages after rescission, the rate at which the economy grows is faster, and the wages begin to rises slowly. Based on the Philips curve an outward shift of the aggregate demand AD curve because of increased consumer pass causes the equilibrium level of national output to shift to the point Y2 beyond potential gross domestic product (GDP). As a result, this creates a positive output gap, and it is more preferably attributed to cause a rise in inflationary pressure