Macroeconomic Situation Essay Example | Topics and Well Written Essays - 500 words - 4

Macroeconomic Situation - Essay Example make up for lowering tax revenues, US local government fired various workers and educators and payrolls were lowered which hampered consumer spending (Homan, 2010). Moreover, the value of dollar is declining against many other currencies and it is expected that Fed will pursue a new round of large-scale asset purchase. Felsenthal and Costa (2010) argues that decline in the value of Dollar is the result of Fed’s easy money policy because investors moved out of dollars and invested in other currencies to achieve higher returns. They also highlighted that Federal Open Market Committee (2010) has decided to employ its own policy tools because FOMC seems to have an explicit easing bias. The inflation expectations in US are increasing and investors are showing their concerns that Federal Reserve’s efforts to revive the economy will further drive up the inflation and it is expected that Fed is going to use tools like quantitative easing (Mackenzie, 2010). Developed nations usu ally use advanced tools of monetary policy like quantitative easing which is an asset purchase program (Rashid, 2010). Therefore, if expansionary policy is pursed then it is expected that tax cut would increase the household consumer spending and government spending would stimulate the economy by improving the demand and supply sides, thereby, helping the US economy to spur its recovery. In order to recover from recession, U.S. Congress has two fiscal policy tools including tax policy and government spending. Carreira (2010) argues that debates in Washington on fiscal policy have been always over the mix of government spending and tax cuts. He argues that US Congress should adopt the Keynes model and to stimulate the US economy, government spending should increase and taxes should be cut. Treasury Secretary, Geithner’s recommendation to US Congress to extend expiring tax cuts for the middle class (Smith, 2010) is another good recommendation. Actually by bringing back Americans to work will