Fiscal and Monetary Policy and Economic Fluctuations

The global economy was relatively doing fine more than five years ago before it was hit by economic downturn or recession. During this period, the American economy was at its peak, particularly in the fourth quarter of 2007. However, this was followed by a mild recession at the beginning of 2008, which eventually turned into a severe credit crisis across the world approximately one year later. While only a few countries escaped the economic recession, virtually no country could avoid the severe bear markets in stock (Norris, 2012). Some countries like the United States experienced changes in gross domestic product and stock markets. Since it has the best record of the main developed countries, the United States was severely†¦show more content†¦The rate of inflation in the United States declined to a 4-year low in October 2013 and reached its lowest rate since October 2009. According to recent releases, the inflation rate in the United States eased to 1 percent in Octo ber 2013, which was a 0.2 percent decline from the previous month. Interest rates in the United States have continued to rise, particularly on 10-year Treasury bonds. In February this year, these rates had risen to 2.27 percent, which was an indication of approximately 10 percent loss in the price of the bond. Nonetheless, the Federal Reserve has kept the interest rate on long-term bonds to an unexpected low through its unconventional monetary policy. This implies that the main reason for the current interest rates is the unconventional monetary policy i.e. quantitative easing regarding the purchase of huge amounts of Treasury bonds and other long-term assets. On the contrary, the unemployment rate has remained extremely high at around 7.3 percent from its peak of 10 percent in October 2009. While there has been a significant decline in the current rate of unemployment as compared to five years ago, it is still relatively high. The decline in the rate of unemployment in the past five years is attributed to the addition of jobs by employers, though most of them are part-time and low-paying. This rate is also fueled by the decline in portionShow MoreRelatedEffects of Business Cycles1731 Words   |  7 Pagesfigure 1) is the periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real Gross Domestic Product (GDP) and other macroeconomic variables. Samuelson and Nordhaus (1998), defined it as ‘a swing in total national input, income and employment, usually lasting for a period of 2 to 10 years, marked by widespread expansion or contraction in most sectors of the economy’. 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