Money & Banking

Essay by PaperNerd ContributorUniversity, Master's August 2001

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Our current economic out look and the tools that can be utilized to change its direction Economic growth continues it's sluggish down turn as the results for the second quarter of 2001 clearly dictate. The Gross Domestic Product (GDP) only rose 0.2 percent (BEA News Release) and the unemployment rate also showed an increase to 4.9 percent (BLS Summary), this shows we are not poised to avoid a recession yet. Further monetary and fiscal policy changes are needed to regain consumer confidence and induce a healthy rate of spending.

The issues that seem to be currently plaguing the economy are both economic and political. On the economic side we are still facing the effects of the huge growth period of the later half of 1999 and early 2000. Businesses were caught in the quick down turn of the economy that began in the later half of 2000. A reduced demand for their goods and services left them with excess inventories and an unrealistic perception of their demand.

As businesses continue to adjust their output there may be further layoffs, which will continue to increase the unemployment rate. We also saw the dramatic decline of technology stocks during this same period. This decline cut investment spending and drove consumer confidence in a downward spiral.

On the political front we are facing similar issues. The public is unsettled with the new administration. They are looking for quick answers from the White House to help halt the descending economy. These answers do not seem to be coming fast enough to gain the needed confidence. As you can see there is increased political pressure, as well as, pressure on the Federal Reserve System ("Fed") to act quickly to change the course of the current economic situation.

The "Fed" has three tools in which it...