The macroeconomic situation in the US has been improving with regard to unemployment, inflation, and recession. However, this improvement has been slow and it will take some time before the economy recovers fully. The US is still recovering from its recession, although the recovery rate is slow. Therefore, some economic stimulus would be desirable in the recovery process rather than letting it to recover naturally. As such, the policy makers should not abandon the current policies that are meant to stimulate the economy but should rather continue supporting those policies. The economy is said to be stable if it has managed its unemployment and inflationary issues (Eprime, 1983).
In order to achieve full employment in the near future, expansionary fiscal policy should be applied, although at a regulated rate to avoid rise in inflation. Government purchases ought to be increased at a moderate level, stimulus to reduce taxes and increase the transfer payments should also be put in place. The short-term inflation rate between November 2011 and January 2012 has been declining and if this trend continues, there will an overall decrease in inflation rate by the end of the year. To achieve a balance between employment and inflation, the policy makers should to be very careful with level at which they allow the expansionary and contractional fiscal policies to be in place.
Expansionary fiscal policies can be combined with expansionary monetary policy tools in the recovery process. Expansionary monetary policies are meant to increase money supply in an economy to help in closing its recession gap (Eprime, 1983). These tools would include open-air market where the government buys securities from the public to increase money flow. Lowering interest rates to increase lending, expansion of businesses, as well as changing the reserve requirements, are also good tools for closing recession gap. All these applied in a timely manner, would help in the US in the recovery process.
In the recent past, unemployment rate in the US has declined. This marks a positive improvement in the sector. In January 2012, unemployment rate closed at 8.3 percent, which marked a 0.2 fall from the previous unemployment level. Unemployment rate had declined by 0.8 percent since august 2011(BLS, 2012). The figure of the unemployed stood at 12.8 million in January 2012 and 42.8 percent of this represented the long-term unemployed people. The number of people who lost jobs and those who accomplished temporary or contractual jobs was also in the decline and the figure in January was at 7.3 million. Annual adjustments done to show the level at which population controls was managed showed an improvement, and the closing figure in January was 58.5 percent (BLS, 2012).
Inflation refers to the general increase or rise in the price levels in an economy. Some of the inflation indicators include; consumer and price indexes, import and export prices, employment costs, and contract escalation. Internal consumer price indexes and the consumer price index show monthly price changes in the basket of goods consumed by the urban population. In the year 2011, there was a 3.0 increase in the all item index prior to seasonal adjustments. However, after the seasonal adjustments, the CPI of the urban population did not change in December 2011(BLS, 2012).The producer price index (PPI) measures the changes in selling prices of the domestic producers. In the last quarter of the year 2011, the PPI of finished goods moved as follows; in October, a fall of 0.3 percent, a 0.3 percent rise in November, and a decline of 0.1 percent in December (BLS, 2012)
Gross domestic product (GDP) refers to periodical market value of all domestically produced goods and services of a country (Eprime, 1983). In US, an annual rate of 2.8 percent increase in GDP was noted between the third and fourth quarter of the year 2011. This increase was attributed to an increase in real personal consumption expenditures by 2 percent, 14.8 percent increase in durable goods, and 1.7 percent increases in nondurable goods (National Economic Accounts, 2012).
Expansionary fiscal and monetary policies would be of great help to the US economy if applied in a regulated and timely manner.