Current Macroeconomic Situation

Current Macroeconomic situation.

Introduction.

As far as I know, recession is what's on everyone's mind and what probably should be on Mr. Bernanke's mind. Inflation has been pretty high though (e.g. the price of commodities) but the tools available to them to fight recession and inflation are usu. contrary to each other, so inflation should take a back seat for now. Of course we could be in for stagflation in the near future.

A stable recovery. The general concern (shrinking, but still present) is that the U.S. economy could sink into another recession creating a double bottom recovery pattern (as opposed to a V shaped recovery)(Spencer 2009). The U.S. Congress has done a good job at not spooking the markets. If the markets believed that the Fed would be raising the interest rates, the economy could slip into another recession. Ben Bernanke has promised to keep interest rates "exceptionally low for an extended period of time." As we move past the point where recession is a concern, inflation and security bubbles become the next concern. We know the Fed is going to raise rates, but when and by how much? No one's knows that at all.(Spencer 2009)

The Main macroeconomics theory is: Classical-Keynesian synthesis

Keynesian - in the Short Run. Classical - in the Long Run. Difference between the two: Prices.

The GDP fell as much as 25% in the years following the great depression. If business at that time had had access to capital, much of the subsequent poverty and suffering could have been avoided. The fed needs to ensure that credit is available. It is like applying the brakes to a fast moving train. The harder you apply the brakes, the more you slow down. Prolonging a tight credit situation will slow down the economy too much, and it will take that much longer to regain the momentum

Easy Money Policy.

A policy by which a central monetary authority, such as the Federal Reserve System, seeks to make money plentiful and available on low interest rates. An easy-money policy is often pursued to encourageinvestment and economic growth. It can lead to inflation, however.(Tyler 2009)

References/Bibliography

Marcher, Spence, (2009, December, 8). Current Economic Situation vs. the Great Depression. Retrieved, December, 1, 2010 fromhttp://www.wtvy.com/home/headlines/29813759.html

Tyler, (March, 3). Global Recession. Retrieved, decmeber, 1 , 2010 fromhttp://www.armchaireconomics.com/2010/03/current-economic-situation-and-global.html