Economic Analysis Julian Bregstone

Right now the U.S. economy is on the rise but many economic indicators show that it is not where it needs to be. In 2008 the economy tanked, mainly because of t he explosion of the 8 trillion dollar housing bubble. Right now the economy is g etting better but is still not fully healed. The Gross Domestic Product is one o f the best indicators of how our national economy is doing. The uptick in GDP fr om Q3 of 2012 to Q3 of 2013 was only 1.8%. A healthy economy usually grows 2.5% to 3.5% per year. The unemployment rate has gone down to 6.7% after reaching 10. 1% in 2009. Ideally, unemployment should be around 3%. Inflation is the percent increase in the general level of prices. Inflation is at 1.5% which is just abo ut where it should be. In 2008 it reached 5.6% then dropped to -2.1% in 2009 (Ft e.org). In order to strengthen the U.S. economy, the federal government should u se all the tools at its disposal, monetary and fiscal. The three most appropriat e and effective changes the government can make today are raising the minimum wa ge, increasing taxing and spending, and raising the federal interest rate. Raising the minimum wage can positively affect our economy in many ways. If bus inesses pay their workers more, because of the higher minimum wage, the workers will make purchases that put the money right back into the economy, boosting loc al businesses and creating an upward spiral (adding new jobs which adds even mor e money and encourages business to expand). This is an example of fiscal policy. Fiscal policy is the government changing taxation and spending to affect the ec onomy (Econlib.org). Raising the minimum wage could increase inflation, however, inflation can be fixed by simultaneously raising the federal interest rate (mon etary policy). One of the top stories on Whitehouse.gov is about the positive ef fects of raising the minimum wage. For workers and their families, it provides a boost to their income that both helps them make ends meet and increases spending in the broader economy(Whitehouse.gov). If the federal minimum wage is raised to more than $10 an hour, from its current $7.25, it would not only help people wh o are struggling to support their families but it would increase the money suppl y, theoretically boosting our economy. If Congress increases taxes and spending (fiscal policy) at the time, the econom y would benefit in many ways and the debt would decrease. Increasing taxes will bring in more money and reduce the need to borrow from other countries. It will also allow the government increase spending. If spending is increased significan tly, businesses can expand and hire, adding to the economy and decreasing unempl oyment. If we were only to increase taxes on people with household incomes over $250 thousand dollars, more jobs could be created, spending could be increased a nd middle class families would not be negatively affected. The Federal Reserve has many monetary tools to grow the economy. The most powerf ul way the Federal Reserve can impact the economy is by increasing the reserve r equirement. This is the percentage of a commercial bank's deposits that have to be held by the Federal Reserve (Federalreserve.gov).This would not by the best thin g to change because when the reserve requirement is changed even the slightest a mount the economy can suffer greatly. Raising the federal interest rate is the b est tool for stopping inflation. Federal interest rates are decided by the Feder al Reserve. If the government raised the minimum wage and simultaneously raised the federal interest rate the economy would still grow but inflation would stay steady. Raising the federal interest rate is essentially increasing the interest on a loan from the government. This also increases the cost of the federal debt , and it can discourage people and businesses from taking loans, growing and inv esting in the economy. This is the best way to keep inflation constant because i t is easy to change quickly therefore not having a drastic, long-term effect on the economy. Another way the federal government can fuel economic growth is to b uy treasury bills. T-bills are like investing in the government. This is appeali ng to investors because it is relatively risk free. This is also controlled by t

he Federal Reserve but it is the least powerful way to positively affect the eco nomy. With quantitative easing the Federal Reserve buys back T-bills to put more money into the economy which lowers interest rates. Lower interest rates will c ause an upward spiral that will grow our economy. In buying T-bills and increasi ng the money the federal government has, the government is able to spend more an d start paying off the debt. A single T-bill can be bought by the government and can put $1,000 to $5,000,000 into the economy. This will decrease unemployment and increase the GDP and will boost the economy just enough but keeps the econom y from declining. All of these tools are part of monetary policy. The government has many powerful tools to help stimulate our economy. Cu rrently, our economy is growing but not at a healthy rate. In particular, unempl oyment is close to 6% but a 3% unemployment rate is needed to have a healthy eco nomy. On the monetary side, the best ways of growing the economy lie with the Fe deral Reserve. On the fiscal side, other helpful tools include using taxes and s pending to our benefit. Increasing the minimum wage would also increase the mone y supply and grow our economy to where it needs to be.

Work Cited fte.org. N.p., n.d. Web. 2 Feb. 2014. <http://www.fte.org>. whitehouse.com. N.p., n.d. Web. 2 Feb. 2014. <http://www.whitehouse.gov>. econlib.org. N.p., n.d. Thu. 27 Feb. 2014. <http://www.econlib.org>. federalreserve.gov. N.p., n.d. Thu. 27 Feb. 2014. <http://www.federalreserve.gov >.

Bibliography fte.org. N.p., n.d. Web. 2 Feb. 2014. <http://www.fte.org>. Whitehouse.com. N.p., n.d. Web. 2 Feb. 2014. <http://www.whitehouse.gov>. National Review. N.p., n.d. Web. 2 Feb. 2014. <http://www.nationalreview.com>. econlib.org. N.p., n.d. Thu. 27 Feb. 2014. <http://www.econlib.org>. federalreserve.gov. N.p., n.d. Thu. 27 Feb. 2014. <http://www.federalreserve.gov >.

Critical evaluations of websites

<http://www.fte.org>. Foundation for Teaching Economics Created by Foundation for Teaching Economics Yes because it is a website you showed us and is an organization devoted to teac hing economics. Secondary 2013 Excellent for the assignment <http://www.whitehouse.gov>. the White House President Barack Obama Created by The White House Washington Yes because it is the official website of the White House. Secondary 2014 Good basic information <http://www.nationalreview.com>. National Review Online Created by National Review Online Yes because it is a major news source. Secondary 2014 Use with caution <http://www.econlib.org>. Library of Economics and Liberty Created by Liberty Fund, Inc. Yes it is a trustworthy organization that is generally unbiased. Secondary 2014 Good basic information <http://www.federalreserve.gov>. Yes it is trustworthy because it is the official site of the Federal Reaserve. Primary 2014 Good basic information