Week 6- You Decide Assignment

In order to come out of recession, the policy makers should follow the right mix of policies. These policies include both the fiscal policy and monetary policy and also the supply side policies. An economy should take care of all the issues such as recession, rising budget deficit, rising inflation. According to economic consultant 1, interest rates should be lowered so that investment increases and hence reduction in unemployment takes place. He is quite right in his policy recommendation but decrease in interest rates implies increase in money supply.
Increase in money supply in the economy leads to increase in inflation level. So, economy can come out of recession at the cost of increasing inflation. I somehow disagree with advisor 2. Although it is very necessary to reduce fiscal deficit by increasing taxes and reducing government expenditure, contractionary fiscal policy alone can lead to increase in unemployment. Hence the ongoing recession is intensified.
The 3rd consultant is also not correct in his approach. According to him, Fed should sell bonds in market and raise the bank reserve requirement. This according to him will increase the money supply, but the reality is that all this will reduce money supply in the economy and hence it will increase unemployment. Now coming to consultant 4 recommendations, both expansionary fiscal and monetary policy will certainly reduce unemployment. I like her suggestions and do agree with them. I think lowering taxes would definitely help a lot especially the people. The government should increase their rather keep taking from the people to clean up their own mess. Besides that it would help put the economy back into gear and lower the unemployment rate. This is very necessary to do at this point and time before things get