Fiscal and Monetary Policy and Term Paper

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Inflation remains low because of the seemingly unchanging rate of unemployment and income. In addition, the low inflation rate is associated with the slow economic activity during the winter months because of adverse weather conditions (Liu, 2014). One of the major reasons for the minimal changes in U.S. interest rates as compared to five years ago is the slow recovery in the housing sector. The housing sector continues to slowly recover from the effects of the 2008 global recession. This rate of recovery has had significant effects on the country economy as evident in the low interest rates.

Strategies to Encourage Consumer Spending:

The Federal Reserve can use fiscal and monetary policy to develop strategies that will encourage people to spend money in order to stimulate economic growth. One of these strategies, which is a fiscal policy initiative, is government tax cuts that enhances the buying power of consumers. Tax cuts encourage consumer spending by allowing families to keeping a huge portion of their income, which in turn creates opportunities to spend money on products and services. As individuals and families spend money on products and services, they help generate revenue that is beneficial to the country's economy. The second strategy is controlling the quantity and management of cash supply through the Federal Reserve. This is a monetary policy initiative that helps in managing interest rates and encourages consumers to buy products and services that they would not normally buy with higher interest rates.

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Controlling the quantity and management of cash supply contributes to lower interest rates, which lessens the cost of borrowing while encouraging consumer spending and investment (Pettinger, 2012).

The main impact of these strategies in enhancing economic growth is that they will help in lessening negative effects of economic activities on inflation rate, interest rates, and unemployment rate. Generally, these strategies help in generating beneficial revenue that can be for other purposes. The government can spend the generated revenues on infrastructure, which will in turn create more jobs and lessen unemployment. Lower interest rates can be achieved through managing cash supply in the country, which makes consumer spending more attractive. The targeted inflation rate can be achieved through cutting taxes and increasing government spending, because such measures provide an economic stimulus.

In conclusion, fiscal policy and monetary policy play a crucial role in the current economic situation because of their effect on economic activity. The role of these policies is attributed to the fact that they can be used to stimulate and slow down economic growth based on the existing market conditions. The current economic situation in the United States can be addressed through developing effective strategies based on fiscal and monetary policy......

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