After Reading The Article Listed Below, Use The Aggregate D

After reading the article listed below , use the aggregate demand aggregate supply model you learned in class to answer the following questions

After reading the article listed below, use the aggregate demand aggregate supply model you learned in class to answer the following questions: What are the major economic challenges faced by the United States today? How successful has the government been in addressing these challenges and what type of policies in your opinion are most effective and why? Source: “President Obama’s Post Election Economic Challenges.” The Economy Today News Flash (November 2012). You may use the link below to locate the article: Theguardian.com/world/2012/nov/Obama-four-more. Instructions: Use the APA format to write your paper and make sure that it is double-spaced and that it is between two and three pages in length. The paper should not be less than two pages nor more than three pages. You will have the opportunity to improve your initial grade by resubmitting your paper with the necessary changes based on comments and feedback provided on the first submission. The initial version is due on March 10; the final version is due on May 19.

Paper For Above instruction

The economic landscape of the United States presents numerous challenges that are complex and intertwined, particularly in the context of the early 2010s following the global financial crisis of 2008. The government’s responses to these challenges have varied in effectiveness, shaped by the policies implemented during this period. This paper employs the aggregate demand and aggregate supply (AD-AS) model to analyze the primary economic challenges faced by the U.S. and evaluates the success of governmental policies in addressing them, with recommendations on the most effective policy measures.

Major Economic Challenges Faced by the United States

Following the 2008 financial crisis, the U.S. economy grappled with high unemployment rates, sluggish economic growth, and persistent deficits. Unemployment peaked above 10%, reflecting significant slack in the labor market, and remained elevated for several years, indicating a slow recovery process (Bivens, 2012). The recession also caused a decline in consumer confidence and spending, which further weakened aggregate demand. Additionally, the economy faced issues with sluggish productivity growth and a large output gap—where potential GDP exceeded actual GDP—leading to underutilized resources (Krugman, 2012).

The rise in income inequality during this period further compounded economic challenges, as it dampened overall consumption and helped sustain economic disparities. Moreover, fiscal deficits expanded due to stimulus spending and declining tax revenues, raising concerns over long-term fiscal sustainability (Congressional Budget Office, 2012).

Government Responses and Their Effectiveness

The government responded with expansionary fiscal policies, including increased government spending and tax cuts designed to stimulate aggregate demand. The American Recovery and Reinvestment Act (ARRA) of 2009, for example, injected massive fiscal stimulus into the economy, aiming to boost consumption, investment, and job creation. These policies helped stabilize financial markets and supported economic growth, but their success was mixed. While they prevented a deeper recession and contributed to a modest recovery, unemployment rates remained high for several years, indicating that the policies fell short of restoring full employment (Blinder & Zandi, 2010).

On the monetary side, the Federal Reserve adopted an aggressive quantitative easing program to lower interest rates and promote lending. This expansion of the money supply helped lower long-term interest rates and supported asset prices, which in turn nudged aggregate demand upward (Bernanke, 2012). Nonetheless, the effectiveness of these policies was limited by structural issues in the economy, such as tightened credit standards and weak business confidence, which hampered investment and hiring.

Recommended Policies and Their Rationale

Considering the limitations of the policies implemented, a combination of monetary and fiscal strategies seems most effective. To stimulate aggregate demand further, targeted fiscal policies that focus on infrastructure investment and education can create jobs and enhance productivity. Infrastructure projects not only improve long-term economic potential but also have a multiplier effect on short-term demand (Owyang, Ramey & Wall, 2013). Additionally, programs aimed at reducing inequality, such as increased minimum wages and enhanced social safety nets, can boost consumption and reduce economic disparities.

Complementing fiscal measures, structural reforms such as tax reform to incentivize investment, easing burdens on small businesses, and removing regulatory bottlenecks can foster a more conducive environment for economic growth. Monetary policy should continue to support demand through low-interest rates and asset purchases but should also be attentive to preventing asset bubbles and ensuring financial stability.

In conclusion, while governmental policies since the 2008 crisis have mitigated some of the economic downturn's worst effects, more targeted and comprehensive approaches are necessary to return to full employment and sustainable growth. The combined use of fiscal stimulus focusing on infrastructure and social programs, along with accommodative monetary policy, offers the best prospects for overcoming current economic challenges.

References

• Bernanke, B. S. (2012). The Federal Reserve and the Financial Crisis. Princeton University Press.
• Bivens, J. (2012). The lingering effects of the Great Recession on U.S. unemployment. Economic Policy Institute.
• Blinder, A. S., & Zandi, M. (2010). How the Federal Reserve and the Treasury rescued the economy. The Center on Budget and Policy Priorities.
• Congressional Budget Office. (2012). The Budget and Economic Outlook: Fiscal Years 2012 to 2022. CBO.
• Krugman, P. (2012). End This Depression Now! W. W. Norton & Company.
• Owyang, M. T., Ramey, V. A., & Wall, H. J. (2013). The Effectiveness of Federal Fiscal Policy: Reexamining the Evidence. Journal of Economic Perspectives, 27(4), 97–122.
• President Obama’s Post Election Economic Challenges. The Economy Today News Flash. (November 2012). Retrieved from https://theguardian.com/world/2012/nov/2012/nov/Obama-four-more
• Krugman, P. (2012). End This Depression Now! W. W. Norton & Company.
• Additional scholarly articles and reports on U.S. economic policy and its impacts.