Question
Please explain the following: Consistent and sustainable GDP growth is necessary for the wellbeing of everyone in the economy, including consumers and investors. A healthy
Please explain the following:
Consistent and sustainable GDP growth is necessary for the wellbeing of everyone in the economy, including consumers and investors. A healthy economy typically has a low or "normal" unemployment rate and moderate inflation rate. High unemployment rate usually is a result of a slow down in economic activities (recession). On the other hand, high inflation rate is a result of high GDP growth that is above the country's potential GDP growth. In such, achieving a healthy balance in the economy where unemployment rate is low and inflation rate is moderate is the primary goal of the government in any economy.
However, the economy is never perfect. Meaning that some events in the economy might cause the balance in the economy to disrupt. Take for example natural disasters, civil unrest, fluctuating stock or housing market, drought, low consumer confidence, sudden rise or decline in population, and/or sudden change in the price of intermediary commodity, such as oil or coal, that most industries rely on. All these changes will result in either or high unemployment and high inflation rates.
To fix the disruption in the economy, governments take actions to stimulate aggregate supply through stimulating aggregate demand. A rise in aggregate demand leads to a rise in aggregate supply, thus higher demand for labor and lower unemployment rates.
In June of 2020, GDP growth rate in the USA from the previous quarter was -31.4%, unemployment rate was 7.9%, and inflation rate was 0.62% as of August of 2020.
Do you think the government needs to intervene to fix any of these indicators? If so, what policy you think is more appropriate, fiscal policy or monetary policy? And why?
Thank you
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