ECOCB/535: The Digital Economy Competency 2 - Reflection

The Digital Economy

Shemeko Hopkins

ECOCB/535

11/02/2021

Federal Reserve

Changes in the Federal Reserve's monetary policy have an impact on all components of the

economy in one way or another, depending on the nature of the policy shift. For example, when

inflation is the primary concern, the restrictive monetary policy is implemented. This

modification causes the money supply to decrease, as well as investment expenditure to

decrease as a result of this adjustment. This limitation policy, in particular, must be handled

with care since it has the potential to drive the nation into a recession if implemented

incorrectly. The expansionary monetary policy is the polar opposite of the restrictive monetary

policy in every way.

Interest rates are influenced by the Federal Reserve, which has an impact on interest-sensitive

spending such as company capital expenditures on plant and equipment, household

expenditures on consumer durables, and residential construction. A further consequence of

differences in national interest rates is that money flows into and out of nations, affecting the

exchange rate between foreign currencies and the dollar, which in turn has an impact on

expenditure on both exports and imports. In the near term, monetary policy may be used to

either promote or slow aggregate expenditure via these channels. Inflation is mostly influenced

by monetary policy in the long term. Prices are more transparent when inflation is low and

consistent, allowing for more smart economic choices to be made as a result. Many economists

have defended the Federal Reserve's relative independence from Congress and the

Administration on the grounds that it lowers political pressure on the central bank to make

monetary policy choices that are inconsistent with the long-term goal of maintaining stable

inflation levels. However, independence decreases the Fed's responsibility to Congress and the

Administration, and the President's recent criticism of the Fed has raised questions about the

appropriate balance between the two institutions (Labonte & Makinen, 2008).

Contrary to popular belief, the Federal Reserve's countercyclical monetary policies have been

successful in reducing fluctuations in the economic cycle. The reason I believe they have been

successful is because they have raised interest rates in order to halt the path of debt

accumulation. This benefits both enterprises and families, and lowering interest rates has the

added benefit of reducing the number of bankruptcies in the country. I think that, despite their

shortcomings, these solutions contribute to the larger good and attempt to mitigate the impact

of the disaster.

Government Intervention

The Steel Industry and President Truman

During the Korean War, contract discussions between the United Steel Workers and steel

manufacturers were increasingly tense. Former President Harry Truman intervened to take

control of the steel sector in order to avert a strike. The decision was met with widespread

opposition. As reported by the Miller Center for Public Affairs, 43 percent of respondents

questioned stated they were opposed to the high amount of government participation in the

situation. The United States Supreme Court ruled that Truman's proposal was illegal; the steel

industry became once again a privately owned enterprise, and steelworkers went on strike for

53 days. According to an editorial in Life magazine from April 1952, Truman "demonstrated

appalling prejudice in a severe industrial dispute, and he stretched his own constitutional

powers to perilous and quite needless lengths" during the Korean War.

The Oil Crisis during Nixon's Presidency

President Richard Nixon implemented the New Economic Policy between 1971 and 1973,

which required that salaries and prices be frozen for a period of 90 days in an attempt to battle

inflation in an effort to combat inflation. Inflation returned as a serious concern when the

measures were removed, despite the fact that it seemed to have had a stabilizing impact

initially. Despite the fact that Nixon implemented the restrictions again, this time in part as a

result of the OPEC oil embargo, they were ineffective this time.

"Ranchers stopped delivering their livestock to the market, farmers drowned their poultry, and

customers cleared the shelves of shops," Daniel Yergin and Joseph Stanislaw wrote in their

novel The Commanding Heights. The price limitations on oil were maintained after Nixon's

resignation four months later, and the United States started to attempt to wean itself off its

reliance on foreign oil supplies by expanding domestic exploration and production. Even yet,

the stock market of the 1970s was a disaster, with some stocks losing as much as 40% of their

value in a single 18-month period.

When the government intervenes with potential help during a recession in an economic crisis

there will be ramifications. The nature and intensity of such impacts does rely on the sort of aid

and economic issue that is being acted on. Sometimes these repercussions might have a

negative influence on the economy, disastrous for us as individuals but our government views

them as building stones. “A important aspect of preparing for the next recession is ensuring

sure fiscal policy institutions are ready to give assistance when required to limit the harm the

next recession might wreak. ” syour errors and that is precisely what the government does to

assure reducing future mistakes during a recession. Easy for them to say, since they are not the

ones coping with the emotional agony of it. For an economy to maintain developing and be

affluent there must be certain procedures that need to be done to guarantee that the

governments aims stay on track. If the government wants to succeed, they have need to stop

caring about particular categories of people and concentrate more on individuals. You cannot

afford to make any errors or fail in any manner while dealing with millions of persons lives

since the consequences may be more terrible than anybody could ever conceive. Now I am not

claiming the government has handled everything flawlessly or never made any errors, but our

economy is still working thus, by that aspect alone, we can establish that the government hasn’t

failed (Tahoun & Van Lent, 2013).

References

Labonte, M., & Makinen, G. E. (2008, December). Monetary policy and the Federal Reserve:

current policy and conditions. Congressional Research Service, Library of Congress.

Tahoun, A., & Van Lent, L. (2013). The personal wealth interests of politicians and

government intervention in the economy. Review of Finance, forthcoming.