Minimum Wage Economies

As a Federal Reserve Chairman I will make sure to keep the inflation in check, I will use the monetary policy tools to raise the federal funds rate. To fight the recession I can cause the monitory tools to lower the federal funds rate. I will use this tool to conduct policy for the discount rate, reserve requirements, and add other means to its monetary policy, such as paying interests on reserve balances held at the Federal Reserve Banks. I will also use a number of temporary tools for a few years to fight economic weakness. Open Market Operation is another tool I would use, which consists of buying and selling U.S. government securities on the open market, I will then pay these securities by crediting the reserve accounts to the banks that sell the securities. When we buy these securities through the open market operations, it will be creating money. This additional money in the federal bank reserve will put pressure on the federal funds rate according to the principal of supply and demand, therefore causing the federal funds rate to fall, that leads to lower interest rates and encourage consumer and business spending, and therefore stimulating economy. I will set the discount rate above the federal funds rate target, so it would serve as a back-up source of funding for bank institutions. In many cases, banks borrow specifically to meet reserve requirements, they use this accounts to process many financial transactions through the Federal Reserve, such as check and electronic payments, and currency and coin services.

Explain what changes and fiscal policy implementation you would make

I would let economy self-regulate itself, and the government should recognize that the new peer-to-peer marketplaces have refined controls naturally built in. For example, Airbnb offers its traders a digital reputation system based on post transactions ratings and identity verification systems that include social networks such as Facebook or LinkedIn with existing government ID setup. By verifying identity lowers the risks of market failure by making users, both renters and suppliers feel safer, and transparent about space cleanliness to be less essential. The economic engine at work here of peer-to-peer marketplaces that is unlocking the hidden physical capital. Though self-policing isn’t universal solution. These private marketplace will still need government mandates to prevent them from effects such as congestion, for the Uber, Lyft and Sidecar that set uniform rates and track routes exactly using navigation technology, likewise, government mandated taxi fares and meters seems unnecessary. I think we should encourage the creation of new class of self-regulatory organizations that set and enforce regulations for peer-to-peer sharing marketplaces.

Justify why you would make the changes and how they would impact the macroeconomics

I would increase minimum wage from $7.25 to $15.00 an hour. This could put pressure on other lower paying jobs that pay a little bit more than the minimum wage. This will also cause prices to rise and businesses will attempt to protect profit margins. There will be a risk of raising minimum wage because some businesses might be forced to lower expenses, to maintain profit. Some businesses already have adequate profits existing and therefore it will not affect any margins and the owner might be willing or able to absorb the additional expense. Raising minimum wage would result in more money for hard working Americans and because this increase is still low, it would have very little effect on the U.S. economy. America is still the land of opportunity, so the minimum should be a stepping step in the career path to improve their opportunities. I will also encourage more people to get off welfare and get back to work.

Money Supply:

The U.S. money supply includes currency such as dollar bills and coins that is issued by the Federal Reserve System and the U.S. Treasury and other kinds of deposits held in banks and other depository institutions such as credit unions. Money can be that the Federal Reserve uses, it is a physical commodities, commonly silver or gold. Money can increase through lowering interest rates, which will encourage investment and gives consumers more money making them feel rich and then encourage them to spend it. However when money falls or when the rate of growth decline. Money supply when the Federal Reserve requires banks, and other financial institution to hold the deposit liabilities as reserves, such as in their vaults or ATM’s, the Federal Reserve will then control the reserves by lending money to banks and changing the Federal Reserve discount rate on the loans and by open market operations. Money supply is classified in as Ms, such as M0, M1, M2 and M3 and it is according to the account to which the instrument is kept. Coins and notes that are in circulations and other money that can be converted to easy cash is classified under M0 and M1. M2 includes M1 to long term deposits, M3 no longer included in the reporting to the Federal Reserves.

Economic productivity

Productivity is defined as a ratio between the output and input. The ratio of what is produced to what is required to produce it. It measures how efficiently production inputs, such as labor and capital, and how it is being used in an economy to produce a given level of output. It is considered a key source of economy growth and competitiveness. Gross Domestic Product (GDP) measures the market value of goods and services produced by a country. The measure was based on data from the Maddison project (Maddison, 2008; 2010; GDP data from Bolt & van Zunden, 2013). Labor is the most common factors in measuring productivity, the reason is that the large share of labour costs in the value of most products and the input is measured easily than others, such as capital. When productivity fails to grow, it will limit the advantage in gaining wages, corporate profits and living standards. Investment in an economy is the equal to the level of savings. At the corporate level, where productivity is a measure of the efficiency of a company’s production process, it is calculated by measuring the number of units produced relative to employee labor hours or by measuring a company’s net sales compared to the employee labor hours.

Fiscal policy is the structural balance and government consumption. The structural balance is the overall balance of the rise and fall of revenues, such as the cycle induced of income taxes and expenditures, especially in the social benefits that can be distributed by business cycle. It is also the difference between regularly adjusted revenues and adjusted expenditures. Recurring of fiscal policy refers to how fiscal is conducted over the business cycle, that is how governments use fiscal in response to economic reduction and expansions. Fiscal policy is in terms of the relationships between the cyclical components that is growth rates of governments consumption and GDP (e.g. Frankel, Vegh, and Vulentin 2013).

By changing the level of spending the government can directly or indirectly affect the aggregate demand, which is the total amount of goods and services in an economy. It is a governments act to influence an economy through taxation and spending. This policy is used when policy makers believe the economy needs outside help to adjust to the desired point. A government desire is to maintain steady prices, employment levels and a growing economy. Fiscal policy is also used to stimulate a slow economy or to slow it down if It is growing in a rate that that is getting out of control, that could lead to inflation. It takes time to recognize if there is a recession with fiscal policy because conditions will deteriorate before being noticed. At the same time fiscal policy takes time to implement due to legislative and administrative processes and policies will take time to show results after they are implemented.

 

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