COVID infections and hospitalizations are surging throughout eastern Asia, and governments in China, Japan, and Singapore are announcing extreme new lockdowns. Factories and ports are barely functioning, and in some cases are closing entirely, leading to major shortages in thousands of products - most notably the computer chips that are needed for everything from PCs and cell phones to cars and refrigerators. Meanwhile, Russia's invasion of Ukraine continues to drag on, causing massive disruptions to the global supply of Russian oil and Ukrainian wheat.
Back home in America, prices continue to rise, with the CPI in February up 8.5% over February of last year. Inflation isn't new, but now it appears those higher prices are finally starting to choke off economic growth. Economists say GDP, which grew only 1.4% last year, will actually start contracting this year, which would be terrible news for job seekers.
President Jenkins announced a plan to send $3000 rebate checks to every American taxpayer in order to stimulate more consumer spending. Fed Chairman Hal Kubrick likewise announced the Fed's intentions to keep interest rates near 0% to boost economic growth.
⦁ What problem is affecting this economy? Use an economics term to answer.
⦁ Provide and analyze 2 pieces of economic data that support your answer to #1
⦁ Analyze the plans announced by both President Jenkins and Fed Chairman Kubrick. What are they both trying to accomplish for this economy?
⦁ What would be the drawback to their policies?
⦁ Suppose President Jenkins announced that she would pursue a modest income tax increase, and Fed Chairman Kubrick announced he would raise interest rates. How would that combination of policies benefit the economy?
⦁ What would be the drawback to the policies described in #5?
⦁ Explain why the economy depicted in Scenario #2 is a very difficult one for policymakers to address. Reflect on your answers to questions 3-6 to help you discuss this.
The only economy problem choices should be one of the following recession, demand pull inflation, Cost push inflation or everything is fine.
Cost push inflation is affecting this economy.
Two pieces of economic data supporting this answer are the surge in COVID infections and hospitalizations in eastern Asia leading to major shortages in products, as well as the ongoing disruptions to the global supply chains due to the Russia-Ukraine conflict.
President Jenkins' plan to send $3000 rebate checks to every American taxpayer aims to stimulate consumer spending, while Fed Chairman Kubrick's decision to keep interest rates near 0% is to boost economic growth.
The drawback to their policies could be that the increased consumer spending may not be sustainable in the long run, and keeping interest rates low for too long can lead to asset bubbles and other distortions in the economy.
A combination of a modest income tax increase and a raise in interest rates could benefit the economy by potentially slowing down consumer spending and inflation, leading to a more stable economic growth.
The drawback to these policies would be that they could potentially slow down economic growth too much, leading to a recession.
The economy depicted in Scenario #2 is very difficult for policymakers to address because there are multiple complex factors at play, such as global supply chain disruptions, rising inflation, and slowing economic growth. Policymakers must carefully balance stimulating consumer spending with controlling inflation and ensuring long-term economic stability.