Introduction
The document talks about the then president-elect’s Transitional team’s economic plan, that is, the $ 700-800 package which was proposed to stimulate economic growth in the United States of America. The plan has tax cuts as part of its components (Oxford Analytica, 2009).
This goes hand in hand with the Federal Reserve’s effort to reduce discount rates to almost zero in order to lower the borrowing rate in the country. Though the program is anticipated to fuel economic growth, there are some dangers associated with it. Some of the dangers are inflation resulting from the huge government spending expected in the $800 program.
Main body
The significance of the paper is that it analyzes the economic plan and the measures already taken by the Federal Reserve to deal with the anticipated deflation in the United States. It is important for economic policymakers and the Economic students who are future policymakers as it helps them to see the theories which they study are applied in the economy.
The paper compares the current situation in the USA economy with the situation that existed in Japan in the 1990s and which is almost similar to that in the United States of America. The government of Japan reacted swiftly to the situation and by the end of 2000 the economy was normalizing (Oxford Analytica, 2009).
The author talks about the countermeasures taken on the conditions in Japan (the deflation). This is because the situation can lead to a rapid fall in asset value in the United States including those assets taken as collateral for loans leading to banks re-checking their lending terms or risk having very huge amounts of bad debts. The economic plan is likely to raise the government debt but experts argue that the borrowing rate in the United States of America is small relative to that which was experienced in Japan. The American economy is also likely to suffer from inflation in case the economy will react to the plan and grow more than is anticipated. This is because the huge government costs may result in a rise in the aggregate demand in the economy. If this demand will out way the aggregate supply in the economy the result might be an augment in inflation. Such an increase may also be a result of an increase in the cost of labor as the manufacturers may rush to recruit more workers in order to raise their output due to the anticipated increase in demand in the economy (Oxford Analytica, 2009). The policy is generally aimed at increasing liquidity in the economy which in turn will increase the aggregate demand hence creating employment and taking the economy back to a boom.
The author’s point of view as seen in his conclusion is that the big stimulus package together Fed’s liquidity policy is going to give the economy a boost but care must be taken so that the economy’s reactions which might be with some risks like inflation and regular reviews of the economy must be undertaken to make sure that they do not produce unnecessary results in the economy. These effects might delay the likely economic growth as a result of the economic plan.
Conclusion
The article talks about macroeconomic variables like inflation, government spending, interest rates and the effects of their changes in the economy.
Reference
Oxford Analytica Ltd. (2009). The transition government’s economic plan. London: Oxford Analytica.