What are some other ways current monetary policy impact Actual Expenditure vs Planned Expenditure?

My article this week is  from CNBC. CNBC is typically considered a left-center bias company based on AllSides media bias ratings and the Media Bias Fact Check site. The article from CNBC highlights the recent demand deconstruction for gas in the United States due to rising gas prices in the United States. Demand deconstruction was defined in the article as persistently high prices or low supplies that lead to an overall drop in demand. There are a couple of factors impacting recent demands, with the pandemic keeping automobile travel higher than pre-pandemic due to limited use of public transit, while Russia’s war on Ukraine increasing prices, therefore decreasing demand.

This article is relevant overall to the course materials this week. The Ukraine war represents an economic shock, which was highlighted in the course work this week. The Russian war on Ukraine represents a shock to the economy that causes a push away from equilibrium. In our case, the aggregate demand curve would shift to the left due to the decreased demand over the last six months. In the long run, we would expect this to cause a price drop and the economy to move back into equilibrium. The article specifically called out potential policy changes to help with rising costs in the short run, such as a price cap on Russian oil and a push for US oil refineries to increase production. This week in class, we also learned about how policy makers can address shocks in the economy.

Discussion questions:

  • How does the scenario outlined in the linked article impact the quantity equation?
  • Do you think the approaches highlighted in the article (increased production in US refineries and price cap on Russian oil) would be effective? What are some other ways policy makers can help to move the economy back into equilibrium in the short run?
  • Article:Media Bias: Left-Cente
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  • Summary of Article: Towards the end of 2021, Fed Chair Jerome Powell, addressed and laid out the Federal Reserves plan to reduce inflation and prevent the economy from overheating. To do this, Powell made headlines by stating that the Fed would look to increase interest rates three times throughout 2022. The article also shares a little bit of the back story of how the Federal Reserve and the economy got to this point primarily due to the pandemic. In March 2020 the Fed lowered interest rates that made borrowing more accessible. To stimulate the economy, the Fed turned to a strategy that it took in 2008-2009 during the great recession by purchasing U.S Treasury Securities. However, throughout the pandemic and up until this article CPI had continued to grow leading to volatility of rising prices forcing the Fed to act on inflation.
  • Connection to Class: The connection to class here is how monetary and fiscal policy have an impact on the economy which can be seen in the IS-LM curve. Everyone has been impacted by the pandemic in some form or fashion, and while my article is from Dec of 2021 it is highly relevant to what is currently happening in our economy, as well as the impact to the global economy. Our text shares a case study of how the Obama administration increased government spending to stimulate the economy during the Great Recession (Mankiw, 2016). Although the Fed operates independent of the government, which some might debate, the Fed took a similar but more wholistic approach. The two main factors to take away from Fed enacting monetary and fiscal policy is 1) slashing interest rates making money cheaper, and 2) injecting money into the economy through it’s purchases. While income may not have risen to the extent that inflation has risen, early in the pandemic it allowed people to borrow more easily. This is especially true as it pertains to housing and vehicle costs increasing between 2020 and early 2022. In December, Powell announced 3 rate hikes for 2022, but are highly anticipated to increase rates for a fourth time in July. Rate increases have varied so far between 25 and 75 basis points with speculation that a fourth could be between 75 and 100 basis points (Cox, 2022). Now that interest rates are increasing there has been a lot of attention on banks. As spending decreases due to higher interest rates, in theory, savings goes up.Discussion Questions:
    1. Do you think the Fed rate hikes have been too aggressive, or not aggressive enough? What would you do if you were the Fed?
    2. What are some other ways current monetary policy impact Actual Expenditure vs Planned Expenditure?
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