The Economy, Monetary Policy and Monopolies

Contrary to popular belief that the American economy is strong, the economy is affected by many factors as indicated by the rise in the number of houses being sold in the recent years. One of the factors that indicate the economic strength of the country is the rate of unemployment which has been rising in the recent years. From a rate of 4.5% in 2007 to the present 8.1%, the unemployment level in the country is directly linked to the rate of inflation in the country which has also been rising (Friedman, 2009).

The rate of inflation is influenced also by the monetary policy which determines the rate at which capital and labor markets are pushed further than their capacity in order to reduce the effects of inflation. Through policies put in place by the federal government to put inflation in check work through factors such as the fluctuation in lending interest rates to commercial banks by the Federal Reserve Bank.

There are various ways in which the government can reduce unemployment while also increasing federal spending. Such ways include: formulation of new programs or program improvements to replace existing programs which waste federal revenues collected through taxes; ensuring safety and accountability in the transport network, and preventing monopoly in the business sector. Accountability in the transport sector is bound to result in greater investment in the sector which automatically implies that more jobs will be created.

It is reported that monopoly has the potential for discouraging innovativeness, avoidance of efficiency and the possibility of suffering from the diseconomy of scale which is experienced by monopolistic firms in the long run. Without monopoly, customers have the opportunity to discuss issues pertaining to discounts in their dealings (Stephanie & Martin, 2005). All these factors affect the economy negatively hence resulting in increased rate of unemployment.

References

Friedman, B. (2009). Monetary Policy. International Encyclopedia of Social and Behavioral Sciences, Pages 9976-9984.

Stephanie and Martin (2005). Optimal Fiscal and Monetary Policy under Imperfect Competition. Journal of Macroeconomics, 26, 2, 183- 209.

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