<Goals>
Our ultimate goal for the current unprecedented unemployment crisis is to recover from the recession caused by Covid-19 by shifting the U.S.’s aggregate supply to right without requiring a considerable amount of government spending. For a better approach to this goal, the US government should eliminate the possibility of future inflation that might be out of the government’s control, caused by excessive government spending. Thus, our team’s alternative policies aimed to reduce the unemployment rate to the natural rate, at the same time, minimize government spending.
<Alternative policies>
The US is putting great effort into various aspects with almost every economical strategy, typically a massive amount of government spending. However, (((according to the business cycle, a recession entails afterward inflation as the business cycle fluctuates and sometimes triggers hyperinflation due to an inexorable increment of aggregate demand from excessive government spending which causes soaring price levels. Additionally, although the effect of humongous government spending wasn’t apparent until now, the improving condition of this worldwide crisis will eventually reduce people’s intimidation towards future social activity. The resume of regular market operation will soon result in inflation because consumption will surge as the originally unused money supply is being used suddenly, to a rapid degree.
In order to avert unexpected inflation and the formidable aftermath of the government’s deficit spending, the government should minimize its expenditure until the government spending can approach the most efficient point according to the degree of the Coronavirus pandemic and people’s spending tendency, which will be a determinant of aggregate demand.
According to the relation of the Phillips curve and the AS, AD curve, the current situation of the US recession moved the point from a to a’ (graph 1), which is below the initial interest rate and higher unemployment rate. Our alternative policies are concentrated on the factors that shift the AS curve, while irrelevant to the shift of the AD curve in the short term. Because Covid-19 caused quarantine unemployment, the AS curve is a prominent component in this situation. These policies have a high possibility to shift the unemployment rate back to the natural unemployment rate and simultaneously prevent excessive inflation by means of reducing the inflation rate (graph 2-point b). For the rise of AD, our team propounds to increase the net export, not the government spending, with the international agreement upon trading.
To be specific, efficient alternative policies that our team suggests are to harness minimum wage and relax the labor market regulation, in order to shift the AS curve to the right, and also shift the Phillips curve to the left, and therefore, ultimately mitigating the unemployment crisis. Decreasing the minimum wage will lead to the demand for the labor market going up. The result of this policy enables the unemployed population to get hired, in other words, it decreases the unemployment rate. Moreover, reducing the market regulation could have a similar effect to alter the minimum wage, which increases the aggregate supply. Minimum wage and market regulation do not require government spending like fiscal policy, thus it contributes to manipulating the inflation rate, and further facilitates the government to control the price level in the future.
<Conclusion>
In conclusion, considering all of these COVID-19 crisis’s impacts and the U.S. government’s measures, in order to mitigate the recession, shifting aggregate supply to the right and stimulating aggregate demand to the most suitable and efficient level according to the COVID-19 progress’s impact to citizens and the market regulation is the key strategy. These are going to retrieve a stable economic status and proper inflation. Therefore, we believe that combining the alternative policies and current US policies will provide a decent method to revive the US economy from unemployment.
<Reference>
1) COVID-19 Impact on US Spending, www.1010data.exabel.com/covid-19/.
Goldman, David. “Federal Reserve Cuts Rates to Zero to Support the Economy during the Coronavirus Pandemic.” CNN, Cable News Network, 16 Mar. 2020, edition.cnn.com/2020/03/15/economy/federal-reserve/index.html.
2) Principles of Macroeconomics: Mankiw. Academic Internet Publ., 2007.
3) “The Disorder of Things: Quarantine Unemployment, the Decline of Neoliberalism, and the Covid-19 Lockdown Crash.” Taylor & Francis, www.tandfonline.com/doi/full/10.1080/00131857.2020.1759190
4) “United States Fed Funds Rate1971-2020 Data: 2021-2022 Forecast: Calendar.” United States Fed Funds Rate | 1971-2020 Data | 2021-2022 Forecast | Calendar, tradingeconomics.com/united-states/interest-rate.
5) US Census Bureau. “National Population Totals: 2010-2019.” The United States Census Bureau, 26 Mar. 2020, www.census.gov/data/tables/time-series/demo/popest/2010s-national-total.html.
Writer: Michael Wu
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