Economic Strategies to Deal with Problems

Readers Question: how do countries solve their economic problem?

The question is rather open ended. Firstly we have to consider what are the main economic problems facing an economy? For example, in this essay, I looked at some of the problems facing the US economy 

In no particular order, the main problems involve:

• Recession
• Unemployment
• Inflation
• Government Borrowing
• Current Account deficit
• Housing Market

If we took the main problem facing the US economy, it would probably be, at the moment, the likelyhood of recession. To solve a downturn in the economy the government could try using demand side policies. These would involve.

Fiscal Stimulus Package.

This is an example of expansionary fiscal policy. By cutting taxes, it is hoped that people will spend more money, increasing consumer spending and therefore, Aggregate demand. However, there are many problems of a fiscal stimulus package 

Cut Interest Rates

The federal reserve has cut interest rates by 1.25% recently. This is an example of expansionary monetary policy. By cutting rates it is hope that homeowners will have more disposable income and there will be less loan defaults.

See: Monetary Policy

Alternatively, the government may seek to use supply side policies to try and increase the long term competitiveness of the UK economy. See: Supply side policies