Table of Contents

1.0 Introduction -------------------------------------------------------------------------------------------------- 1

2.0 Analysis of Article ------------------------------------------------------------------------------------------ 1
3.0 Key Concepts of Fiscal and Monetary Policies ---------------------------------------------------- 3
4.0 References

------------------------------------------------------------------------------------------------ 4

5.0 Appendixes -------------------------------------------------------------------------------------------------- 6

Summary
This paper will briefly discuss about the U.S. unemployment rate, interest rate and inflation.
With regards to the attached article, the macroeconomic progress of the United States will
also be discussed, including the countrys recessionary economy which leads to the
existence of unemployment. The link between the economys recession and unemployment
will also be analyzed. Further, the paper then goes on to discuss about the key concepts of
fiscal and monetary policy.

1
Introduction
Over the recent years, the United States has been finding ways and means to improve the
unemployment rate which has always been fluctuating significantly in response to the
disparity in the national economic growth. In 2010, an estimation of 9.9 percent, a recordhigh since 1983, of the countrys workforce were found to be unemployed and the length of
unemployment computed to an average threshold of about thirteen weeks (Reddy, 2010).
Today, only an estimated 5% of the labor force in the United States remains unemployed
(Harlan, 2016)
Since 1971 till date, the interest rate in the United States has been held at an average of
5.93% (Federal Reserve, 2016). Today, the economys interest rate is fixed at 0.25% (Greg
Robb, 2016). According to Mike Periu (2011), in order to deduce the interest rate, the
authorities are first divided into two groups, the Board of Governors of the Federal Reserve
(Board) and the Federal Open Market Committee (FOMC). Upon submission of
recommendations by the Federal Reserve Banks, the Board then decides on changes in
discount rates (Amadeo, 2015). On the other hand, the FOMC makes decisions on open
market operations which includes the desired levels of the central bank money or the desired
federal funds market rate (Croushore, 2006).
The economys inflation rate reached a bottom-end of 0.0% over the last six months, ending
in December. (Enna, 2016). This was due to the fall of gasoline prices as well as new vehicle
prices. However, it is predicted by Feds Robert Kaplan that the inflation rate will rise to
about 2.0% by end of 2016 (Delgado, 2016).

Analysis of Article
The article U.S. Unemployment Drops to 6-Year Low portrays a timeline of the U.S.
unemployment rate dated 2004 to 2014. In October 2009, the unemployment rate reached a
record-high of 10.0% during the 10 years. However, ever since it reached its peak in 2009,
the unemployment rate took a dive. In December 2014, unemployment rate hit a 6-year low
at about 5.6%.
In order to be able to analyze this article, it is necessary to find out how the unemployment
rate is calculated. The unemployment rate can be calculated by totaling the number of
jobless people and dividing it against the total number of people in the U.S. who are working
or are looking for a job (Gongloff, 2013). When there is fall in both of those numbers, even if
fewer people are employed, the jobless rate decreases.

2
One of the biggest concern is when unemployed citizens give up looking for work due to
various reasons such as discouragement and low motivation. When one leaves the labor
force, it can be difficult for them to eventually find work. This was at least part of the reason
for the fall in employment rate after October 2009 (Izzo, 2014).
One other way to find out if the citizens in the United States are giving up is by looking at
broader measure of unemployment, known as the U-6 (Dolan, 2013). The U-6 includes
two groups of people that the U-3 does not. Firstly, it includes marginally attached
workers (McMahon, 2016). This refers to people who are not actively looking for a job but
they have either indicated that they are interested in looking for one or have tried looking for
one(but to no avail) sometime in the past one year. This group also includes discouraged
workers who have given up on finding a job. The U-6 also includes people who are
interested in full-time jobs but due to economic reasons, they can only settle for part-time
jobs. It can be suggested that the labor market is weak if the U-6 is steady but the main rate
is falling. However, if both are falling altogether, it could be a sign that there might be other
broader trends (Sherk, 2011).
In 2014, United States, the worlds largest economy, ended the year with a robust growth in
hiring and a steady drop in unemployment, arousing optimism that a recession breakout was
nearing (Morath & Leubsdorf, 2014). A recession breaks out when there are two or more
consecutive quarters of negative GDP growth. This also means that the economy will face a
sluggish growth during a recession. During a recession, mostly all businesses sales and
revenues are decreased and this could cause the businesses to stop expanding. When
demand falls, businesses will start to report their losses, cut cost in various ways such as
reducing wages and even retrenching workers. This eventually leads to an increase in
unemployment rate.
When there is a decrease in the GDP, firms that are not resistant to recession will report
losses, causing some of them to declare bankrupt, resulting in a massive retrenchment of
workers and therefore, increasing the countrys unemployment rate.
The effects of recession can snowball and worsen the recession. When a recession occurs,
there is a tendency to retrench workers. A massive layoffs of workers and a scarcity of job
opportunities could lead to consumers spending lesser (Rodgers, 2015). In return, this
tightens the money supply. This eventually leads to a decrease in the demand of goods and
services as well as consumer spending. Ultimately, the tumble in demand decelerates the
growth rate of the economy, which, in turn, could affect the non-recession-proof business to
suffer greater losses (Shukla, 2009).

3
Key Concepts of Fiscal and Monetary Policies
In macroeconomics, fiscal policy can be defined as the use of taxes and government
spending by the government to influence the economy. The implementation of a fiscal policy
brings about two levers; changing the levels of taxation or/and changing its level of spending
(Daly & Farley, 2004). Fiscal policy can be categorized into three components, mainly the
neutral policy, expansionary policy and lastly, the contractionary policy. The neutral policy is
usually undertaken when an economy is in equilibrium (Hallett, Hagen & Lewis, 2003). In this
case, government spending is fully funded by the countrys tax revenue and hence, having a
neutral effect on the economys activities level. According to Gravelle and Hungerford
(2013), the expansionary policy takes into place during periods of recessions to increase the
level of economic activity. In this case, the government spends more than the taxes it
collects. Contractionary policy is usually brought into play in order to pay government debts
and to cap inflation. In this instance, the government spending is lower than the tax revenue
(Deist, 2011).
Monetary policy in macroeconomics refers to policy actions that the central bank takes in
order to influence the monetary and financial conditions of an economy (Hossain, 2009).
Monetary policy aims to achieve single or multiple objectives. Some examples of single
objectives can be low and steady inflation. Multiple objectives refers to interest and
exchange rate, etc.

4
References
Amadeo, K. (2015, March 21). How Are Interest Rates Determined? About News. Retrieved
from http://useconomy.about.com/od/interestrateindicators/p/interest_rate.htm
Croushore, D. (2006). Money and Banking: A Policy-Oriented Approach (pp. 306-356).
Cengage Learning.
Daly, H. & Farley, J. (2004). Ecological Economics: Principles And Applications (pp. 211243). Island Press.
Delgado, I. (2016, January 12). Fed's Kaplan: Confident US inflation will rise to 2% by end of
2017. FXSTREET. The Forex Market. Retrieved from
http://www.fxstreet.com/news/forex-news/article.aspx?storyid=0007a320-79c8-42f8a62d-c5888774b647
Diest, C. (2011). The Role of Contractionary Monetary Policy in the Great Recession.
Dolan, E. (2013, September 16). What Does the U-6 Broad Unemployment Rate Really Tell
Us? EconoMonitor. Retrieved from
http://www.economonitor.com/dolanecon/2013/09/16/what-does-the-broadunemployment-rate-u-6-really-tell-us/
Gongloff, M. (2013, July 19). The Official Unemployment Rate Is Wrong, Says Guy Who
Used To Calculate It. The Huffington Post. Retrieved from
http://www.huffingtonpost.com/2013/07/19/unemployment-ratewrong_n_3619152.html
Gravelle, J., & Hungerford, T. (2016). Can Contractionary Fiscal Policy Be Expansionary?
(1st ed., pp. 1-18). Retrieved from https://www.fas.org/sgp/crs/misc/R41849.pdf
Hallet, A., Hagen, J. & Lewis, J. (2003). Fiscal Policy in Europe, 1991-2003: An Evidencebased Analysis (pp. 45-56). Centre for Economic Policy Research.
Harlan, C. (2016, January 8). U.S. added 292,000 jobs in December; unemployment rate
steady at 5 percent The Washington Post. Retrieved from
https://www.washingtonpost.com/news/wonk/wp/2016/01/08/u-s-to-releasedecember-jobs-data/
Izzo, P. (2014, May 2). Why Did The Unemployment Rate Drop So Much? The Wall Street
Journal. Retrieved from http://blogs.wsj.com/numbers/why-did-the-unemploymentrate-drop-so-much-1341/

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McMahon, T. (2016, January 8). What Is U-6 Unemployment? Unemployment Data.
Retrieved from http://unemploymentdata.com/unemployment-rate/what-is-u-6unemployment/
Morath, E. & Leubsdorf, B. (2014, December 23). U.S. Economy Posts Strongest Growth in
More Than a Decade. The Wall Street Journal. Retrieved from
http://www.wsj.com/articles/u-s-third-quarter-gdp-revised-up-to-5-0-growth1419341481
Periu, M. (2011, July 14). How The Federal Reserve Sets Interest Rates. American Express
Company. Retrieved from https://www.americanexpress.com/us/smallbusiness/openforum/articles/how-the-federal-reserve-sets-interest-rates/
Reddy, S. (2016, May 7). Why Did the Unemployment Rate Rise? The Wall Street Journal.
Retrieved from http://blogs.wsj.com/economics/2010/05/07/why-did-theunemployment-rate-rise/
Robb, G. (2016, January 20). Traders seem certain Federal Reserve wont raise interest
rates again this year. MarketWatch. Retrieved from
http://www.marketwatch.com/story/fed-now-seen-as-one-and-done-in-2016-2016-0120
Rodgers, B. (2015, August 25). The Snowball That Can Kill The Global Economy And Cause
A New Recession. Preppers Will. Retrieved from http://prepperswill.com/thesnowball-that-can-kill-the-global-stock-market-and-cause-a-new-recession/
Sherk, J. (2011, September 1). How Congress Can Support, Not Hinder, Labor Market
Recovery The Heritage Foundation. Retrieved from
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Shukla, A. (2009, August 1). Top 5 major Economic Effects of Recession on Economy.
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Calendar. Retrieved 23 January 2016, from http://www.tradingeconomics.com/unitedstates/interest-rate

6
Appendixes
U.S. Unemployment Drops to 6-Year Low
Source: http://www.voanews.com/content/us-unemployment-drops-to-six-yearlow/2591839.html

U.S. Unemployment Rate: Monthly, Jan. 04 Dec. 14

The U.S. unemployment rate dropped two-tenths of a percentage point in December to a

six-year low of 5.6 percent, the Labor Department said Friday.
A report from the department said the economy had a net gain of 252,000 jobs. Updated
information also showed job gains in October and November were larger than first thought.
Both December figures were better than most economists had predicted and capped the
strongest year of job growth in 15 years.
Job gains were spread across all sectors: in professional and business services; in
construction and retail; and in federal, state and local government.

7
The one sour note involved wages. Average hourly earnings fell 5 cents in December,
eliminating wage gains from the previous month. Ahu Yildermaz who heads the research
division at payroll processing firm ADP, said that "to sustain the job growth in the economy,
we need to get better wages."
Yildermaz said lower oil prices should help give consumers more disposable income.
Other external factors including economic weakness in Europe and Japan could still have an
impact on U.S. growth. But analyst Mark Hamrick of Bankrate.com said unemployment is
likely to stay low in 2015 with job growth above 200,000 each month.
We do expect the unemployment rate will continue to remain in that mid-to-low-5 percent
range," he said, adding that an increase in interest rates by the Federal Reserve could come
this spring or summer.
While the unemployment rate has fallen a full percentage point over the last year, 8.7 million
people remain jobless, and another 6.8 million want full-time jobs but can find only part-time
employment.
Despite Friday's mostly upbeat report, global stock prices fell on new worries about falling oil
prices and continuing tepid growth around the world.