Recovery Strategy During Economic Recessions, Reaction Paper Example

Economic recession is caused by a number of factors, most of which can be influenced by the implementation of economic policy. However, there are some instances when government involvement in economic facets causes the tendency towards a recession. It is important that government maintains the balance in these conflicting economic facets.

Deregulation of Markets (Capitalism)

Too much market regulation causes the tendency towards a recession. In order for government to ensure a positive economic environment, some industries have to be deregulated, especially those that are controlled by monopolies (Blanchard & Johnson, 2013). By creating an environment where competition dictates the trends the markets assume, prices will go down, as quality increases and variety is brought into the different markets. This allows consumers to choose between a wide range of products at an affordable cost.

Unemployment

After the deregulation of markets, industries will open up, creating the much needed employment to counter the prevailing 13% unemployment rate. The introduction of new players into the different markets creates the prospects of available employment opportunities for the labor market.

Balance of Trade

The balance of trade is an important indicator as to the health of a given nation’s currency. The balance of trade is the difference obtained from the monetary value of exports and imports. This is an important economic indicator as to how the country can sustain itself from its own production activities relative to the amount of commodities or raw materials it is importing from external sources. The value of a given nation’s currency largely depicts the strength of the economy. In order for the United States to realize economic stability, it has to ensure a positive balance of trade (Hubbard & O’Brien, 2013). This is because a negative balance of trade depicts negative implications on the value of the dollar.

China is one of United States’ biggest trade partners. Considering the current political relations between the two countries, it is essential that the balance of trade between the two countries be analyzed.

There is a general negative balance of trade between the United States and China as most the United States imports more from China than it exports to. There was a temporary decrease in the negative balance of trade position from 2008 to 2009, however, this negative balance of trade has continued to increase since then at $-226,877,204,877 in 2009 to $ -318,417,203,265 in 2013 (International Trade Administration, 2014).

This negative balance of trade on the part of the United States has grave implications for its economy while having positive implications for China. China will see an increase in the markets of its products resulting in increased GDP for China. However, this would lead to the drop in value of the US Dollar, followed by the control of certain sectors by Chinese companies. Such as computer and electronic products, apparel manufacturing products and electrical equipment, appliances and components.

There is also consideration of the debt position between the United States and China. As most of the financial investment into certain sectors within the United States are channeled from China, China will have a considerable financial hold on the United States, leading to an economic hold that can be utilized to influence policy within the United States.

Keynesian Principles

By deregulating the markets, the government will have triggered an increase in output that will translate to an increase the flow of currency within the economy. This will trigger an increase in consumption that is as a result in increased demand.

References

Blanchard, O., & Johnson, D. R. (2013). Macoreconomics. Boston: Pearson.

Hubbard, G. R., & O’Brien, A. P. (2013). Economics. Boston: Pearson.

International Trade Administration. (2014, April 1). 2013 Balances with China for NAICS Total All Merchandise.Retrieved May 29, 2014, from TradeStats Express: http://tse.export.gov/TSE/ChartDisplay.aspx

Krugman, P. R., & Wells, R. (2013). Macroeconomics. New York: Worth Publishers.

Mankiw, G. N. (2013). Macroeconomics. New York: Worth.