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Message to the President

Message to the President. Wyatt Benno Nick Hissong Dustin Miller Dare Heisterman. Current Economy. Numbers Provided by BLS for Aug 2010 Unemployment = 9.6 CPI = +.3 Productivity = -1.8 Average Hourly Earning = +.06 GDP =+2.7% 1Q:2010 3 rd revision. Present state of the economy.

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Message to the President

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  1. Message to the President Wyatt Benno Nick Hissong Dustin Miller Dare Heisterman

  2. Current Economy Numbers Provided by BLS for Aug 2010 Unemployment = 9.6 CPI = +.3 Productivity = -1.8 Average Hourly Earning = +.06 GDP =+2.7% 1Q:2010 3rd revision

  3. Present state of the economy

  4. Current Economy As many of you know, we have faced our longest recession lasting 18 months from Dec 2007 and ended June 2009. (According to NBER)

  5. Current Economy • Even though the recession is declared over and the economy is not contracting this does not mean the economy is expanding rapidly. • Signs of increasing consumer spending have slightly increased showing good signs of consumer confidence. • The main goal at hand now is to focus on preventing a double dipping recession that happened in the 1980’s recession.

  6. Are we in a liquidity trap scenario? • Definition: The Liquidity trap is a Keynesian idea. When expected returns from investments in securities or real plant and equipment are low, investment falls, a recession begins, and cash holdings in banks rise. People and businesses then continue to hold cash because they expect spending and investment to be low. This is a self-fulfilling trap. Definition from about.com. Accessed on 9-20-2010 http://economics.about.com/od/termsbeginningwithl/g/liquidity_trap.htm

  7. What this means GDP = C + I + G + NIX In a normal scenario we would see Change in C go into investment expenditure due to higher savings. However in a liquidity trap scenario Investment expenditure does not increase due to a lack of new loans. At the present moment government expenditure may be supplementing the reduction of Consumption expenditure through fiscal policy.

  8. Personal Savings Rate

  9. Policy should be focused on correcting these problems 1) Consumers are saving and unwilling to borrow. 2) Banks are not lending. 3)Or both.

  10. Policy Suggestions • Eliminate uncertainty by keeping regulation firm among banking institutions. • Keep large-scale policy initiatives during the economic downturn that may shake confidence in markets and spending minimal to none. (i.e. Cap and Trade) • Encourage business lending among banks and reduction of capital gains tax among small businesses. • Enable consumer confidence with tax cuts for extra income to spend and invest, rather than save due to economic fears.

  11. Top Marginal Corporate Tax Rate • (The effective U.S. corporate income tax is 35 percent, far over the industrialized-nation average of 18.2 percent.) The only country with a higher corporate tax rate is Japan, who's is 40%. • http://www.cnbc.com/id/38682634/Would_Cutting_Corporate_Taxes_Jumpstart%C2%A0_US_Economy

  12. What we project a lower corporate tax rate to do? • We foresee the corporate tax rate, being as high as it is, causing jobs to leave America. If the tax rate was lowered, with the current low interest rate, we expect that foreign and native investors would be more likely to invest here rather than abroad. Ultimately, this would create jobs and boost consumer confidence. With a lower unemployment rate and in turn more money in our economy this would help banks be able to lend more because of more deposits etc. We feel this would help to jumpstart our economy.

  13. THANKS • Thank you for listening to our proposal. Please let us know if there are any questions or concerns.

  14. Works Cited http://www.bea.gov/national/nipaweb/TableView.asp SelectedTable=1&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=2003&LastYear=2010&3Place=N&Update=Update&JavaBox=no#Mid http://data.bls.gov/PDQ/servlet/SurveyOutputServlet http://nowandfutures.com/key_stats.html http://www.commerce.gov/ http://research.stlouisfed.org/fred2/graph/?id=BUSLOANS http://www.moneycafe.com/library/fedfundsratehistory.htm

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