Sample Economics Paper on Economic Growth of Open Market Operations

It is evident that only an increase in demand can influence an increase in production that will force the economy to grow. One way that demand can be increased is through Open market operations, an expansionary monetary tool. OMO basically entails the government buying treasury notes from banks allowing these banks to have more money to loan out (McEachern 598). If banks have more money to loan, they will definitely reduce interest rates so that households and business borrow more. The resultant effect will be increased consumer spending (demand) which will eventually spur production and jumpstart the economic recovery process.

According to the Philips curve, inflation and unemployment have an inverse relationship (Vogt 5). Therefore, to curb rising unemployment, the government should increase inflation rates thus increase the price of goods hence enticing production. In addition, increase in inflation will reduce the value of money lenders use to pay back their loans. This effect will cause borrowers to borrow and more increasing the money supply in the economy that will eventually lead to an increase in consumer spending and eventually increase in production.

Another way that fiscal policies can be used to revive the economy is BY increasing government spending. An increase in government spending will create new employment opportunities and increase the aggregate demand in the country. Kindly note that fiscal policies like reducing taxes can be used to improve the economy, but will be irrelevant in this case. The reason being that reduction in taxes will further reduce inflation that is already low. The methods chosen above to revive the economy have considered that inflation rate should be increased while the unemployment rate is decreased.

Works Cited

McEachern, William A. Economics: A Contemporary Introduction. , 2014. Print.

Vogt, Thomas. Inflation and the Phillips Curve. Munich: GRIN Verlag GmbH, 2008. Internet resource.