Unit

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Article Review

Economy:Article Review

Thearticle titled “Fueled by Recession, U.S. Wealth Gap Is Widest inDecades, Study Finds” by Patricia Cohen discusses the growingwealth gap in the US. The article indicates that a small number ofAmericans is increasingly controlling a larger percentage of theAmerican wealth while the amount of wealth controlled by the poor isgradually declining. This means the wealthy are getting wealthier andthe poor are getting poorer. Annual household income captures thisglaring difference. An annual income of $44,000 for a family of fouris classified as middle income while $132,000 for the same-sizefamily is classified as high income household. For over 20 years,median household income has increased to $96,500 from $94,300 afteradjusting for inflation. However, for poor households, the medianincome has actually reduced from $11,400 in 1983 to only $9,300 as of2013. Additionally, wealth gap is observable along ethnic lines withwhites enjoying $142,000 average household net worth which is 13times more than African Americans and ten times more than Hispanichouseholds. In general the article captures the microeconomic effectof economic policies on the people in terms of wealth and income.

Asecond article titled “Fed Says It Will Be ‘Patient’ onInterest Rate Timing” by Binyamin Applebaum addresses macroeconomicissues in the American economy particularly concerning the FederalReserve Bank interest rates. The Fed, which is mandated in settingbank interest rates that guides the interest rates given by financialinstitutions to organizations and individuals, has decided tomaintain a near zero interest rate adapted after the 2008 recession.Such a low interest rate increases the amount of money in circulationin the economy and is geared towards encouraging people to spend morerather than save. This in turn spurs the economy as indicated by theincrease in job opportunities following the low interest ratesadapted since 2008. The interest rate also influences other factorssuch as inflation and the stock market which are all key performanceindicators of the economy. There are different theoretical views onthe influence of interest rate and inflation on other indicators. Forinstance, the article notes that while the Fed committee voted tomaintain the current interest rates until next year summer, some wereopposed to the move with one member arguing higher inflation rateswill increase job opportunities. Economic theory and empiricalobservation show relatively high inflation rate is detrimental toeconomic growth.

Thetwo different articles summarized above capture the interaction andrelationship between microeconomics and macroeconomics. They go along way in explaining to the public how economic policies functionand affect them. The government directly influences the wealth level,employment, the value of assets and such matters through economicpolicies. These policies are targeted at the economy in general andhave an impact on households and individuals at a closer level. Inmost cases, these individuals may not understand the effect ofseemingly harmless government policies such as interest rates ontheir ability to find employment. The article by Cohen (2014)indicates precisely the effect of government economic policies onindividuals. The fact that the blanket economic policies employed bythe federal government do not suit all people shows the inadequaciesof current economic theory and policies. From the figures presentedon the trends in wealth levels among low income earners, it is clearthey have been disadvantaged by economic policies adapted in the last20 years while the same policies have favored the wealthy that haveincreased their wealth even further. The same policies have haddifferent impacts on various ethnic groups with minority groupslosing. This should inform government to adapt social policies suchas benefits and welfare programs targeted at the disadvantagedeconomically. The article thus equips people with knowledge on howthe so called policies affect them.

Applebaum’sarticle discusses the interest rate as a key economic policy. It isinteresting to note that different scholars and economists in thefield have different views on the role of interest rate on theeconomy. It is also clear how the government through the FederalReserve Banks sets to influence economic performance through interestrates. For instance, the articles notes that the Fed set a near-zerointerest rate in 2008 in an attempt to jumpstart the economy. Thiswas just one of the many options that government can employ toinfluence the economy which include increasing government spendingand lowering taxation. In the current case, low interest rate has anexpansionary effect in the economy as it increases the amount ofmoney in circulation. The effect of such policies can be identifiedthrough key economic indicators such as employment and inflation. Theimpact of these policies on the people on a personal level cannot beadequately captured by these indicators. Cohen shows that sucheffects can be best captured through surveys whereby the findingsshould be used to guide economic policies. For instance, the reportby Cohen shows that the poor are getting poorer as the wealthy getwealthier. Such findings should guide the government in increasingtaxation to the wealthy and offering more benefits and tax waivers onthe poor to boost their socioeconomic situation. Additionally, thearticles raise very interesting issues. One is why is the governmentis not acting appropriately in terms of policies to protect theeconomically vulnerable. Second issue raised is what is the ideallevel of inflation that drives an economy and the inflation levelthat is detrimental to economic growth.

Workscited

Applebaum,Binyam (2014). FedSays It Will Be ‘Patient’ on Interest Rate Timing.Dec. 17,

2014.Dec. 18, 2014. Web.

&lthttp://www.nytimes.com/2014/12/18/business/federal-reserve-interest-rates-yellen.html?ref=economy&gt

Cohen,Patricia (2014). Fueledby Recession, U.S. Wealth Gap Is Widest in Decades, Study

Finds.Dec. 17, 2014. Dec. 18, 2014. Web.