Monetary-Policy : The Experience of U.S. as Compared to Other Western Countries

Economic-growth is contingent on a variety of factors, but the price-level and the level of unemployment are important because the Central-banks gauge these two variables to decide the course of monetary-policy which is responsible for credit-growth and trade-cycles. The relationship between economic-growth and unemployment is crucial because now, every economy tries to minimize unemployment or maximize employment in the process of economic-growth and development. Nonetheless, economists have now accepted prices as the major driving force of economic-growth. They have now acknowledged prices as a sign of economic-activity. In the present paper, we analyzed the effect of prices on the economic-growth and development of the U.S. economy. Almost all the prices in the economy move in the same direction at a time, except bond-prices, even the price of capital and price of labor. During booms, prices rise and in busts, they fall. Prices in the U.S. economy were high during up-cycle and crashed during recession, but interest rates were unexceptionally low, which pushed the economy in the “liquidity-trap,” which is responsible for low spending and low economic-growth. It is suggested that the U.S. economy may go for an internal-devaluation, which means lower-prices and higher demand for both domestic and external economies to achieve full-employment.