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American Economy, Monetary Policy and Monopolies Essay


The economy of the United States of America is arguably among the best performing in the world. Rated as the second largest globally, after the economy of the European Union, the American economy has in the recent past gone through a lot of turbulence, including the worst financial crisis of 2008. However, with an approximate GDP of 102 in 2012, the country has performed better than other advanced economies (see figure 1) (U.S. Department of the Treasury, 2012). The performance of an economy is usually evaluated by economic indicators, such as, inflation rates, interest rates, GDP, and unemployment rates. Economists can deduce the growth of an economy by evaluating the economic indicators as they vary with time. For instance, the performance of the American economy in the past five years can be assed from the values of the economic indicators of 2008 through to 2012.

The economic performance of five different economies
Figure 1: The economic performance of five different economies

Any country that aspires to attain significant economic growth must tame the rate of unemployment, because a high unemployment rate inhibits economic growth. This is partly because high rates of unemployment results into higher expenditures with minimal revenue (Levine, 2012) The US government is aware of the consequences of unemployment on her economy. Unfortunately, the unemployment rates seem to be growing by each day. According to the data obtained from the website of the Bureau of Labor Statistics (United States Department of Labor), the highest rate of unemployment in 2008 was recorded in December with a value of 7.3, whereas 2012 experienced the worst unemployment rate at 8.3 in January, February, and July (USA Dept of Labor, Bureau of Labour Statistics, 2012).

On the other hand, the US has been experiencing a decline in inflation rates in the past five years. Available data indicate that inflation rates were highest at 2.93 percent in January of 2012, whereas the average inflation rate in 2008 was at 3.85 percent. One of the factors that influence interest rates is inflation rates. In the year 2008, the US experienced an average interest rate of 2.8 percent; this was higher than the highest interest rate of 0.167 percent recorded in July 2012 (The World Bank, 2012).

It is true that government policies have a direct impact on investments and the general growth of an economy. Therefore, a government with sound policies can encourage both local and external investments. This leads to more revenue generation, creation of employment opportunities, and other significant economic growth factors. Governments should encourage investments and savings by prescribing favorable tax regimes on the same. For instance, lower tax rates should be levied on investments in research and development, capital gains, and other entrepreneurial activities (Kennedy, 2000). The government should encourage partnership between small and large businesses. McKinney (2011) argues that since many innovations are generated by small entrepreneurs who lack investment capital, the government should put in place tax and IP incentives that will make small entrepreneurs an attractive investment option for big businesses. He cites bureaucratic systems in big corporations as the major stumbling block to innovations (McKinney, 2011).

A court case filed by the Justice Department and 19 states of America, accusing Microsoft Corporation of infringing on the nation’s antitrust laws, was ruled in favour of the plaintiff on 4th April 2000. Among other things, the government accused the corporation of engaging in predatory and anticompetitive behaviour that were in total contravention of the antitrust laws (Brinkley, 2000). In total disregard of the law, especially the vertical restriction of the 1995 consent decree, Microsoft Corporation was accused of hurting consumers by bundling products and suppressing competing products, such as Netscape browser. By integrating Internet Explorer (IE) into the Windows operating systems, and forcing computer manufacturers to sell their products with these operating systems, Microsoft Corporation was unfairly competing with the manufactures of stand-alone products with functions and features similar to IE (Economides, 2001).

Economides (2001) reports that while ruling in favour of the government, the presiding judge proposed that the corporation was, henceforth, required to adhere to strict business rules. Furthermore, Microsoft Corporation was supposed to be split into two companies. The corporation appealed against this ruling and it was consequently overturned. Nonetheless, the appellant court agreed with the findings of the facts by the first court. Subsequent to this turn of events, the Department of Justice relented on its quest for splitting Microsoft Corporation and instead demanded a lesser antitrust penalty. The two parties reached an agreement, whereby Microsoft was compelled into permitting computer manufactures to incorporate non-Microsoft software into their products (Shapiro & Kovacic, 2000). Furthermore, the settlement paved way for third-party companies to freely access all records and the application programming interfaces of Microsoft Corporation for five years (Economides, 2001).

To understand the drawbacks of a monopoly, it is necessary to make comparisons between the market forces inherent in a monopoly and those within a competitive environment. First, it is clear that a monopolistic environment supports higher prices, lower outputs, and less consumer surplus as compared to a business environment composed of competing players (Economides, 2001). Secondly, the destiny of profits accrued from monopolistic businesses is always expected to raise equity issues. The beneficiaries of these profits are shareholders, and most of them are usually wealthy individuals. The high pricing is therefore an exploitative venture to low income consumers, whose purchasing power is likely to be taken over by high income consumers through dividends. Finally, production of goods in monopolies does not attain the minimum average cost and this derails economic growth (Economides, 2001).

In a free market economy, the same product can be sold to consumers at different prices. However, while selling the product in this manner, well-thought-out strategies should be employed to guard the business against loosing its customers. The consumers who buy this product at higher prices may decide to buy from different sellers in their subsequent purchases. The seller should study the behaviour of consumers before making a decision on how much the price for the product should be varied for each one of them. For instance, if the seller acknowledges the willingness to pay a particular price for a certain product by a certain group of consumers, then the product can be sold to this group accordingly without alienating the consumers (University of Pennsylvania, 2007). Another successful approach at price discrimination is in the form of market segmentation based on social class. A product can be sold to consumers at different prices, as long as the prices are strategically differentiated according to social classes. Pharmacists have succeeded in selling drugs to consumers at different prices by establishing retail stores near the consumers. This strategy has been successful because people from different social classes often live in different places (University of Pennsylvania, 2007).

References

Brinkley, J. (2000). . New York Times. Web.

Economides, N. (2001). The Microsoft antitrust case. Journal of Industry, Competition and Trade: From Theory to Policy, 1(1), 7–39.

Kennedy, E. P. (2000). Microeconomic essentials: understanding economic news. 2nd ed. Cambridge, MA: Massachusetts Institute of Technology.

Levine, L. (2012). . Congressional Research Service. Web.

McKinney, P. (2011). Forbes. Web.

Shapiro, C. & Kovacic, E. W. (2000). Antitrust policy: A century of economic and legal thinking. Journal of Economic Perspectives, 14(1), 43–60.

The World Bank (2012). Real interest rates. Web.

University of Pennsylvania, (2007). Approaches for retailers. Vol. 2. Web.

US Department of Labor, Bureau of Labour Statistics . Web.

U.S. Department of the Treasury. Recent U.S. economic growth in charts. Web.

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IvyPanda. "American Economy, Monetary Policy and Monopolies." May 30, 2020. https://ivypanda.com/essays/american-economy-monetary-policy-and-monopolies/.

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IvyPanda. 2020. "American Economy, Monetary Policy and Monopolies." May 30, 2020. https://ivypanda.com/essays/american-economy-monetary-policy-and-monopolies/.

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IvyPanda. (2020) 'American Economy, Monetary Policy and Monopolies'. 30 May.

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