Question

Creative problem solving scenario #1: The rate of growth in the US economy is currently 0.5% annually. Your mission is to increase our growth rate to at least 4% annually, without setting off unacceptable levels of inflation. You have the tools of fiscal and monetary policy available. ****Focus on increasing the quantity and / or quality of natural resources as a means to stimulate economic growth.***

1. First identify a specific natural resource and think through how having more of it or a better quality of it could lead to significantly increasing the GDP growth rate. 2. This will lead you to a general solution to the problem. 3. Determine what will be required to make the solution happen, typically it is money. 4. Think of ways to use your fiscal and monetary policy tools to get the needed money. 5. To attack the problem you must select at least one Monetary Policy tool and one Fiscal Policy tool.

Answer 1

1 & 2.

The specific natural resource is crude oil whose higher quantity within the geographical region of the USA, will boost the GDP and GDP growth rate will increase. With the help of presence of crude oil at the domestic level, first the cost of production will decrease and SRAS in the economy will increase. It will increase the demand in the economy and GDP will get a boost. Second, the country of the USA can export crude oil to the other nations who need it. It will reduce the trade deficit part and net export will get better. It will also boost the GDP and GDP growth rate will increase. Here, the presence of natural resource is complemented by highly skilled manpower to achieve the GDP growth target.

3.

It requires a huge amount of funds as well as a specialized skilled labor force to realize the natural resource and use it to expand the economy.

4 & 5

It requires fiscal policy and monetary policy to work together and provide funds. The fiscal policy, will involve discretionary and expansionary fiscal policy, where the government will make budgetary allocation of spending upon the building of new refineries, oil exploration sites, building setups to use the oil into different high value products to be sold in the domestic and international market at a lower price. At the same time, monetary policy of expansionary nature will be used by Fed. It can be increasing money supply in the market by open market operations or by quantitative easing. It can be done by buying government securities in the open market and more funds are available to borrow. Here, government can also partnership with private MNCs to work on it and spend money. It will be based on public private partnership model.

Above arrangement of funds via monetary and fiscal policy as mentioned above, will be used to make use of natural resource and make it contribute to achieve GDP growth rate, without affecting inflation rate significantly.