For the past couple of months the U. stock market has been plummeting significantly with very little signs of improvements. Many public officials have been warning the people of the United States of a possible recession. So what is the government doing to rectify this economic problem? And also, how does this affect Americans at a microeconomic level? .
Last year was a lucrative time for many dot-com companies. Advertisements of these companies were seen everywhere from billboards to commercials on TV. However, popular companies, such as Yahoo, are now experiencing a huge cut in what has made the company so profitable. That huge cut is the money that other companies spent on advertisement costs. Even huge companies such as Cisco Systems have begun to lay off employees due to the decline in networking product sales. These ricochet events are all adding up to what many government officials believe as the beginning of a nation wide recession.
In response to a possible recession, the government has been slashing interests rates left and right. So far the, the Federal Reserve has slashed the interest rate three times this year. "All eyes are on the Fed as the U.S. economy teeters on the edge of recession, " wrote Jennifer Bjorus of the San Jose Mercury News, March 2001. But why is the government reducing the interest rate in response to the economic slow-down? It's because Federal Reserve Chairman, Alan Greenspan believes in a theory known as the "Philips's Curve." Last week, Federal Reserve Board Chairman Alan Greenspan indicated he was leaning toward a "pre-emptive action" against inflation because a tightening labor market must, "absent the unlikely repeal of the law of supply and demand," inevitably drive up wages," wrote Kim Clark, Business & Technology 6/28/99. The Philips Curve is defined as the inverse relationship between inflation and unemployment. The closer to equilibrium that unemployment is with inflation, the better the economy will be.