The US Dollar is currently trading in very strong territory

The US Dollar is currently trading in very strong territory. Discuss the positive and negative aspects of its rise. Are current political problems going to exacerbate the issue and what are the implications of a rising dollar from here? Can its rise be reversed? Should it be?

Solution

The policy mix in the early 1980s featured highly expansionary fiscal policy and tight money The tight money succeeded in reducing the inflation of late 1970s and very early 1980s at the expense of a serious recession. Expansionary fiscal policy then drove a recovery during which real interest rates increased sharply. By early 1989 the unemployment rate touched its lowest The recession started before the Iraqi invasion. The price of oil jumped The government lowered the interest rates Thus, by the spring of 1991, a recovery begun Thus the inflation decreased. President Bush wanted to decrease taxes But because of tax cuts the federal budget moved into significant deficit. By 2004, the Fed began to raise interest rates in order to control growth of aggregate demand and forestall inflationary pressures. In contrast, fiscal policy continued to be relatively expansionary

By,

Nishant Bhatt