The US economy in 2001 saw the emergence of weaknesses in the new economy, as business confidence and investment declined. The Federal Reserve responded by lowering interest rates to encourage more investment. While inflation remained low and the dollar strong, the new economy faced potential risks, such as a slowdown in productivity growth or over-investment leading to excess capital. The document concludes that lowering interest rates alone could not avoid risks to the new economy and that coordinated fiscal and monetary policies were also needed.

1. SYNDICATE 5
Case Study
The US In 2001 :
Macroeconomic Policy and The New Economy
M.Ridwan - 29112555
Machadi Dhana – 29112303
M. Khadafi – 29112324
Pedro Putu Wirya – 29112565
Seto Kusparyanti – 29112306
Yuliani Dewi – 29112321
Rahdianto Maulana - 29112554

2. Background History
 Technological Innovation and Organizational
Changes and public policy, drive what they
called New Economic, raised the efficiency of
production capacity.
 But in early 2001, it show the symptom
emerging weakness
 Business and confidence level down, the Fed
respond by lowering interest rate. This action
is to encourage investment.
 The result, inflation remain low and US Dollar
remain strong among other currency

3. Supporting factor of New Economy
New Economy is strong because it is based on business system that works :
 It drives out inefficiency
 Focus on intelligent
 Business process re-engineering
Those 3 factor also supported by :
 Easy capital access
 MBA graduates which become entrepreneur
 Emerging Internet, which enable to achieve very efficient business
 Lower interest rate to encourage investment
These lead to the cost down, and impacted to the increase of inflation

4. Why it happen ?
The graphic of Investment Saving and Liquidity Money Supply

5. Potential Risk of New Economy
 Unexpected slowdown on productivity growth
 Investment boom lead to over-invested capital
stock
 Capital flow from abroad may dry up
 Ongoing adjustment in financial market to the
perception of a riskier economic market

6. Conclusion
 The risk of New Economy cannot be avoided
by just lowering the interest rate, but also
supported by other policies, such as lowering
the tax.
 The government also need to pay attention to
the fiscal policy multiplier effect :
Government spending, Tax, and Balance
budget. This multiplier can impacted to
equilibrium effect of output.

7. Thank You