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Various economic big academics are arguing on whether the progress of the economy is sluggish owing to too much stimulus from the government. The other reason for the stands is the fact that the rate of economic growth has ended being slower than anticipated even prior to the recession. The above arguments could be built on false or faulty foundations. The economic situation in America is different from any of the 100 major and systemic financial crises that the united states of America has experienced in the past two centuries. The truth of the matter is that contrary to the common belief the state of the United States economy is even better now than it was during the recessions (Allen, 2009).
Compared to the inflation rates in the past sine significant financial crises it is evident that the peak to trough inflation after being adjusted for per capita income is about 9 percent. In the past, the economy has taken 6.7 years to recover to the peak that it was at prior to the financial crises. The current position or outlook of the United States economy is yet to reach the 6.7 years after the beginning of the crisis (Garson, 2013).
Another indicator of the fact that the economy is not as gloomy as people make it looks is that it has not had a double dip in towards the trough. This means that the economy is still performing albeit on a slight and sluggish pace. In the current position and outlook of the state of the economy, the economy has had a single dip of 5 per cent per capita income. This inflation rate has just affected the economy once. The economy has been able to reach the pre-crisis point in six years (Allen, 2009). The interest rates for the past four years have been low since the government wanted to encourage the citizens to borrow. The year 2014 will experience increasing interest rates. The government has been able to use its monetary policy to stimulate growth to the levels mentioned in this paper.
The government can increase the interest rates to counter the possibility of having too much money in the economy. The rates implemented will be ranging up to 3.6% towards the end of this year. The rates for 30-year mortgages will climb to 5 percent or 5.5 percent. However, in as much as the government is implementing an expansionary fiscal policy, the rates are still located at a position whereby they can be said to be ridiculously low. The rate of inflation in the year 2014 will remain at a low point of 2 percent.
The rate of economic growth will pick slowly. This means that the price pressures on commodities will last. The prices of the commodities will not increase due to the international competitions. The other aspect that will lead to the continued inflation is that fact that the production capacities of the nation are yet to be fully exploited. In fact, inflation is still increasing since the focus on the consumer price index of 2014 will manifest a hike of around1-.8 percent (Ashbee, 2010). This is a slight hike from the consumer price index hike manifested in the transition of the past year. With the drop in fuel process and slight hikes on the food commodities, the chances of the actual inflation rate reaching the projected levels are also slim. There are minimal changes in inflation. This aspect makes price pressures to work at the least possible point. The projected rate of 2 per cent in inflation is a mere representation of the worst-case scenario for the year.
On the unemployment issues, the government is constantly working hard to ensure that the people have more jobs at their disposal; in fact, all the manipulation of the taxes and interest rates has the main or principal goal of ensuring that the rate of unemployment reduces by a significant margin (Garson, 2013). In the current year, the rate of job creation efforts by the government and the private sector has been on a low. The government was only capable of creating jobs that were inadequate in the reduction of the unemployment rates.
The increase in business spending, housing renaissance and export gains are going to ensure that the state of the economy in the United States is better positioned in the current moment than it were five years ago. The strong economy will have an important role in the determination of the number of people that will be employed. It should be in a position of supporting the net monthly hiring rates. This is possible since, in the last 8 months, in the year 2013, the number of jobs created has been able to reach 200000, which is the number of jobs that are needed to sustain the monthly hiring rate. The economy is promising since the rate of unemployment has been able to drop to 6.6 per cent from the common 7 percent.
The weak nature of the employment now is from some of the special factors such as a medical care and the weather. The two factors mentioned above have been pointed out as the most possible cause of the less than optimal attainment of the levels of employment that was initially projected (Allen, 2009). The government has reduced its hiring rates in significant ways is also an influencing factor to the low gains in employment. The reduction in unemployment means that the working class of Americans can afford the commodities that are in the market. This also means that the spending will stimulate growth such that the economy will be on its way to recovery (Ashbee, 2010).
Five years ago, the optimism that is evident in the current situation was absent and in its place, people had widespread fears that the economy was going to plunge into worse recessions. The indicators used by the government in planning were not promising. The government tried to come up with measures meant to save the economy from plunging further into a recession. The government used various fiscal and monetary policy measures to salvage the economy from the failure (Garson, 2013).
The weakening of the American economy was at the center of the minds of the Americans in 2009. There were massive lay off both in the private and public sectors. Major companies went into bankruptcy periods. There were salary freezes and the economy was speaking stagnating. Failure of businesses and the subsequent layoff led to the development of the massive unemployment rates that were only similar to the great depression period. The government was operating at massive deficits. At the end of the year 2009, the government projected that it will be operating at 1.5 trillion dollars deficit in the coming year. The government engaged in measures that hoped to pull the country out of recession. In February 2009, the president signed a stimulus package of 787 billion USD.
The plan was to increase the employment opportunities in the nation since this was the main issue that the American had to handle that far (Ashbee, 2010). However, despite the move to offer the economic stimulus programs, the job creation ability of the economy proved to be an elusive task for the government for a good part of the year. By the month of October, the rate of unemployment was at 10.2 percent. The rate of unemployment was at all-time high in the past 26 years. The use of a broader perspective of measuring the rate of unemployment indicated that the rate of unemployment was even higher at 17.5 per cent. The broader way of looking at the rate of unemployment considers the parameters of the underemployed, unemployed and discouraged members of the workforce. By December 2009, the rate of unemployment had dipped by 0.2 percent. However, this percentage represented 11000 jobs. This was a considerable reduction given that the number of jobs lost in January the same year was 741000.
The government needed to keep the economy running. Therefore, it offered incentives and tax holidays in that year. The government gave credit to owners of old fuel inefficient vehicles for the replacement with better ones that were more fuel-efficient. The aim of the incentives in this program is to stimulate spending and a month since the introduction of the program, the spending in car sales had gone up by 11 per cent. The home buyers that were first timers also received incentives in the form of tax credits (Allen, 2009). The government also unemployment benefits to the people that had been out of work for long. More consideration was accorded to the people that lived in states with employment rates that were in excess of 8.5 percent.
Allen, R. E. (2009). Financial crises and recession in the global economy. Cheltenham, UK: Edward Elgar.
Ashbee, E. (2010). The us economy today. Manchester: Manchester University Press.
Garson, B. (2013). Down the up escalator. New York: Doubleday.
Now the fight over the fiscal cliff is slowly coming to a halt. The debt ceiling debate is yet to reach the fever pitch. This is a good moment for any interested person to step back, take a god look at the economy, and determine how the economy has been faring over the time. The good news in this economic outlook is that the country has been in a position of enjoying a three-year period of economic growth and steady reduction in the unemployment rates since the end of the recession.
However, the bad news of this rebound is that it is the slowest rebound that the economy has ever had since the end of the Second World War. The economic growth that is evident in the United States of America has been at an average of 2.25% since the end of the recession (Garson, 2013). Further gloomy picture indicates that the economic growth in the country has slowed to a low point of less than one percent. The unemployment rates in the country are still higher than the accepted levels.
The main impediment to the attainment of faster economic growth is the array of budget related problems facing the country. The reduction of the fiscal cliff did not translate into a reduced annual deficit. In fact, the annual deficit of the nation is still averaging at over 1.1 trillion. Even though not all the amount in the deficit ought to be eliminated, this figure is still high, and the government has to deal with the low possible issues that will emanate from the budget.
Part of the federal budget deficit is the result of a weak economy, and that is a normal phenomenon in economics. More so, if the economy was growing at the average rate, the federal government budget deficit will be at a lower level (Ashbee, 2010). That it is in the current times. However, the same budget deficit has to be reduced to around 300 billion dollars per annum. This means that the spending cuts by the government and increased taxation will be around for the long haul. The growth of the economy in the 2014 is expected to average at 3% or more. The fact on the same matter is that the attainment of the above levels of the growth does not overshadow the reality of the matter that the economy failed in gaining the average rebounds that are common after a recession.
In the past year, the average rate of unemployment has been on a steady decline. The jobs created in the economy averaged at over 155000. However, the rate of unemployment remained at 7.8 percent in the same year (Ashbee, 2010). The rate of unemployment would decrease if the public and private sectors were in a position of creating 300000 jobs per month or more than that. The taxation approaches used by the government now are pilling more presser on the middle class families. This is after the end of the fiscal cliff debate that centered on the increased taxation measures for the rich members of the society.
The end of the debate and the expiration of the payroll cuts mean that the average middle class family is paying at least 600 dollars more and at most 1200 dollars more in taxes. The government took this approach with the view of reducing the chances of the American government hitting a debt ceiling. This is a move that the government with both the debt ceiling and sequester approaching. The additional revenue sought after by the government is indicative of the last resort for the government into reduce spending and the deficit facing the nation. The increases in tax and caps on the deductions will definitely target the rich. However, the middle class families will be hit by some degree of the implications of changes in the tax rate (Garson, 2013).
The policy makers have a reason to relax whenever the inflation is between 2 percent and zero. The policy makers are in a sweet repose. The increase in the consumer prices ranges between 1.9 percent. This is the reason that the head of the Federal Reserve Bank rated the policy as a success. However, there is a risk of the country undergoing inflation since the approach of the president of the Federal Reserve Bank resulted in an increase in money supply while carrying out his policy.
The state of the United States of America economy during the recession
The state of the economy in 2009 was in a precarious position. This was compared to the great depression. The government was facing deficits in all its areas. In the balance of payment, the government was facing deficits. The capital accounts were also indicating a negative balance. The economy had a negative balance of trade. The reasons for the developments were immensely rooted in the globalized economy (Allen, 2009). The underlying reason behind the recession was the increase in the dollar in the market once President Nixon decided on his own to make the dollar the international currency. The increase in the money that was flooded in the market resulted in the development of interdependence.
During the recession, some indicators appeared but took long to catch the attention of the people. The recession officially set in in December of 2007. One of the pointers that the country was in a recession was the sharp rise in the number of people that were unemployed. In early 2007, the rate of unemployment was at 4.4 to 6.7 percent in November of the following year. The other pointer of the gravity of the matter came in with the fall in the real GDP.
The real GDP was falling at a constant rate of 0.5 percent per quarter in 2008. The final quarter of the year indicated that the economy was falling faster in recession (Ashbee, 2010). The recession fell at a bigger rate in the final quarter of the same year. Leading economic indicators fell 2-8 percent in the six months of 2008 ending in November. This was indicative that the economy was going to remain in a rather weak position.
During the months of the recession, the government engaged in activities that were meant to stimulate demand. These policies hoped to increase the spending of the households and the government. The government lowered the lending rates in order to ensure that the people had enough money to increase consumer purchases and government investments.
The monetary policies can lead to the stimulation of the aggregate demand by increasing the supply of money in the economy. The government reduced the Federal Reserve rate and increased lending to commercial banks that later increased their level of lending. The government also pursued fiscal policy whereby it cut the rates of taxation to increase spending. The government also made some purchases (Allen, 2009).
Allen, R. E. (2009). Financial crises and recession in the global economy. Cheltenham, UK: Edward Elgar.
Ashbee, E. (2010). The us economy today. Manchester: Manchester University Press.
Garson, B. (2013). Down the up escalator. New York: Doubleday.
The economy of the United States has grown progressively from a marginally successful colonial economy to an independent farming economy. Through history, the economy has grown to become a complex industrial economy. The Industrial revolution in the United States dates back to the 18th and 19th century. By 1860, 16% of the population in the United States lived in urban centers. During this period, most of the income was generated from manufacturing (Bush, Glassman & Miniter, 2012). By the 1990s, the government controlled the economy through the Federal Reserve. Nonetheless, the journey has not been characterized by smooth growth. The United States economy has faced difficult times including the inflation in 2008. There are perceptions that China and other powerful states might overtake the United States, but this is a difficult economic riddle to unravel. The following essay is an analysis of the growth indicators in the United States economy through history.
Growth of Industrial Infrastructure
By 1865, South America was in shambles following the war. People in South America practiced tenant style farming. During this time, America was determined to change the economic situation. Within the same period, manufacturing firms in North America was flourishing. As a result America’s economy was controlled by manufacturing firms. Great innovations and inventions were the main indicators of growth during this period. There were also numerous advances to increase mass production as well as industrialize South America (Christopher, 2006). The effort yield great results leading to economic sprout despite the negative effects of the war. Within a short time manufacturing had already outpaced farming in terms of income generation. The increased investments, both by the government and entrepreneurs were a clear indicator for economic rise in the United States.
Advancement in Technology
Technological advancement is a clear indicator for economic growth. According to Yamarone, technology reduces the production cost per unit through mass production. Additionally, less money is spent on labor hence the cost of production is lower. The early twentieth century remains highly critical in the technological advancement of the United States. Use of technology steered economic growth setting United States above her neighbors (Yamarone, 2012). The main technology during this era was the use of steam to power machines. Nonetheless, most of the income generated during this period was directed towards financing the military.
Strong Policies Are Attributed To Economic Growth Or Rise.
By 1917, America started to formulate substantial policies geared toward revenue generation. The war revenue act was one of the most important policies that America invested on. America used the revenue act to generate taxes which were used to finance the military and develop infrastructure. In addition, the state made use of the Federal Reserve to generate income (Yamarone, 2012). During this period, the state was keen to prevent inflation. The government used the gold standard to prevent printing of excess money hence resulting in inflation. Despite the strong policies, the war disoriented America’s economy. In the post war era, the government had to lower taxes hence creating a deficit in its income. Post war consumerism became the main economic driver in the 1920s. America was able to survive the impacts of the war following the strong policies that had been put in place.
Linking the Private Sector and the Government
After the Second World War, America faced a serious depression. Unemployment rates went up to 25% of the entire workforce and on average 40% of the banks failed. President Franklin Delano introduced a number of initiatives aims at stimulating economic recovery (Christopher, 2006). The new federal deposit insurance corporation (FDIC) was establishing to rebuild people’s trust on the banks. The new policies, designed to ensure the security of savings were a clear sign that the economy of America was taking an upward trend. The uniting of government and private sector was another major indicator of economic rise in America (Christopher, 2006). All these were measures designed to counter the implications of the great depression that had hit the state.
Increase in the Number of Consumers
The baby boom was highly beneficial to the American economy (Christopher, 2006). Owing to the increase in the number of consumers, there was a significant increase in consumer spending. During this period, the United States became the richest country. Consequently, there were numerous constructions of public facilities and infrastructure. The growing infrastructure was a major economic driver that yielded further growth in the region (Christopher, 2006).
The economy of United States has grown from being a small marginal colonial economy, to a complex industry driven economy. America’s economic history is fascinating and dynamic. It is characterized by success and failure, recession and rise. Throughout history there are several indicator of economic rise, some of which are discussed above. Elements such as technological advancement increase in the number of consumers, and formulation of strong economic policies are significant pointers of economic rise. It is important to note that the economy of America has recorded progressive growth, over time and is still an economic giant.
Bush, G. W., Glassman, J. K., & Miniter, B. (2012). The 4% solution: Unleashing the economic growth America needs. New York: Crown Business.
Yamarone, R. (2012). The trader's guide to key economic indicators. Hoboken, N.J: Wiley. Christopher, C. (2006). An Outline of the U.S. Economy. Washington D.C.: U.S. Dept. of State, International Information Programs.
The US economic environment has not exhibited a steady trend in the recent past. This can be attributed to various elements of the economy that often shift due to the various forces controlling the market as well as fluctuations in the financial markets which essentially drive the economy. Events usually have their impact on the economy and could either impact it positively or negatively (Borio, 2014). For instance, looking at the country’s GDP history, it is evident that the changes have been significant each year owing to various factors such as interest rates, government expenditure as well as the country’s import and export activity. It is evident that the graph showing the history of the country’s GDP over the last five years shows no definite trend. Essentially, interest rates are what determine the changes in the GDP of a country since it commands the level of investments, savings, and unemployment over a financial period, usually a year. The interest rates in the United States are monitored and controlled by the Federal Reserve to cushion individuals and businesses from exploitation by banks and financial institutions (Gandolfo, 2013). For this reason, the past five years has seen a relatively slight change in GDP since the Federal Reserve strives to maintain the interest rates such that there is sustainable price stability as well as a well-managed rate of unemployment.
Regulating the two factors together with the crucial factor of interest rates ensures that the country’s income remains within the same scope since the availability of loanable amount for investment is also considered thereby making the economy vibrant. However, despite the measures that have been taken by the various agencies to ensure a stable economy, there are external factors which provide shocks to the economy (Bernanke, Antonovics, & Frank, 2015). Issues like oil prices as well as availability or lack thereof of markets and changes in foreign laws governing trade have previously issued threats to the GDP of the country by destabilizing the financial markets.
Influence of Fiscal Policy
Government policies, also commonly referred to as fiscal policy directly influences economic growth. The government can influence the economic productivity by fluctuating the tax levels and public spending levels. Tax levels and public spending will directly influence the economy since these are the factors that dictate the interest rates and therefore, inflation, value of money, employment and supply of money. Previously, many governments used the laissez-faire approach which then exposed individuals and businesses to exploitation by major market players. Currently, in the United States, the government takes a proactive role in controlling tax rates and public spending (Gandolfo, 2013).
Influence of Monetary Policy
Monetary policy is where a country’s central bank takes measures to influence the country’s money supply. When the economy growth is on a quick rise such that the inflation rates soar beyond sustainable levels, the Federal Reserve, or the central bank in other economies can employ contractionary monetary policy (Bernanke, Antonovics, & Frank, 2015). This reduces the supply of money in the economy thereby reducing the amount of money in circulation. Contractionary monetary policy also sees the increase in interest rates such that it becomes more expensive and therefore difficult to obtain loans. This results in a tamed economic growth and therefore reduced rates of inflation cost of goods as other variables. The opposite of this is the expansionary monetary policy which works on the contrary (Borio, 2014). That is when the economic growth is too slow.
Influence of Trade deficits and surpluses
Trade deficits influence the growth of productivity as well as GDP such that the growth of productivity is increased to meet trade demands, this means that more products are required to meet the demand, and therefore productivity is increased resulting to an increased GDP (Borio, 2014). Trade surpluses influence productivity and the GDP such that the rate of growth is regulated or capped to avoid the oversupply of a product and consequently the reduction of the prices of the product due to reduced demand. In this case, the GDP is also reduced since the prices of the products availed in surplus register low prices and therefore losses by individuals and businesses.
Importance of loanable funds and foreign exchange markets
Market for loanable funds is important since it opens up investment opportunities for individuals and businesses by providing capital. This can help a country’s economy towards achieving price stability and maximum employment (Borio, 2014). The market for foreign exchange, on the other hand, is also important since it injects foreign money into the economy thereby generating employment while reducing the rate of unemployment.
The strategic plan can, therefore, be achieved since the government and the central bank can employ appropriate measures to guide the economy towards the direction spelled out in the strategic plan.
Bernanke, B., Antonovics, K., & Frank, R. (2015). Principles of macroeconomics. McGraw-Hill Higher Education.
Borio, C. (2014). The financial cycle and macroeconomics: What have we learnt?. Journal of Banking & Finance, 45, 182-198.
Gandolfo, G. (2013). International Economics II: International Monetary Theory and Open-Economy Macroeconomics. Springer Science & Business Media.
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