United States Economy Analysis Assignment Paper (Essay Sample)

United States economy Analysis
Student
University
United States economy Analysis
Analyze the history of changes in GDP, savings, investment, real interest rates, and unemployment and compare to forecast for the next five years
According to the United States Bureau of Economic Analysis, the US GDP has been generally positive each year for the past six and half decades CITATION USB16 \l 1033 (U.S. Bureau of Economic Analysis., 2016). The economy of the United States has shown an annualized growth rate of about 1.1 percent in the first quarter of 2016, which is more than the 0.8 percent that was predicted. Consumer spending, exports and investment in software have been the highest contributors to this economic growth. The average gross domestic product for the period since 1947 to 2016 is 3.23 percent. During the first quarter of 1950, the GDP recorded the highest figure of 16.9 percent and a record low of ten percentage points below zero in the first three months of 1958.
The figure below shows the US GDP growth rate from July 2013 to January 2016.
Source: United States Bureau of Economic Analysis
From the graph, the highest realized GDP over the period is 4.6 percent while the lowest is -0.9 percent. The growth rate is positive most of the period represented in the figure, while the general trend is decreasing over the period from July 2015 to January 2016.
Of the total GDP, consumption expenditures represent a 68 percent of the total GDP. Out of this, 45 percent are services and 23 percent constitute expenditure on goods. 16 percent of the GDP are private investments while government investment accounts for 18 percent. Net exports represent -3 percent, thus reducing the total GDP.
Based on the past GDP growth data, the United States Bureau of Economic Analysis predicts that the growth will increase by 1.8 percent at the end of the 3rd quarter of 2016. The rate is expected to be 1.9 percent in Q4 of 2016, 2 percent in Q1 of 2017, 2.34 percent in Q2 of 2017, and continuing that way, the rate will hopefully go back to 2 percent in 2020. These forecasted rates show a fairly upward trend in GDP growth rate.
In Q1 of 2016, the net investment position of the United States reduced by 3.4 percent. This was a big decrease compared to a 0.6 percent in Q4 of 2015. The net invested has averaged 6.4 percent per quarter starting from Q1 of 2011 to Q3 of 2015. Based on these investment trends, the investment rates are expected to further decrease in the coming five years. This continuous decrease in net investment indicates that the United States production capacity is generally decreasing. This can be a potential problem in the future of the country’s economy.
The rate of household savings in the United States remained constant at 5.4 percent in March and April 2016. In the period from 1959 to 2016, personal savings in the United States has averaged 8.34 percent. The rate reached a highest of 17 percent in 1975 and record low of 1.9 percent in July 2005. The figure below shows the United States personal savings rates for the period between July 2011 and April 2016.
Source: United States Bureau of Economic Analysis
Using the recent personal savings data above, the rates are expected to remain constant or grow slightly as has been the trend over the period shown on the graph.
The united states real interest rates have shown an increasing trend in the period 2004 to late 2007, where the rates decreased sharply from about 2.7 percent to 0.4 percent. After this, the rates shot to a high of around 3.69 percent in November 2008 and then dropped to -1.47 percent in September 2012, which was the lowest rate for the period 2004 to 2016. After this, the rates rose gradually for the remaining period. However, starting 2016, the rates have shown a decreasing trend. Using the cyclic trend shown in the figure below, the real interest rates are expected to drop in the next five years.
Source: United States Bureau of Economic Analysis
According to the bureau of labor statistics, the unemployment rates remained at a constant of around 4.8 percent from 2006 to late 2007. The rate increased sharply to a high of 10 percent toward the end of 2009. After this, the rate has been steadily decreasing back to a low of about 4.7 percent in 2016. Using the trend since 1987, the unemployment rate may rise in the next five years. The figure below shows the unemployment trend from 1987 to 2016.
Discuss how government policies can influence economic growth
The activities of the United States government can have a direct effect on economic growth in the long-run. Changes that are made in the short run can redirect and improve the long run economic growth. The US government mainly responds so as to secure the market when there are imbalances in the economic growth of the country. The government uses a number of activities to achieve this goal. The activities include investment, fiscal policy, and monetary policy CITATION Rob15 \l 1033 (Sexton, 2015).
In order to stimulate the growth of the economy, the government of the United States can make an investment in the economy. Popular government investment activities include market production investment, investing in education, infrastructure, and preventive medical care. This is particularly important when too much growth happens. The government ought to fuel economic growth so as to meet the needs of a growing population.
The government of the United States passes monetary policies and laws in order to control the flow and growth rate of money. In addition, this helps to keep excess inflation and short term growth in check. These two can adversely affect long run economic growth of the country. It is important to note that fiscal policy can too affect the level of inflation in an economy.
The United States government regulates the economy by imposing fiscal polies like choices in the taxation structure, government spending, and economic regulation which all have an effect on the choices that individuals and businesses make.
The activities and policies of the government of the United States impact long run economic growth. It is critical that growing populations can access resources that are productive. It is also imperative that markets remain balanced so as to be successful and prosper.
Analyze how monetary policy could influence the long-run behavior of price levels, inflation rates, costs, and other real or nominal variables
The US government uses both contractionary and expansionary monetary policy to regulate the flow of money in the economy. Contractionary monetary policy reduces the supply of money in the economy. This decrease in the supply of money leads to a reduction in the gross domestic product. In addition to this, the reduced money in circulation leads to a decrease in consumer spending. As a result, the aggregate demand curve will shift to the left. The reduction in money supply leads to a reduction in the levels of prices, decreased output, and less capital is available in the economic system.
On the other hand, Expansionary monetary policy results in an increase of money supply in the economy. This leads to growth in the gross domestic product as well as an increase in consumer spending. The aggregate demand curve will shift to the right, thus leading to higher prices and increased output.
One of the aims of monetary policy is stabilizing the prices. Monetary policies prevent prices from going up to cause inflation or going too low to cause deflation. As a result, the purchasing power of the dollar will be improved, thus keeping inflation in check.
Describe how trade deficits or surpluses can influence the growth of productivity and GDP
One of the main components in the gross domestic product formula is the balance of trade (surpluses and deficits). When there is an increase in the value of the goods and services of the United States citizens and the sales to the foreigners increase, the gross domestic product also increases. Thus, a trade surplus increases the GDP. Another result of a trade surplus is a boost in employment since domestic demand is increased. Increased exports means that there is increased employment in the export sector. In addition, low imports means that people are buying more local goods rather than foreign ones, leading to domestic employment CITATION Hor07 \l 1033 (Siebert, 2007).
On the other hand, if the United States citizens spend more on imported products than what they export, then a deficit results and this decreases the gross domestic product. Trade deficits in the United States have also led to unemployment especially in the manufacturing sector. This is due to the fact that most of foreign trade involves goods that are manufactured.
Trade deficits have also led to a depressing effect on earnings in many ways. In the long run, the jobs lost through trade do not increase unemployment. Workers losing employment in the manufacturing sectors secure jobs in the service industry in the long run, where salaries are much lower. Increasing imports especially from countries which pay low wages exerts a down ward pressure on the earnings of United States workers. When the prices of such products decrease, then the prices for the goods in the US are also p...