Economic Analysis Assignment: Economic Growth In The USA (Essay Sample)

Economic Analysis
Yilin Qi
FIN-340-002
4/23/2017
Economic Analysis
A. 2015. a)
The main aim of the current chapter is to analyze the economic growth and financial market performance in the U.S. As it is known, economic growth is one of the most important goals of any country’s government. The rates of economic growth determine the country’s image on international arena and its global perspectives. As it is known, the country’s GDP may be computed as a sum of expenditures of the four main economic subjects, or as a sum of incomes. Thus, GDP as a sum of expenditures includes consumer expenditures, investment spending, government purchasing and net export. The consumer expenditures and investment spending are the main components of the GDP. Considering the dynamics of C+I during the 2915, it is worth emphasizing that the share of consumer expenditures and investment spending in the U.S GDP declined from 85.16% in January, 2015 to 84.86% in January, 2016. Despite decreasing of investment expenditures by 0.4% and 0.75% in the third and fourth quarters of 2015, the U.S GDP increase during all four quarters of 2015. It was caused by significant increasing of the consumer expenditures by roughly 3.3% during the 2015. Taking into account the important of consumer expenditures in the country’s GDP, it is one of the main source of GDP growth during the 2015.
 Gross Private Domestic Investment, billion $Personal Consumption Expenditures, billion $Gross Domestic Product, billion $2014-10-012970,412075,817692,22015-01-013044,612098,917783,62015-04-013049,912240,217998,32015-07-013072,112356,918141,92015-10-013059,912438,818222,82016-01-013036,812498,018281,62016-04-012987,512692,718450,12016-07-013017,212832,218675,32016-10-013101,413008,918869,4


 Gross Domestic Investment, Percent Change from Preceding PeriodPersonal Consumption Expenditures, Percent Change from Preceding PeriodGross Domestic Product, Percent Change from Preceding Period2014-10-012015-01-012,50%0,19%0,52%2015-04-010,17%1,17%1,21%2015-07-010,73%0,95%0,80%2015-10-01-0,40%0,66%0,45%2016-01-01-0,75%0,48%0,32%2016-04-01-1,62%1,56%0,92%2016-07-010,99%1,10%1,22%2016-10-012,79%1,38%1,04%
Declining of the Chinese economic growth to roughly 6.8% in 2015 significantly affected the economic conditions in the U.S and the EU. The U.S. GDP growth rate declined as the China’s GDP growth rate slowed down in the second half of 2015. As the U.S economy was recovering from the global financial crisis, the unemployment rate declined from 5.6% in the first quarter of 2015 to 5.1% in the last quarter of the same years.
 Unemployment Rate: Aged 15-64: All Persons for the United States, %2014-01-016,72014-04-016,32014-07-016,22014-10-015,82015-01-015,62015-04-015,52015-07-015,22015-10-015,12016-01-015,02016-04-015,02016-07-015,0
Decreasing the unemployment rate leads to increasing of the U.S. consumers’ income, leading further growing of the consumer expenditures. Declining of the inflation rate during the 2015 was caused by falling the commodity and oil price during the year. As it is seen from the data provided in table below, the inflation arte in the U.S declined from 2.23 in January, 2014 to 1.42% in January, 2016.
10-Year Breakeven Inflation Rate, Percent, Monthly, Not Seasonally Adjusted2014-01-012,232014-02-012,162014-03-012,162014-04-012,172014-05-012,192014-06-012,232014-07-012,262014-08-012,202014-09-012,072014-10-011,922014-11-011,882014-12-011,702015-01-011,612015-02-011,722015-03-011,762015-04-011,862015-05-011,872015-06-011,862015-07-011,822015-08-011,612015-09-011,522015-10-011,502015-11-011,572015-12-011,512016-01-011,42
Declining of the inflation arte led to increasing the purchasing power of the U.S citizens, causing the enhancing of consumer expenditures.
b) Net export is another importance component of the GDP. It is computed by subtracting the total value of the country’s import from its total value of export. Analyzing the dynamics of net export during the 2015, it is worth emphasizing that the value of net export was negative during the whole year.
 Net Exports of Goods and Services, Billions of Dollars, Quarterly, Seasonally Adjusted Annual RatePercentage change from the preceding period2014-10-01-525,52015-01-01-534,71,75%2015-04-01-508,9-4,83%2015-07-01-523,42,85%2015-10-01-520,9-0,48%2016-01-01-507,4-2,59%2016-04-01-492,4-2,96%2016-07-01-460,0-6,58%2016-10-01-545,218,52%
The country’s net export grew from -$534.7 billion in January, 2015 to -$507.4 billion in January, 2016. Declining the negative net export was caused by strengthening the U.S dollar and falling the commodity and oil price on international market during 2015. Thus, shortening the negative net export also led to increasing the country’s economic growth during the 2015.
c) In 2015, the government decreased the corporate tax rate from 39.1% in 2014 to 39% in 2015. As it is known, decreasing of the tax rate can be considered as expanding fiscal policy aimed on encouraging higher rates of GDP growth. Instruments of the fiscal policy include government spending and taxes. However, it is worth emphasizing that the government spending has higher influence eon the GDP, since the multiplier of the government spending is higher, than the multiplier of taxes. On the other hand, the U.S government increased the personal income tax rate from 35% in 2012 to 39.6% in 2013. The social security rate also increased from 19.35 in 2012 to 21.3% in 2015. In general, it can be concluded that the fiscal and regulatory changes were not significant in 2015 as compared to the previous years.
ii. Monetary policy is related to changes in money supply and interest rate to reach certain economic goals. The Fed’s effective funds rate was quite low during the whole 2015, changing from 0.11% in January, 2015 to 0.24% in December, 2015.
 Effective Federal Funds Rate, %M2 Money Stock, $ billion. 2014-12-010,1211726,72015-01-010,1111725,72015-02-010,1111814,32015-03-010,1111924,22015-04-010,1211972,42015-05-010,1211876,02015-06-010,1311930,52015-07-010,1311981,42015-08-010,1412039,12015-09-010,1412106,92015-10-010,1212139,72015-11-010,1212266,22015-12-010,2412396,32016-01-010,3412448,0
The FED decided to increase the funds rate due to economy’s reaching its full-employment, and further stimulating policy was not quite effective as it was after the global financial crisis. Thus, increasing of the funds rate was caused by the Fed’s desire to keep inflation rate at the same level.
iii. Considering the dynamics of the financial market, we would like to analyze one of the most important indexes S&P 500.


During the first half the 2015 year, the index demonstrated a positive trend, reaching its maximum of 2111.94 in May, 2015. The index started to slow down during the next four months, reaching its minimum of 1944.4 in September, 2015. Increasing of the S&P 500 during the first half of the year can be explained by positive dynamics of the U.S economy, i.e. increasing of the country’s GDP, falling the unemployment rate. However, the index was fallen to 1944.4 in September as the Chinese financial market was unstable since July, 2015 to February, 2016.

BofA Merrill Lynch US High Yield Effective Yield, PercentS&P 5002014-12-016,752054,272015-01-016,702028,182015-02-016,222082,202015-03-016,232079,992015-04-016,052094,862015-05-016,132111,942015-06-016,412099,282015-07-016,822094,142015-08-017,282039,872015-09-017,451944,402015-10-017,682024,812015-11-017,862080,622015-12-018,632054,082016-01-019,201918,60
Computing the annual total return on the S&P 500, it can be concluded that annual return was negative of -5.4% during g the 2015. On the other hand, average rate of the BofA Merrill Lynch US effective yield was 7.13%. Declining the S&P 500 during the Chinese financial market turbulence highlights the impact of Chinese financial market on the U.S economy.
B. 2016. a) During the 2016, the U.S consumer expenditures has been growing during each quarter. However, the average rate of consumer expenditures growth declined from 3.15% in 2015 to 2.8% in 2016. The rate of consumer expenditures growth significantly increased in the third and fourth quarters of the 2016. As it has been stated: “The U.S. economy grew at an annual rate of 1.6% in 2016, the Commerce Department reported Friday. In the last three months of the year - between October and December - the economy grew at an annual rate of 1.9%. It's the slowest pace of growth since 2011”.
20152016123412344,602,402,902,702,301,604,303,00
Analyzing the dynamics of the country’s GDP, it is worth emphasizing that the U.S. GDP grew from $18281.6 billion in January 2016 to $18869.4 billion in October 2016. Taking into account that the private domestic investment increased only from $3036.8 billion in January 2016 to $3101.4 billion in October 2016, the economic growth was caused by further enhancing of the consumer spending from $12498 billion in January 2016 to $13008 billion in October 2016.
 Gross Private Domestic Investment, Billions of Dollars, Personal Consumption Expenditures, Billions of Dollars, Gross Domestic Product, Billions of Dollars2016-01-013036,812498,018281,62016-04-012987,512692,718450,12016-07-013017,212832,218675,32016-10-013101,413008,918869,4
Analyzing the dynamics of the unemployment rate in the U.S,...