Economic Outlook Forecast Research Assignment (Research Paper Sample)

Economic Outlook Forecast
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Introduction
The U.S economy had been subjected to various headwinds in the last decade (FocusEconomics, 2017). FocusEconomics (2017) argue that during that period it was impossible to predict the amount of time that the U.S economy would take to realize full recovery. The economic headwinds have hindered the full recovery of the U.S economy causing a much slower output growth that what was expected by the previous economic projections (FocusEconomics, 2017). However, the growth of the U.S economy is projected to be gradual and persistent over the subsequent decade. The U.S economy would be expected to bring unemployment rate down while returning the macroeconomic variables to a more sustainable and stable position (FocusEconomics, 2017). This paper aims to provide an economic outlook forecast for the economy of the United States. The paper focusses on analyzing the history of various changes in GDP, investment, savings, unemployment and real interest rates in the U.S economy, as well as comparing that history to the economic projections for the next five years.
Analysis of the History of Changes in GDP, Real Interest Rates, Savings, Investment and Unemployment
Despite the fact that the U.S economy is facing challenges and obstacles at the lowest domestic level such as global landscapes, the economy still retains its reputation as the largest economy worldwide (Bureau of Labor Statistics, 2013). According to the Bureau of Labor Statistics (2013), the U.S economy is still greater than the Chinese economy. Indeed, since the year 2012 through the year 2016, the GDP of the U.S economy has gradually increased every year (FocusEconomics, 2017). According to FocusEconomics (2017), the GDP per capita (USD) was 51386 and 57436 in the year 2012 and 2016 respectively. The gradual increase in GDP in the U.S economy has been realized through the adoption of modern technology by most companies. In fact, the U.S economy has dominated in various areas including technology, healthcare services, and financial services among many others (FocusEconomics, 2017).
The U.S GDP is projected to increase slowly in the next five years (Bureau of Labor Statistics, 2013). The Bureau of Labor Statistics (BLS) in the United States expects a gradual growth of GDP at a rate of 2.6 percent per annum. The BLS states that the impact of recessions will hinder potential growth. In particular, factors such as demographic shifts would moderate the growth rate of the U.S economy as far as the GDP is concerned. According to Bureau of Labor Statistics (2013), the U.S GDP would reach $17.6 trillion by the end of the year 2022.
The unemployment rate has been decreasing gradually since the year 2012 through 2016 (FocusEconomics, 2017). According to FocusEconomics (2017), the unemployment rate was 8.1% and 4.9% in the year 2012 and 2016 respectively. However, in the year 2012, the unemployment rate in the United States was at its peak after the business were disrupted by hurricanes Irma and Harvey in Florida and Texas (FocusEconomics, 2017). FocusEconomics (2017), states that the hurricanes contributed to the loss of more than 33000 jobs for non-farm payrolls. However, the unemployment rate started reducing from the year 2011 through 2016.
The unemployment rate in the United States is expected to continue reducing (Bureau of Labor Statistics, 2013). The Bureau of Labor Statistics (2013) argues that the reason as to why the unemployment rate would reduce is because the federal government is creating new job opportunities every year. The rate of unemployment is projected to reduce slowly at a manageable position if there would be no severe hurricanes in the next five years (Bureau of Labor Statistics, 2013).
Nonresidential investment has suffered recession in the past ten years (FocusEconomics, 2017). Specifically, in 1990s, the nonresidential investment was growing at a rate of 6.9 percent annually. However, the growth of nonresidential investment faced some challenges such as dot-com bubble bursts that contributed to rapid decrease in the growth of nonresidential investment (Bureau of Labor Statistics, 2013). In particular, the recession brought by the dot-com bubble bursts took effect between March and November 2001. From the year 2012 to 2012, the nonresidential investment decreased resulting to recessions that made most business owners reluctant to invest in some new equipment and structures. Only the investments that deal in computers and software did not suffer from the recession (Bureau of Labor Statistics, 2013).
The investment rate is expected to grow at a rate of 7.6 percent per annum through 2022 (Bureau of Labor Statistics, 2013). According to the Bureau of Labor Statistics (2013), the federal government has invested in nonresidential investment such as schools, medical facilities, factories and offices to curb any form of recession that would affect the growth rate of investment (Bureau of Labor Statistics, 2013).
With regard to residential investment, the U.S economy has realized a rapid growth in residential investment (Bureau of Labor Statistics, 2013). In fact, the residential investment has played a significant role in the recovery of recessions facing the U.S economy. The population in the United States has grown tremendously resulting to high demand for housing. The demand of housing has created several jobs in the construction industry (Bureau of Labor Statistics, 2013).
Real interest rates have been experiencing a gradual growth since 2012 through 2016 (Bureau of Labor Statistics, 2013). The CBO’s Director also testified that the real interest rates are expected to increase through the year 2022 (FocusEconomics, 2017). FocusEconomics (2017) remarks that the CBO’S Director stated that before the Senate Budget Committee when preparing the economic projections for the federal budget. Additionally, the CBO project remarked that interest rates imposed on federal borrowing would also rise gradually in the next five years (FocusEconomics, 2017).
How Government Policies Influence Economic Growth
There are two major government policies that could influence economic growth. These government policies include the monetary policy and fiscal policy (FocusEconomics, 2017). The monetary policy regulates the changes in the interest rates and determine how the changes affect the supply of money (FocusEconomics, 2017).The government might lower the interest rates while increasing the supply of money to encourage economic growth and increase spending. However, this strategy would lead to inflation. The government could also increase interest rates while lowering the money supply to discourage spending in the events of too much inflation (FocusEconomics, 2017). Specifically, the U.S Congress established the monetary policy to promote price stability and maximize employment opportunities. In the United States, the Federal Open Market Committee (FOMC) is the body responsible for making monetary policies. One of the tasks of the Federal Open Market Committee (FOMC) include determining the appropriate levels of interest rates (FocusEconomics, 2017).
The Fiscal policy focusses on regulating government spending as well as controlling taxation to influence the aggregate demand of services and products in the U.S economy (FocusEconomics, 2017). According to FocusEconomics (2017), the U.S government might increase its spending and reduce tax in order to increase the aggregate demand of products and services in the economy. Conversely, the government of the United States might decrease federal spending and raise taxation rates in order to decrease the aggregate demand (FocusEconomics, 2017).
Analysis of How the Monetary Policy Might Influence the Long-run Behavior of Inflation Rates, Price Levels, Costs, and Other Real or Nominal Variables
In the United States, the monetary policy refers to the policies enforced by the Central bank or any other regulatory authority to determine the rate of growth and size of the economy as far as the supply of money is concerned (FocusEconomics, 2017). The Federal Open Market Committee (FOMC) is one of the bodies responsible for making monetary policies. Essentially, the monetary policy plays a vital role in influencing the behavior of inflation rates, costs and price levels among other real or nominal variables (FocusEconomics, 2017).
According to FocusEconomics (2017), the government could increase inflation by lowering interest rates while increasing money supply in the economy. Additionally, the rate of spending could also increase as a result of lowering the interest rates. The government could increase interest rates while lowering money supply in the economy to reduce inflation and discourage too much spending. When the government raises the interest rates, the price level of products and services also raises. Conversely, the price levels reduce if the government lowers the interest rates. Additionally, the costs of production increase when the government increases the interest rates. Moreover, the costs of production decreases when the government lowers the interest rates (FocusEconomics, 2017).
For instance, the U.S government utilized the monetary policy to recover from economic recessions that faced the U.S economy some years back. Initially, the U.S government kept the interest rates low until the U.S economy realized an unemployment rate of 6.5 percent while the inflation rate surpassed 2.5%. The Federal funds (Fed) also utilized an unconventional policy called quantitative easing to purchase a huge sums of financial assets that aimed to increase the supply of money (FocusEconomics, 2017).
How Trade Deficits or Surpluses Could Influence the Growth of Productivity and GDP
Trade deficit is an economic condition whereby a country or state imports more products than it exports (Kuepper, 2016). Accordi...