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An Overview of the American Economy
Introduction
The United States is the hub of many international and multi-national businesses, and it can be considered as the leader of the innovation in this age of industrialization. The economy of the US attracts not only businessmen from the entire world, but thousands of families also migrated to the US to obtain benefits from the American economy. The economy of the US is the world's largest economy, with a GDP of 21439.45 billion USD. This is a developed and a mixed economy in which both the private and public sectors have their roles.
This research paper will focus on the representation of many key indicators of the American economy and will also try to figure out their impact on different agents of the economy.
Business Cycle
The business cycle describes the overall economic situation of an economy, and it has four different phases. A peak of a business cycle is characterized by the highest economic achievements for a country. GDP sees the highest benchmarks, and the economy operates at full employment levels. A slight pressure on the prices can also be seen in this phase. After operating on the peak levels of economic activity, generally, an economy enters into the next phase of a business cycle that is a contraction. In the phase, the economic activity gradually shrinks. The growth rate slows down, and unemployment tends to increase. A continuous contraction leads an economy to the next phase of a business cycle, which is called trough. The economic activity in this phase seems to be stagnant. All economic indicators show depressing figures. After some time of trough, the economy starts to show the signals of revival, and the growth rate tends to increase. This phase of a business cycle is called the expansion.
The American economy is the phase of expansion since June 2009 ADDIN ZOTERO_ITEM CSL_CITATION {"citationID":"nqiNSLft","properties":{"formattedCitation":"({\\i{}US Business Cycle})","plainCitation":"(US Business Cycle)","noteIndex":0},"citationItems":[{"id":1110,"uris":["http://zotero.org/users/local/s8f0QVnP/items/L654YLLB"],"uri":["http://zotero.org/users/local/s8f0QVnP/items/L654YLLB"],"itemData":{"id":1110,"type":"webpage","title":"US Business Cycle","URL":"https://www.nber.org/cycles/cyclesmain.html","accessed":{"date-parts":[["2019",12,15]]}}}],"schema":"https://github.com/citation-style-language/schema/raw/master/csl-citation.json"} (US Business Cycle). This expansion was started after the end of the Great Recession and was a turning point in the business cycle.
Gross Domestic Product (GDP)
GDP is an economic indicator, and it shows the overall performance of an economy. GDP can be measured by getting the sum of the market price of all currently produced goods and services within a country. The economy of the US is the world’s largest economy following by china. The current GDP level of the American economy is 21439.45 Billion USD at current prices ADDIN ZOTERO_ITEM CSL_CITATION {"citationID":"GIzPb1T1","properties":{"formattedCitation":"(\\uc0\\u8220{}United States - Gross Domestic Product (GDP) 2024\\uc0\\u8221{})","plainCitation":"(“United States - Gross Domestic Product (GDP) 2024”)","noteIndex":0},"citationItems":[{"id":1112,"uris":["http://zotero.org/users/local/s8f0QVnP/items/W2JK37VF"],"uri":["http://zotero.org/users/local/s8f0QVnP/items/W2JK37VF"],"itemData":{"id":1112,"type":"webpage","abstract":"The statistic shows the gross domestic product (GDP) of the United States from 1984 to 2018, with projections up until 2024.","container-title":"Statista","language":"en","title":"United States - Gross domestic product (GDP) 2024","URL":"https://www.statista.com/statistics/263591/gross-domestic-product-gdp-of-the-united-states/","accessed":{"date-parts":[["2019",12,15]]}}}],"schema":"https://github.com/citation-style-language/schema/raw/master/csl-citation.json"} (“United States - Gross Domestic Product (GDP) 2024”). The annual GDP growth rate was 2.9% in 2018 that can be considered as good ADDIN ZOTERO_ITEM CSL_CITATION {"citationID":"oUOEtGhN","properties":{"formattedCitation":"(\\uc0\\u8220{}U.S. - GDP Growth by Year 1990-2018\\uc0\\u8221{})","plainCitation":"(“U.S. - GDP Growth by Year 1990-2018”)","noteIndex":0},"citationItems":[{"id":1114,"uris":["http://zotero.org/users/local/s8f0QVnP/items/VP2JSFZT"],"uri":["http://zotero.org/users/local/s8f0QVnP/items/VP2JSFZT"],"itemData":{"id":1114,"type":"webpage","abstract":"This graph shows the U.S. Real GDP growth by year from 1990 to 2018. The Real GDP of the United States increased by 2.9 percent in 2018.","container-title":"Statista","language":"en","title":"U.S. - GDP growth by year 1990-2018","URL":"https://www.statista.com/statistics/188165/annual-gdp-growth-of-the-united-states-since-1990/","accessed":{"date-parts":[["2019",12,15]]}}}],"schema":"https://github.com/citation-style-language/schema/raw/master/csl-citation.json"} ("U.S. - GDP Growth by the Year 1990-2018"). It is expected that the economy of the US will continue to grow at a growth rate of around 2% annually for the next four to five years.
Consumer Price Index (CPI)
Inflation can be explained as an increase in the price of goods and services. There are many ways to measure the inflation rate in the economy. CPI is one of the important measures of inflation. In the US, the CPI increase by 0.3% in November this year ADDIN ZOTERO_ITEM CSL_CITATION {"citationID":"Aq1oE3up","properties":{"formattedCitation":"({\\i{}Consumer Price Index Summary})","plainCitation":"(Consumer Price Index Summary)","noteIndex":0},"citationItems":[{"id":1116,"uris":["http://zotero.org/users/local/s8f0QVnP/items/6ZNJG6EW"],"uri":["http://zotero.org/users/local/s8f0QVnP/items/6ZNJG6EW"],"itemData":{"id":1116,"type":"webpage","language":"en","title":"Consumer Price Index Summary","URL":"https://www.bls.gov/news.release/cpi.nr0.htm","accessed":{"date-parts":[["2019",12,15]]}}}],"schema":"https://github.com/citation-style-language/schema/raw/master/csl-citation.json"} (Consumer Price Index Summary). This increase was measured at seasonally adjusted rates, and this increase in prices was for all urban consumers. The annual increase in the CPI was 2.15 from November 2018 to November 2019.
Unemployment.
A person is called the unemployed person who wants to do a job but cannot find a job. The unemployment rate is calculated as the total number of unemployed persons as a percentage of the total labor force in an economy. Every jobless person cannot be considered as an unemployed person as there can be different reasons that can become a source of joblessness for an individual. There can be voluntary unemployment in the economy, as well. There also can be structural, frictional, and seasonal unemployment. Underemployment is another shape of unemployment. The unemployment rate in the US was at 3.5% in November this year ADDIN ZOTERO_ITEM CSL_CITATION {"citationID":"QBLMSuAU","properties":{"formattedCitation":"({\\i{}Employment Situation Summary})","plainCitation":"(Employment Situation Summary)","noteIndex":0},"citationItems":[{"id":1118,"uris":["http://zotero.org/users/local/s8f0QVnP/items/P9CKKG67"],"uri":["http://zotero.org/users/local/s8f0QVnP/items/P9CKKG67"],"itemData":{"id":1118,"type":"webpage","language":"en","title":"Employment Situation Summary","URL":"https://www.bls.gov/news.release/empsit.nr0.htm","accessed":{"date-parts":[["2019",12,15]]}}}],"schema":"https://github.com/citation-style-language/schema/raw/master/csl-citation.json"} (Employment Situation Summary). The unemployment rate in the US is continuously decreasing since 2010. The current unemployment rate of the US is the lowest in the last thirty years.
Monetary Policy
Monetary policy is the tool that is used by the FED in the US to manage the demand side economy. The key purpose of the monetary policy is to obtain and sustain the optimal level of money supply in the economy. There are different tools that are used by the FED to achieve its objectives. Interest rate, open market operation, discount rate, and reserve requirement are the four major tools that are used by the FED to control the money supply in the economy. The FED decreases its interest rate three times in 2019, and the current interest rate in the economy is 1.5%. Any change in the interest rate has many effects on the economy. The decrease in the interest rate can boost the economy by increasing investment levels. It can also affect employment and inflation in an economy. The interest rate also has its effect on the exchange rate. Any decrease in the interest rate attracts less capital from the international market and become a source of depreciation in the exchange rate.
Fiscal Policy
Fiscal policy also attempts to adjust the demand side of an economy. The government's spending and taxes are the tools of the fiscal policy. The government uses these tools according to the overall situation of the economy. Fiscal policy can be contractionary or expansionary depending upon the condition of the demand side of the economy and preferences of a specific government. The Congressional Budget Office (CBO) is the responsible body that determines the level of government’s expenses. The CBO gave approval for the use of 25 Billion USD to establish and support military bases.
International Trade
The American economy is the leading importing economy in the world and the third-largest exporting economy. Refined petroleum products were the largest American export in 2017 following by Cars, Planes and helicopters, natural gas, and packed medicine. While Cars are the biggest import of the US in 2017 following by Crude oil, broadcasting equipment, computers, and medicine ADDIN ZOTERO_ITEM CSL_CITATION {"citationID":"LpMyq1LY","properties":{"formattedCitation":"({\\i{}OEC - United States (USA) Exports, Imports, and Trade Partners})","plainCitation":"(OEC - United States (USA) Exports, Imports, and Trade Partners)","noteIndex":0},"citationItems":[{"id":1120,"uris":["http://zotero.org/users/local/s8f0QVnP/items/82DW4S36"],"uri":["http://zotero.org/users/local/s8f0QVnP/items/82DW4S36"],"itemData":{"id":1120,"type":"webpage","language":"en","title":"OEC - United States (USA) Exports, Imports, and Trade Partners","URL":"https://oec.world/en/profile/country/usa/","accessed":{"date-parts":[["2019",12,15]]}}}],"schema":"https://github.com/citation-style-language/schema/raw/master/csl-citation.json"} (OEC - United States (USA) Exports, Imports, and Trade Partners). China is the largest trading partner of the US, following by Canada, Mexico, and Japan. The American economy is continuously facing trade deficits.
The American economy needs to open more for export and import as the theory of comparative advantage suggests that any economy can raise its consumer and production possibilities by making the economy more open. The US can increase its exports by producing the goods and services in which it has a comparative advantage, and it should import all goods and services from other countries in which it has a comparative disadvantage. The producer can gain from this approach by increasing its production, and the consumer can be benefited from this approach by consuming cheaper goods and services.
Conclusion
The empirical data on many of the key indicators of the American economy provides a stable outlook. Unemployment is on historically low levels, and inflation is also under control. Stable GDP growth rate promises for future expansions. The recent trade war with china slowed down the economy by a little bit, but the timely remedial steps from the FED played a vital role in regaining economic stability. Lower interest rates enable the economy to sustain its growth rate at the time of trade war with China. The forecasts of different national and international organizations project an annual GDP growth rate of around 2% for the next five years, which can be considered as a good sign for the residents of the US.
Works Cited
ADDIN ZOTERO_BIBL {"uncited":[],"omitted":[],"custom":[]} CSL_BIBLIOGRAPHY Consumer Price Index Summary. https://www.bls.gov/news.release/cpi.nr0.htm. Accessed 15 Dec. 2019.
Employment Situation Summary. https://www.bls.gov/news.release/empsit.nr0.htm. Accessed 15 Dec. 2019.
OEC - United States (USA) Exports, Imports, and Trade Partners. https://oec.world/en/profile/country/usa/. Accessed 15 Dec. 2019.
“United States - Gross Domestic Product (GDP) 2024.” Statista, https://www.statista.com/statistics/263591/gross-domestic-product-gdp-of-the-united-states/. Accessed 15 Dec. 2019.
"U.S. - GDP Growth by the Year 1990-2018." Statista, https://www.statista.com/statistics/188165/annual-gdp-growth-of-the-united-states-since-1990/. Accessed 15 Dec. 2019.
US Business Cycle. https://www.nber.org/cycles/cyclesmain.html. Accessed 15 Dec. 2019.
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