The State of the US Economy - Essay Sample

2021-07-05 16:19:52
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The economy of the United States is the largest and one of the most diversified national economies of the world, and can further be regarded as the driving force of the world economy. The American economy has focused on advanced technology and scientific progress, and this is one of the distinctive feature of the United States economy. The country continues to lead in the implementation of scientific results and technical progress in the production of export licenses for their current development and invention. This frequently leads to dependence of other countries from the US in science and technology and determines the countys foreign policy.

The United States is the worlds largest economy in GDP. In the year 2016, the countrys GDP was estimated to be $18.56 trillion. Notably, this is due to a large population, technological innovation capital investment and high average income (U.S. Department of Commerce, 2017). According to Bureau of Economic Statistics, the real GDP increased at an yearly rate of 3.0 percent in the third quarter of 2017. In the second quarter of 2017, scientific and technical services; professional, and social assistance have contributed to the increase in US economic growth. Analysis (U.S. Department of Commerce, 2017). Furthermore, a significant contributor to this economic growth has been as a result of increasing globalization which continues to be initiated by US corporations that have considerable support from the government. For the past ten years, the real GDP has been growing at a rate an average rate of 3 percent as shown in the table below (Bureau Of Economic Analysis, 2017).Real GDP growth of the United States from 2010 to 2016

Year Value Annual rate in value

In percent

2010 14.94 trillion 2.5

2011 15.19 trillion 1.6

2012 15.38 trillion 2.2

2013 15.79 trillion 1.7

2014 16.22 trillion 2.4

2015 16.55 trillion 2.6

2016 18.56 trillion 1.6

(Source: www.bea.gov).

The United States per capita GDP is seventh in the world. The country have experienced increased per capita GDP, and this shows growth within the economy and increasesed productivity. In the year 2016, GDP per capita reached an all-time high of $ 52194.90 , and this is equivalent to 425 percent of the world's average(Bureau Of Economic Analysis, 2017). The growth of per capita income being experienced is due to a vibrant workforce that has led to increased productivity. The US economy continues to do a well and this has contributed more people being employed in the service industry. Per capita GDP has been on the rise for the past 10 years due increased production and decrease in the rate of unemployment as shown in the diagram below.

(Source: www.Bea.gov).

The United State's economy is the second largest economy in the world by purchasing power parity. The GDP at PPP exchange rates is the total value of all goods and services produced within a nation in a given year. In this case, the GDP is converted to international dollars using PPP rates and then divided by the total population. The GDP per capita based on PPP of the US increased from 32,544 international dollars in 1997 to 59,495 international dollars in June 2016, growing yearly at an average rate of 3.24% (Bureau Of Economic Analysis, 2017).

The unemployment rate in the United States remains a challenge despite the economic strength of the country. As of September 2017, the unemployment rate was 4.2% representing 6.8 million people who are unemployed, and this is a 0.7 percent decrease since January. The average rate of unemployment averaged 5.97 percent since 1960 until 2017(Bureau Of Economic Analysis, 2017). The United States rate of the unemployment rate is getting closer to Federal reserves approximation of NAIRU. However, it does not cause inflation or slow the rate of economic growth. NAIRU debate has been there for many years, and the question that continues to be asked is whether the US economy can grow more than 2.5 percent every year and the rate of unemployment rate fall below 5 percent. In the long-run, the potential growth rate of the US economy is approximately 2.5 percent while the average rate of unemployment is 5.5- 6 percent. If the rate of unemployment fall and the country experienced growth in its output above the estimated potential rate, the inflation rate would increase since tight labor market, and capacity limits would result to employees to need higher wages and companies to increase prices cost and demand rises (Zumbrun, 2017).

Focusing on the rate of inflation, the countrys rate of inflation has reduced in the recent past. According to the report released by the US Labor Department in September, the current inflation rates stand at 1.7%, though it is the highest inflation rate since April 2017. This might be attributed to hurricane-related production disruptions at oil refineries that boosted energy prices.

The Fed has also contributed to the current state of the economy. The current United States Federal Funds rate stands at 1 percent to 1.25 percent, a decision that was reached during September meeting. The Fed uses the target rate to impact the amount of money circulating in the economy. For example, FOMC can reduce interest rates through buying of government securities to increase the money supply. The prices will obviously fall if more money is added while everything else remains the same. The price here is the interest rate that is commonly referred to as federal fund. When the committee wants to reduce the amount of money supply in the economy, they will sell more government securities. In this case, they take the money they receive from earnings of those sales out of circulation. Since 1970, the interest rates averaged 5.76 percent until 2017. The Fed is planning to hike the rate by the end this year, and this might be as a result of the increase in the US retails sales which rose by 0.6 percent in October, ahead of expectation for a 0.3 percent rise. Also, the labor market has continued to improve, and economic activities are still stable regardless of the recent hurricane-related disruptions (Sutton, Mihaljek & Subelyte, 2017).

At the moment, it evident that the the United State's is experiencing an inflationary gap. Looking keenly, the labor market as a whole is at full employment, As of September 2017, the rate of unemployment was 4.2 percent long below the long-term average of 5.5 percent. Equally, as more essential, the time needed for an employer to fill the job vacancy is taking longer as compared to previous period. Also, the resources are being used to their capacity; businesses are operating with rising average costs. As such, the United States is currently in good business circles, as of September 2017, the economy was in the expansion phase(Sutton, Mihaljek & Subelyte, 2017).

The current United States physical and monetary policy plays an essential role in the growth of the economy. The US government appears to adopt the expansionary fiscal policy. The evidence has shown that the US is capitalizing enough on public goods-primarily infrastructure and education which are vital to the economic growth. In fact, most of the presidential candidates have focused on supporting the entire federal department that comprises of energy, commerce, and education, which activities are essential to the economic growth. The US FED has adopted an expansionary monetary policy with the aim of expanding the money supply and boost economic activity by keeping low rates to encourage borrowing. For Fed to meet its price stability, the FOMC has decided to maintain its target of federal funds rate at a range of between 1 and 1.25 percent (Labonte, 2017).

Us dollar is one of the major currencies in the world, and the Central Bank of the United States used the flexible exchange rate to influence the Dollar exchange rate against other major currencies. For example, if the government lowers the rate, this will drive the interest rate down in the entire banking system. It further reduces the amount of money circulating and hence making the dollar stronger as compared to other currencies(Jones, 2016).

The United State is on the right path of growth as per vital economic indicators. An essential indicator is the countrys gross domestic product. The GDP growth rate is likely to remain between 2 percent to 3 percent due to increasing this is due to increasing population, technological innovation capital investment and high average income. However Unemployment and inflation appears to remain at natural rate since as the economy improves, the wages will increase and employers will not higher fewer employees and thus maintaining the same rate of unemployment.

 

References

Bureau Of Economic Analysis.(2017). U.S. Economy at a Glance. Bea.gov. Retrieved 9 November 2017, from https://www.bea.gov/newsreleases/glance.htmJones, C. I. (2016). The facts of economic growth. Handbook of Macroeconomics, 2, 3-69.

Kalleberg, A. L., & Von Wachter, T. M. (2017). The US Labor Market During and After the Great Recession: Continuities and Transformations. RSF.

Labonte M. (2017). Monetary Policy and the Federal Reserve: Current Policy and Conditions. Congressional Research Service, 10(2) 1-20

Sutton, G., Mihaljek, D., & Subelyte, A. (2017). Interest rates and house prices in the United States and around the world. Monetary And Economic Department, 2(3), 2-15.

U.S. Department of Commerce. (2017). Gross Domestic Product: Second Quarter 2017 (Second Estimate)". Bureau of Economic Analysis. Retrieved from https://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Zumbrun, J. (2017). U.S. Jobless Rate Closing in on Nairu Estimate. WSJ. Retrieved 9 November 2017, from https://blogs.wsj.com/economics/2014/07/15/u-s-jobless-rate-closing-in-on-nairu-estimate/

 

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