The economy of U.S.A - Essay Example

The economy of U.S.A The United s of America’s economy reigned in propulsion since the 1980s until 2008-2009 when it suffered from adverse recession, and increased unemployment. The U.S.A experienced a dwindling rate of economic growth following the period of recession. However, the country intensified in propulsion of relevant aspects that would capacitate U.S.A to recover from the economic situation that also affects the balance of payment (Barfield and Claude, 312). This essay entails of the factors that the U.S.A focuses to use in making positive changes to stimulate economic growth (Gwartney and James, 248). It outlines the theoretical and methodological approaches that the country seeks to use in economic recovery process, asserting relative data sources and the theoretical perspective on the data’s view. The analytical approach of US economic policies The U.S.A needs to set an analytical approach to the economic issues and establish fiscal policies to stimulate growth, control amount of money in supply, dictate inflationary rates and of the dollar, and subsequently reduce the unemployment levels. The government should be certain of the factors that would help it achieve economic stability to the desired level. The United States should be observant on the whether the factors will positively or negatively affect the country at the long run (Gwartney and James, 250). The U.S.A engages in diverse economic prospectus criteria, ranging from macro to micro variables of forecasting for economic propulsion. The United States observes on the psychological impacts that a given policy would reflect from the economy. Therefore, the economy practices scientific theoretical approaches on the immediate factors of production, for example, the demand and supply variables, interests, and capital basis of the economy and labor. Theoretical and methodological approaches to the US economy The Keynesian theory as an approach to the economy of the United States would propel economic growth if well practiced. The theory stipulates that, during the short run period, productivity of the economy shape up in accordance to change in demand. The theory declares that the supply may not increase during an increase in the level of demand but may instead remain constant thus leading to an increase in prices, which consequently results to high costs of living, demand for salary increments, increased unemployment, and subsequent increase in inflation (Barfield and Claude, 314). The United States could adapt to the theoretical approach, which further inhibits the express authority of capitalists. America practices a free market enterprise whereby the investors make decisions on prices depending on the changes in market variables. The United States of America suffered economic crisis between the year 2007-2009 and eventually resulted to poor exchange value of the dollar against other currencies in the world (Majmundar and Malay, 43). America suffered intensely during the crisis due to the increased rate of unemployment, which implied negatively on the gross domestic product (GDP) because of the reduction of per capita income. America could view this aspect of fall back from another perspective, mainly by imposing controls on pricing whenever the demand of products increases with constant maintenance in supply. America’s approach of forecasting the future through leading economic indicators could also help the country realize economic prowess again. The index criterion is a methodological approach that eyes on the bank lending rates and the possible changes in the economy. The Keynesian approach emphasizes that federal bank should restrict on the amount of money in supply (a monetary policy) to ensure that the country does not suffer from inflation. The country should focus on the theoretical approach since, reduction of the amount of money in supply would press the economy to operate on the available balance of payment, and the country’s economic variables would slowly reshape naturally to a favorable position in the foreign exchange market (Majmundar and Malay, 45). The United States of America shows an exemplary methodological approach to positive economic factors. upon the various approaches, America could adapts to leading economic indicators to prospect positive changes in the future, the retail sales approach to depict future consumer demand aspects, and the factory order approach to ascertain future growth in output. The country could further embark on the consumer confidence index to establish the possible future purchase model, and trade deficit factor approach (Barfield and Claude, 318). Economists argue that the approaches coincide with diverse market variables that resulted inflation thus; the country should observe the prevailing policies in accordance to the perceived future changes and in relevance to the economic approaches. The country abides to the Friedman’s theory of monetary controls and implementation of relative monetary policies. The American economists uphold to the theory of monetarist to shape supply during the rise in demand. The economists observe that the theory would coerce the government to ensure that workers would not demand for increment in salaries whenever America expects an inflationary threat. The economists observe that whenever the government forecasts a future a future threat, it will subsidize the prices of necessities, ensure that employees do not gain salary increments, and impose measures on pricing against the will of the businesspersons. American economists observe that the theory would push the government to reduce tariffs that are likely to injure future economic factors. Through reduction of the tariffs, the economy of America would probably steer towards growth since the market variables are likely to reshape naturally and positively through the theoretical approach (Majmundar and Malay, 46). Similarly, adherence to the theory would create an equilibrium point and the country would observe increased employment rates, foreign exchange rates, and subsequent increase in the gross domestic product (income per head), and gross national product (GNP). The application of monetary policy and the fiscal policy On the economic recovery process, the country’s economists to the Bush and Obama administration mentored a criterion that they would use to merge the monetarist policy from Friedman, and fiscal policy from the Keynesian theory, in order to set specific objectives to enhance decision making while maintaining relevance to all market variables. The Federal Reserve amassed securities valued at $2 trillion dollars following the 2008-2009 recessions and the objective was to reduce the amount of currency in supply, and limit government spending. Therefore, the Federal Reserve purchases worth $300 billion, $175 billion, and $1.25 trillion dollars on treasury securities, agency debt, and agency mortgage-backed securities (Lounsbury and Hirsch, 309). The administration further fuelled over $ 1trillion dollars to through tax cuts and spending increases and this fiscal policy aspect stimulated gross domestic product 4.2%. To that extent, the economists establish the reality that America has the ability to recover from further recession by employing the two contradicting theories in a tailored manner. Cyclical positioning period with expansion and contraction of the economy The country’s policies propelled tremendous economic growth since the year 2009, with a relative increase in GDP. The highest marginal implication on the GDP was an overall increase by 3% throughout the years of 2009-2011. However, the GDP decreased to a low rate of 1.3% in the 2011 financial year. Therefore, the policies may expand and contract the GDP if the production variables do not maintain a state of equilibrium. The policies steered stability and the country perceived growth probability, and the aspect revealed when the banks eased the lending rate techniques following stability. An increase in the lending rates stimulated entrepreneurial practices and the country slowly adapts to a recovery process. The rate of spending increased gradually, and more job opportunities were provided accordingly (Lounsbury and Hirsch, 310). Therefore, demand increased because of increased income thus; production factors and market variables coincided to relative point of equilibrium (Gwartney and James, 252). The economists establish that with continued harmony among the economic variable, inflation would gradually decrease, and United States would recover the global presence it enjoyed before the recessions. United States observes an increase in productivity and profitability because of the consequential rise in demand for goods, which propels increased productivity and the sales made to cater for the demand lead to increased profitability. Manufacturers have the ability to produce in order to cater for the rise in demand, from the local consumer and the global economies. Statistics imply that, America would experience increased growth in the foreign revenue due to the demand of exports (Gwartney and James, 254). Foreign markets readily accept the dollar since American liberalization policy makes the currency the exchange currency in the global transactions, and bearing this in mind, the dollar will imply positively in the foreign exchange value (Majmundar and Malay, 47). The foreign returns will thus, lead to reduced rates of inflation in America and a further participation in leading market economies (Lounsbury and Hirsch, 312). The rater of employment increased with the creation of approximately 3 million jobs, while the capital markets authority catapulted by a rate of 90% in capital recovery. Chances that the economy is presently at a turning point The country’s economy could be dwindling because of war investments, and this factor drains the per capita income of the population. Economists observe that, when the authorities deviates from focus on the war and focuses on the economic variables, growth rate is likely to depict an abnormal rate of increase. With the practice of the fiscal and monetary policies, the country would further fuel more monetary incentives into the economy to fuel demand (Gwartney and James, 260). Economists observe that, when the demand of goods will increase due to reduction of prices, thus the administration should offer subsidies. On increased demand for products, productivity and supply will gradually increase, and the levels of employment will increase accordingly. This focus will propel the economy past the perceived annual rate of 3% in the GDP. The US should target to propel savings rate among the citizens from the current 4.7% to at least 8% and this would increase the consumer power to access mortgages and purchase durables. Therefore, shift to the purchase of durable commodities will maintain a point of equilibrium in the purchase model of other products thus; the threat of inflation eventually erases (Lounsbury and Hirsch, 314). Conclusions United States of America strategically uses the Keynesian fiscal policy and the Friedman’s monetary policy, inversely such that the two repellant policies only depict the positive aspect of performance (Gwartney and James, 264). The implementation is necessary in economic conflicts control as the policies serve to enhance the performance of economic variables (Lounsbury and Hirsch, 314). Therefore, the US economy is gradually improving and pacing to an excellent economy through the harmonious economic policies that shaped demand, supply, incomes per head, and a higher balance of payment from the improved export trade. Bibliography Barfield, Claude E. Internet, Economic Growth and Globalization: Perspectives on the New Economy in Europe, Japan and the Usa. Berlin [u.a.: Springer, 2003. Print. Gwartney, James D. Macroeconomics: Private and Public Choice. Mason, OH: South-Western Cengage Learning, 2009. Print. Lounsbury, Michael, and Paul M. Hirsch. Markets on Trial: The Economic Sociology of the U.s. Financial Crisis. Bingley, UK: Emerald, 2010. Internet resource. Majmundar, Malay K. Assessing the Impact of Severe Economic Recession on the Elderly: Summary of a Workshop. Washington, D.C: National Academies Press, 2011. Print. Read More