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Macroeconomic effects of Hurricane Katrina - Essay Example

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This essay critically evaluates the negative economic effects of Hurricane Katrina on a nationwide scale. This essay aims to provide thorough analysis of the macroeconomic effects of this national disaster. Hurricane Katrina made a major dent in the economies of southern Louisiana and Mississippi…
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Macroeconomic effects of Hurricane Katrina
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Download file to see previous pages Reconstruction activities are expected to restore the level of GDP to what it was before Katrina. Loss of wealth and capital due to Katrina would not influence GDP. GDP is a measure of current activities, not a measure of nation's wealth. GDP would not capture the economic impact nor the devastating loss of life and dislocation associated with Katrina (Reed 4).
4. Katrina's Effect on the Economic Growth
White house economic advisor said in August 31, 2005: "Hurricane Katrina is likely to have only a modest impact on the U.S. economy as long as the hit to the energy sector proves transitory."3 Congressional Budget Office (CBO) expected Katrina to dampen national (inflation-adjusted) economic growth rate by 0.5 to 1 percent only and reduce employment by about 400,000 in the second half of 2005. CBO anticipated that economic growth and employment are likely to rebound during the first half of 2006 as rebuilding accelerates (First 3). The following table summarizes the forecast projections (Reed 3).
Table 1: Estimated Effects of Hurricane Katrina on Economic Growth.4
5. Katrina's Effect on the Labor Force
Katrina destroyed the infrastructure of most businesses in the Gulf Coast. Workers' homes were also destroyed and the labor force decreased substantially in the Coast as people evacuated the area. When reconstruction efforts started pumping money into the region, new jobs started to surface. It would still take time to regain the labor force that existed in the Gulf Coast prior to Katrina. Job losses in the Gulf Coast would overwhelm growth in jobs across the nation (Reed 6).
6. Katrina's Effect on the Consumer Prices and Inflation
It is expected that on the short run, consumer prices will rise due to rise in energy prices....
This essay is one of the best examples of analysis of the destructive impacts of Hurricane Katrina on the American economy. Katrina caused the dislocation of many people, who would need housing, access to health care, education for their children, and means to meet their basic needs.
Destruction of bridges, highways, residential and business property represent a permanent loss in national wealth and capital. Congress has appropriated $62 billion for Katrina relief activities, which would increase budget deficit. Katrina destroyed the infrastructure of most businesses in the Gulf Coast.
Evacuation of the Gulf coast reduced economic activities in the region in the short term, which decreased GDP. Resources that would have been used for investment and spending are now to be used rebuilding. Reconstruction activities generate jobs and income which adds to the GDP. Reconstruction activities are expected to restore the level of GDP to what it was before Katrina. When reconstruction efforts started, new jobs surfaced.
Most economic activities came to a halt as a result of the devastation of Katrina. New Orleans flood accounts for almost half of the total property damage.
Investment in rebuilding the Gulf Coast would allow dislocated inhabitants to return home. Reconstruction activities in the Gulf Coast would help cushion the macroeconomic effect of Katrina. Replacing and rebuilding the capital lost would enable the southern states of Mississippi and Louisiana to regain their abilities to provide their share in national growth.

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