The Historical Performance of the US Economy - Essay Example

College Macroeconomics 28th February A Case Study Solution: The Historical Performance of the US Economy Macroeconomics entails three basic areas of study under which all the other factors are explained. They are gross domestic product (GDP), inflation rate and unemployment rate. They are of main concern to the investors because when a business from another country wants to operate in, let’s say US, the investors from the foreign country need to have a look on the economic factors closely. If the economy of United States is favorable, then they are more likely to start their ventures in US. Gross domestic product shows the total income of everyone in a specific country. Here, we are talking about US. It is said that GDP grows with time. This is because of the reason that the needs of a country are rising day by day due to an increase in the population. Therefore, it becomes necessary to fulfill those needs, and manufacture products and offer services so that the lives of people are made better. Obviously, there has to be a specific number of people working to undergo this process and they would be paid as well. The overall demand would be met and supply would be increased. The bigger picture would then show that the gross domestic product would definitely increase. It is clearly understood from the above process that when GDP grows, the unemployment rate falls. The reason is that more people would be hired to fulfill a country’s needs and those employees would be paid for their services in the end. It can be said that both these factors, GDP and unemployment rate, are indirectly related to each; when one rises, the other falls. If we look at the World Bank data and make some cross country comparisons, we can better understand how US has been performing when these three major macroeconomic factors are concerned. According to the data presented in 2009, if the whole world’s GDP is taken to be 100 percent, then out of that US takes the second place after Europe. Europe has 22 percent of the GDP’s proportion while US 20 percent of it. (Suranovic, 2013) Similarly, if we look at the unemployment and inflation rates then US has 10 percent unemployment while Europe has 9.8 percent. The inflation rates for both of the countries are positive but relatively stable. Europe has 0.5 percent inflation rate while US has 1.8 percent till year 2009. It is said about the inflation rate that if they are too high, the situation can have bad impacts on the economy while if they are too low, the situation can deflate the economy. Moreover, if the unemployment rates are too low they will create problems as well. The aggregate demand of goods and services will go beyond than the supply and companies will have to raise the salaries vigorously. Most of the research data by some renowned institutions, especially the World Bank, show that US gross domestic product has been increasing very smoothly after the year 2000. By a well known research, it would not be wrong to say that from the year 1947 till 2013 the US GDP has increased 3.2 percent in the fourth quarter. This is because of the reason that consumer spending increased. US is known to be the most advanced country in terms of science and technology, finance, insurance, real estate, health care, business and education, retail and wholesale, import and export, etc. The average inflation rate from the year 1914 to 2014 is 3.34 percent. Most of the increase in price was observed for shelter and medical services. As the living standards of people of United States rose in the past few years, the requirements for good living also escalated considerably faster. The basic reason lies within the consumer’s high buying power and willingness to spend on their need fulfillment. The average unemployment rate from the year 1948 till 2014 has been 5.83 percent. The unemployment rate did not stay stable in this country because there was a record low unemployment rate for five years in January 2014 which was 6.6 percent. Economic recessions and depression also determine the unemployment rate. For instance, during the depression of 1930’s the unemployment rate was strikingly high. When the economy stabilized later on, people started getting jobs and their living conditions raised by a long way. When we look at these three major macroeconomic factors in details, we will notice that there are other microscopic factors that create a major impact on the economy in general. For instance, GDP comprises of GDP growth rate, GDP annual growth rate, GDP constant prices, gross fixed capital information, etc. When we talk about inflation, it encompasses consumer price index (CPI), core consumer prices, export prices, GDP deflator, etc. Taking a closer look on the unemployment factors, it involves elements like average hourly earnings, employed persons, government payrolls, job vacancies, labor costs, etc. There has been extensive data on various internet websites and libraries that show US economy is flourishing well for the past few decades. This is not just a generalized statement but the statistical results are there to support this argument that US has survived well from The Great Depression in 1930’s and has since then proved it that the country is not only self sufficient but also is in the position of helping the other countries worldwide. Each country has ups and downs but what matters the most is that how it manages in such situations. The economy of US is standard example in this context because there were not only three major macroeconomic factors that were playing their part in difficult situations but also the microeconomic ones were there too. Above all, it was the sole responsibility of the government of United States that had to trigger strategies in such a way that the country managed cleanly during hardships. There had been changes in the government as well but in the end, the United States became a benchmark for the global economies. Works Cited Suranovic, Steve. “GDP, Unemployment, Inflation and Government Budget Balances.” International Finance: Theory and Policy. V. 1, 2013. Flat World Knowledge. Web. 28th February 2014. Read More