Develop a Summary on the State of the US Economy - Essay Example

The U.S. Economy al affiliation: The U.S. Economy The United s economy contracted to approximately to 2.9% in the first quarter of the year 2014. The fall is attributed to falling in demand from abroad and harsh weather conditions. The decline of the economy in the year 2014 has altered the doubts of the recovery of the economy (House, 2014). Gross domestic product, GDP fell significantly in the first quarter of the year 2014. The records showed that the fall was the fastest rate ever recorded in the U.S. since the end of World War II.

StrengthRise in prices of housing markets to an average of 7% per annum. Additionally, access of low-interest loans and other credits has been easy. This is a chance to property owners to refinances their mortgages.Car sales have also increased significantly due to sufficient liquidity; consumers can take advantage of cheap financial incentives and price discounts by to buy vehicles. However, car manufacturers do not make profit due to the inexistence of price power. The strength of the United States economy is also increasing due to development of GDP brought by defense spending.

According to Kubarych, (2002), defense spending especially on military hardware is contributing close to half of the U.S. GDP.Weakness The rate of unemployment is still high despite the decrease in the number of job layoffs. Statistics shows that unemployment rate of in the U.S. currently stands at 6% with no hopes of falling. A study by Kubarych, (2002) explains that unemployment rate is likely to increase even further in the future. In addition, most businesses and industries in the U.S. are still making losses despite the economic recovery.

Finally, borrowers especially those going for less credit are under tight restriction from lending institutions.The development of the United States economy is likely to slow down in the next 12 months due to factors such as harsh weather conditions, reduction of spending on both the U.S. and countries Europe. Compared to recovery of previous U.S. economy, the recovery of the current economy is slower. However, increase in government spending will likely to foster the U.S. economic growth. A change of fiscal policy is needed to increase economic recovery of the United States.

Application of expansionary fiscal policy will improve economic recovery. The fact is that expansionary fiscal policy will lead to increase in aggregate demand. The government does this by increasing spending and reducing taxes. The result is that consumer spending will rise significantly due to availability of extra disposable income (Boyes & Melvin, 2011). Economic Principles One of the principles by Sowell is that consumers spent more of their income when prices of goods or services are lower.

The inverse is true, when prices are higher people spends less of their money. I agree with this principle because the law of demand clearly states that the higher the price of goods, the lower the demand and so the inverse is true (Sowell, 2013).Sowell argument is on minimum wage laws; he argued that minimum wage laws will increase the rate of unemployment in the U.S. Sowell explains that higher priced labor will increase the rate of unemployment because more labor is supplied to the market with less demand.

Based on this principle by Sowell, the U.S. economy is going the wrong way due to increasing rate of unemployment. The rate of unemployment is driven by law of minimum wage. Additionally, this rating is evidenced from the study of the weakness of the economy. It is stated that the rate of unemployment in the U.S. is at 6% and increasing. ReferencesBoyes, W. & Melvin, M. (2011). Fundamentals of Economics. USA: Cengage Learning.House, J. (2014). U.S. Economy Shrinks by Most in Five Years. The wall street journal.

Retrieved from < http://online.wsj.com/articles/u-s-gdp-contracted-at-2-9-pace-in-first-quarter-1403699600 > Kubarych, R. M. (2002). U.S. Economic Situation: Strengths and Weaknesses. Retrieved from Sowell, T. (2013). Minimum Wage Madness. Townhall.com. retrieved from