Economic Parameters of the USA and UK - Case Study Example

ECONOMIC PARAMETERS OF USA AND UK Word count: 2064 Introduction Economic patterns and aspects are universal since they highlight and focus solely on the wealth (its redistribution or retention), production and consumption as major concepts (Auty, 2001). Thus, this paper will give a holistic analysis and approach in relative terms on the economic compositions and aspects of the United Kingdom and the United States of America. As a matter of principle, this exposition will focus on the economic phenomenon and aspects the make these two economies similar or different. A careful and guided focus will be attached towards the reasons as to why the GDP of the USA is relatively higher than UK, amongst other economic variables that may bring the intended distinction. Economic trends in the United Kingdom and the United States of America To begin with, there are several factors that contribute to the general composition of an economy, such that those factors would directly contribute to the output of the whole economy such as population. Thus, a country with a high population is likely to have a relatively higher workforce and an even bigger pool of market (Jappelli & Pagano, 1994). The United States of America, according to a survey conducted and presented in the OECD, has slightly over three hundred and sixteen million people. The United Kingdom on the other hand has an approximate population of about sixty four million people. Thus, the general composition of markets for these nations would differ in this respect and line of thought. A huge population does not in itself imply economic growth, rather, it is the labour force and their productivity that matters the most. For instance, out of the three hundred and sixteen million people in the United States of America, less than half of them have their own employment and businesses. The rest of the population are either non-employed or are in part time employment. The labour force percentage ratio in the United States of America in accordance with the latest survey of OECD, stands at seven point four percent, while in the United Kingdom it is seven point five percent in comparative term to the working population. Secondly, it is critical and important to analyze the composition of the population in terms of the gender and age. For instance, in the United States of America, it was estimated that close to twelve point nine percent of the population is elderly in terms of age. While in the United Kingdom, the postulations were estimated to be at five point five percent. In retrospect, this portion of the population would be directly dependent on their families for survival and thus, they would form the portion of consumers in the economy or country. In principle, it is important to stress that at this level, population (composition) and the employment dynamics are two indicators of economic growth and development apart from inflation and unemployment levels as discussed below here in. Economic policies in the United States of America and the United Kingdom Economic policies are the guiding principles and the operational mode that acts as the borderline as far as the concept and notion of wealth creation and its distribution is concerned. In the United States of America, it is common knowledge and perception, of its support for capitalism (Mahadevan & Adjaye, 2007). This is to say that the America government and the society at large are skewed towards accumulating wealth at the expense of the welfare of the citizens. This is to imply that the government has a way of endearing itself to the business owners and the wealthy people in the society. However, in the recent times, (since the year 2008) when a new government came into place, the United States if America has reviewed the economic policies and approaches to ensure that the tax regimes are pegged on wealth and investment. This is to imply that a person is charged tax according to the level of wealth that such a person has or possess (Kim & Lau, 1994, p. 271). By extension, the wealthy have had their taxes increased so as to cover the gap left by the relatively low income earners in their regimes The United Kingdom on the other hand is a society subdivided into the central and the local government with each regime having a unique tax and economic policy. The local government levies parking fees and collects rates from businesses within their localities. The central government on its part gets income tax from corporates, national insurance contribution and VAT (value added tax). It is safe to assert and stress the fact that it logical and reasonable because in the recent times the UK has experienced financial crunch. This led to reduction in the number of jobs in the public sector plus a subsequent reduction in the spending habits by the government (Berthélemy & Tichit, 2004, p. 267). Comparatively, the simple regression models of these two economies relative to the GPD of the two countries would be given in the form below. Assuming that it is a closed economy without export or imports. GDP is: GDP = C + I + G G-government expenditure in the respective countries GUSA= G (T)-tax from the wealthy GUK= G (t0+t1): where t0—tax from local government, t1-tax from central government. Economic prospects From the face value, there are prospects of economic growth for the two countries. However, if the latest trends are anything to go by then the number of unemployed in the UK will go up. The reduced spending means jobs would be lost and a higher percentage of the population will depend on others for their survival-and become consumers (Love & Zicchino, 2006, p. 191). The USA is also adversely affected because a bulk of the big multinationals may reconsider leaving the United States of America for other countries with friendlier tax regimes. Relationship GDP: in the two countries and extent to how they can exhibit correlation relative to the two countries a) Household saving rates: There exists a positive correlation between GDP and saving rates, in that high saving rates implies high GDP. If the Gross Domestic Products of a country is high, then the people are assumed to be within a well off range. Infrastructure: Capital investments such as airports are only realizable with high GDP, because after consumption the country would have enough to invest in infrastructural development such as airports (Costello, 1993). In the United States of America and the United Kingdom, there is a considerable level of establishment in terms of infrastructural development because the GDP is relatively high if postulated against other nations. b) Total expenditure on health per capita: Expenditure on health depends on the level of GDP, thus as the GDP of a country increases, the economic incentives on health such as insurance covers and subsidies would be readily offered (Beck & Levine, 2004, p. 432). Critical review of the report There are weaknesses in this report because it overlooks the export and imports sections and components in the economies. This is a shortcoming because it virtually impossible in the practical and real sense for a country to operate without the imports and exports sections (Knack & Keefer, 1995). Similarly, in the prospects section, it does not offer any practical remedy on what corrective measures and approaches are. This is a weakness that should be looked into thoroughly and critically. A graphical representation of the parameters Age-shows the percentage composition of the elderly and it is given in years Employment levels –the ratio of working relative to the unemployed given as percentage fraction The Gross Domestic Product is measured in terms of the United States of American Dollar and it is in trillions. The USD is the standard measure of currency in this aspect and line of thought. Given the variables articulated above, the chart shows a positive correlation between the parameters used in the analysis of the GDP in these two countries. Inflation rates in the USA from 1993-2013 Column1 Mean 2.285 Standard Error 0.119489 Median 2.5 Mode 2.5 Standard Deviation 0.534371 Sample Variance 0.285553 Kurtosis -0.72183 Skewness -0.75146 Range 1.7 Minimum 1.2 Maximum 2.9 Sum 45.7 Count 20 This data analysis from excel spreadsheets shows a negative skewness of 0.7514 relative to prospects of improving the inflation rates in the USA. This is to say that if the current circumstance and situation is not checked, then the economic prospects in the USA may be dim because the data is skewed towards negativity (De Bruyn, Bergh & Opschoor, 1998, p. 262).. The standard deviation on the other hand shows that from the mean rate of inflation, the country has maintained stable or median inflation rates of approximately 0.5343. Thus, there are no extremes here because the inflation range has been relatively predictable and within manageable levels. Subsequently, future economic prospects would lie within the range it has been in the past without extremes. Subsequently, the economic policy of increasing taxation on the wealthy explains the reason as to why the inflation rates in USA are higher than UK. This is so because USA has a higher variation from the mean relative to USA, and it is occasioned by the measure and approach of increasing the level of tax in the country. Inflation rates in the UK since 1993 Column1 Mean 0.025394 Standard Error 0.002439 Median 0.0268 Mode #N/A Standard Deviation 0.010346 Sample Variance 0.000107 Kurtosis 0.85882 Skewness -0.58617 Range 0.0425 Minimum 0.0003 Maximum 0.0428 Sum 0.4571 Count 18 Skewness here is a smaller negative value, as compared to that of USA. This shows that the economic prospects in the UK seem brighter since the variation from the mean or the standard deviation and the skewness towards the prospects of better economic times seem brighter. Comparatively, it would be safe to assert that there are better prospects of economic growth and times in the UK than in USA, since the skewness and standard deviation are relatively smaller. Unemployment rates in USA from 1993 to 2013 Column1 Mean 6.047619 Standard Error 0.369596 Median 5.6 Mode 5.8 Standard Deviation 1.6937 Sample Variance 2.868619 Kurtosis -0.15283 Skewness 0.957102 Range 5.6 Minimum 4 Maximum 9.6 Sum 127 Count 21 The data shows a high positive correlation with a steady increase in the rate of unemployment. The range is relatively high between the years, thus showing extremes in the rates of unemployment. The skewness is a high positive correlation exhibiting that the unemployment rates is on a positive increase. The standard deviation shows the variance or variation from the mean value of unemployment is high then there are extremes between the lowest and highest employment rates. It shows that in future the unemployment rate may spiral out of the available data, because the standard deviation, range and skewness are high. Unemployment rates in the UK since 1993 Mean 6.584278 Standard Error 0.411396 Median 5.789 Mode #N/A Standard Deviation 1.745406 Sample Variance 3.046443 Kurtosis -0.27625 Skewness 0.916736 Range 5.603 Minimum 4.788 Maximum 10.391 Sum 118.517 Count 18 The skewness and the standard deviation in UK are higher in the aspect of employment levels implying that the unemployment levels in UK are higher than in the USA. This is so because the comparative ratio of the two variables in the USA and the UK postulates a larger number in favor of UK, thus explaining the reason as to why the GDP of USA is higher than UK. It goes without saying that the GDP of a country is a function of employment levels and inflation. However, since the unemployment level in UK is higher than USA, (because of the standard deviation), then it is expected that the GDP of USA would be higher. This is also supported by the range of the variables of UK which are higher than USA, confirming the same fact and logic. Conclusion The above paper has drawn and established the functional relationship that exists between the economic parameters and indicators in the United States of America and the United Kingdom. This is to say that the tax regimes, the composition of the population, inflation and employment levels and rates as components of Gross Domestic Products form crucial part of the economic indicators. The very fact that these variables as factors in the two countries postulate and show a similar pattern and line validates their use as parameters in economic analysis. References Auty, R. M. (Ed.). (2001). Resource abundance and economic development. Oxford University Press. Beck, T., & Levine, R. (2004). 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