U.S. Economic Assessment

U.S. Economic Assessment

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U.S. Economic Assessment

The global recession that was experienced because of the Financial Crisis of 2008 had significant effects on the American economy as well as other countries around the world. High unemployment rates and slow economic growth are some of the primary effects and factors that show the level of devastation of the financial crisis. The financial crisis had significant effects such as the decline in domestic and international employment levels, reduction in demand for goods and services, both import and export of raw commodities and finished products respectively. The recent financial crisis begun in the United States and other developed states such as the United Kingdom as it proceeded to other countries mainly in the form of trade and foreign direct investments.

The United States economy has witnessed slow growth since the Financial Crisis of 2008 and 2009 as it struggles to adjust to rapid decline in demand for goods and services and high inflation. Research indicates that the real growth of GDP after the end of the recession was significantly low as compared to other recoveries (Blinder, 2013). The Gross Domestic Product (GDP) is an important and effective measure of the productive capacities of the economy. It provides an overview as to the respective short-run effects of the financial crisis on aggregate demand and supply of commodities.

Growth of the GDP is a reflection of the intensive use of capital and labor resources for production purposes. Such are not affected significantly by small fluctuations or changes within the economy. Gross domestic product is affected by three determinants namely employment levels, productivity of an economy and availability of productivity services as based on capital stock within the economy. It is important to note that research indicates that the slow growth has been in four components of the American economy namely the purchase of services and goods by local, state, and federal governments, consumer expenditure, and residential investments in terms of real estate investments.

The ratio of real GDP in relation to the potential GDP in the economy has been growing at a slow pace, which can be associated with decline in overall demand for services and goods in the economy. This is the primary strategy as used by the Congressional Budgetary Office to provide an overview of the health status of the American economy (Blinder, 2013). The Real GDP is a measure that provides the total amount of services and goods produced within the country, and adjusted to eliminate the effects of inflation. On the other hand, potential GDP is seen as the GDP level associated with high and intensive use of capital and labor, with respective adjustments being made to provide an inflation free figure.

Other considerations that are used by the CBO include the unemployment rate of the country. Unemployment levels increased after the financial recession 2008-2009to an estimated 10-9% and gradually started declining in the year 2011-2012. The unemployment levels have moved from 7.8, 8.0, and 7.6 in 2012, 2013 and 2014 respectively. Based on the figures provided by the CBO, the Consumer Price Index (CPI) levels have been provided at 1.9, 1.5, and 2.0 for the years 2012, 2013 and 2014 respectively (Blinder, 2013). Increase in consumer expenditure can be seen as a positive factor in terms of revenues contributions made into the economy through enhanced levels of consumer activity.

From such data, it is evident that the American economy can be seen to be on a path pf improvement based on its status after the financial crisis and subsequent decline into recession. Unemployment and inflation are among some of the two most important measures of economic health. Unemployment and inflation are two measures that illustrate the movement of labor and capital within the economy. In addition, uncertainty is also relative to decline in the aggregate demand for goods and services as it impedes economic activity and holds inflation. In addition, uncertainty has contributed to unemployment and inflation levels by influencing the monetary policies to be set by the federal government and more so impeding economic activity when compared with other recessions in American history.

Consumer uncertainty is an important consideration in that it determines consumer activity and in turn, movement of labor, goods, services and more so injection of capital into the economy. Inflation and employment have a relationship in the sense that low unemployment levels contribute to increases in national output. In addition, as individuals gain new employment that enhance consumer expenditures and thus increase the demand for goods and services (Kates, 2010). Then increase in demand for goods and services results in increase in prices of goods and services, which can be understood as increase in inflation. Thus, it can be understood that unemployment and inflation share an inverse relationship.

Unemployment levels in the United States can be seen to have contributed to the existing levels of inflation, given that high inflation contributes to a low CPI as a result of poor consumer activity. This contributes minimally to the growth of the economy hence the slow pace of recovery of the American economy towards a favorable GDP. The American economy is seen to have a low level of inflation due to the slow and low demand for goods and services associated with incomes and high levels of unemployment (Savona, Kirton, & Oldani, 2011). The CBO notes that changes would be seen in coming years as consumer activity increases because of enhanced levels of employment in the country. In addition, unemployment also influences investments such as real estate and financial markets activity based on the premise of availability of capital resources.

References

Blinder, A. S. (2013). After the music stopped: The financial crisis, the response, and the work ahead. New York: Penguin Press.

Kates, S. (2010). Macroeconomic theory and its failings: Alternative perspectives on the global financial crisis. Cheltenham, UK: Edward Elgar.

Savona, P., Kirton, J. J., & Oldani, C. (2011). Global financial crisis: Global impact and solutions. Farnham, Surrey, England: Ashgate.

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