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Introduction The purpose of this paper is to study the current economic conditions of the United States. To study current economic conditions, one must analyze several key economic indicators. These indicators are as follows: GDP and its components, unemployment, inflation, productivity, and the stock market. After analyzing these economic indicators, one must look at the factors that affect these endogenous variables. These causative factors are as follows: monetary and fiscal policy, consumer and business confidence, the economic conditions of our trading partners, and economic growth. After studying causative factors, one could use this knowledge to see the impact on various economic models. These models with include the IS-LM curves, the ND-NS curves, and the AD-SAS-LAS curves. To finish this paper, a look at the future of the US economy will be determined. Endogenous Variables Gross Domestic Product (GDP): At the beginning of the 1990’s, the US economy faced several problems that affected the growth rate of Real GDP. The main cause of these problems was the demand and supply shocks caused by the Gulf War. With the increase in oil prices, there was leftward shift in the aggregate demand curve. Investment also took a huge hit. With these two factors, there was a decrease in productivity and an increase in the unemployment rate. Fortunately, this recession ended in 1991, and a huge economic growth began. During the rest of the 1990’s, there was a huge growth in the US economy, unlike anything ever seen before. Real GDP was growing at a quarterly rate of 2 – 7%, which is impressive given that the average growth rate is 3%. During these times, investment was high and the unemployment rate was low. These times were booming with productivity which caused rightward shifts in the aggregate demand curve. However, these times were not meant to last forever. In March 2001, the economy had another contraction. For three straight quarters, Real GDP had negative growth. This has hurt the present economy by lower consumer and business confidence. This is important, because the personal consumption accounts for 70% of Real GDP. Also, this contraction has caused business to invest less heavily. Due to the increases in investing in the 1990’s, there is not as much need for capital equipment used by businesses. The government has tried to stimulate the economy through tax cuts and more government spending. However, this has done little for our economy. Also, the trade deficit has continued to grow. But to make matters worse, there have been several outside forces that have hurt the US economy during the past two years. They are the terrorist attacks on September 11, Operation Iraqi Freedom, and the current SARS epidemic. There is some good news. The US is now currently having quarterly gains in Real GDP in the range of 2 – 6%. On the next page are several charts representing the quarterly growth in Real GDP and the components of GDP as a percentage of total Real GDP. This data was collected from the FRED database. Unemployment: Another blessing of the economic boom of the 1990s was the enjoyment of a low unemployment rate. During this time unemployment was falling until it reached a rate of 3.9%, a number considered impossible by some economists. However, this was not meant to last. After the contraction of March 2001, the US unemployment rate shot up to 5.7% and has even reached 6%. This hurts the confidence of the consumer, especially those who are without work. Even with the gains in quarterly Real GDP, this higher unemployment rate has caused many to question if the US has come out of the contraction. These charts represent the number of people unemployed and the unemployment rate since 1993. This data comes from the FRED database. Inflation: Another blessing of the 1990s was a relatively low inflation rate. During this time, inflation was between 1 – 5%, and at some points was close to 0% growth. However, during the current contraction of the US economy inflation is now growing at rates of 4 – 8%. These growths are mainly due to the increasing costs of oil prices due to speculation involving Operation Iraqi Freedom. However, in the late part of 2001 and early part of 2002, there were several points of negative growth in the inflation rate. It must also be noted that without good and energy inflation grew at a rate of 1.5 – 4%. This chart shows this data. Most economists believe that there is a tradeoff between unemployment and inflation. However, in the 1990s, this was not the case. The US enjoyed low unemployment and low inflation. This is reflected in the misery index.
Approximate Word count = 3112
Approximate Pages = 12.4
(250 words per page double spaced)
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