U S Economy Evaluating the Current State of Essay

  • Length: 5 pages
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  • Subject: Economics
  • Type: Essay
  • Paper: #64743812

Excerpt from Essay :

U.S. Economy

Evaluating the current state of the United States economy

Although many are of the opinion that the recession that the globe was forced into in 2008 is finally uplifting and signs of economic revival can be witnessed. The resulting high levels of debt and unemployment from the recession had dragged many countries, especially the United States in to a state of economic turmoil. In order to reverse the effect of such factors, the United States government has implemented strategic monetary and fiscal policies. These policies attempt to rejuvenate the economic position of the country by not only controlling the supply and demand via tax cuts but also through re-setting the interest rate level in accordance to the low level of disposable income available to the unemployed / lowly employed citizens of the United States can acquire loans to allow easy spending and repayment of the loan as well.

Introduction

During the financial crisis of 2008, the economy of the United States of America witnessed many economic problems. A huge number of people belonging to the national workforce were made redundant, businesses collapsed in the country and high living costs made it difficult for the people of America to be able to sustain on lower incomes. The biggest problem the financial crisis brought for the people was the rise in debt for them during times they found it difficult to pay it off.

Now, the economy of the United States of America has improved comparatively to the pre-2009 period. This has been due to the economic policies, mostly involving the fiscal and monetary policies that the United States government has brought in place and action to act as a remedy for the prevalent economic problem. However, although the economy has improved the financial crisis, it cannot be said that it has made complete recovery and is booming in the current time.

The strategic implementations of the economic policies by the United States government undoubtedly aided in the recovery of the economy, but these cannot be assessed properly unless the results are compared with the pre-financial crisis period. The evidence that these policies have benefitted the country and its population with complete efficiency needs to be analyzed with the help of various economic factors. Using such analysis will aid in developing any suggestions that can be made to further develop more efficient economic policies.

Unemployment

The foremost economic factor that would be taken into consideration to evaluate the current state of the United States economy is the unemployment factor. Unemployment is such an economic factor that is affected by various other factors prevailing in the economy. Technology is one of the factors that have an impact on the unemployment rate. Due to its nature to be able to perform human tasks with more speed, care and precision, technology and machines continue to impact the employment of the working force. The more the technology becomes advanced, the higher the automation of businesses occurs and thus, more people are rendered jobless. Similar has been the case in the United States. The demographic factor also is key contributor to the unemployment rate. As the level of education increases through the country, the labor force decreases and people target jobs according to their qualifications. This increases the number of educated and qualified people after fewer active and available jobs. This has the same impact on the employment rate in the United States.

According to statistics, from 2003 to 2007, the unemployment rate had been decreasing steadily and arrived to its lowest point of 4.4% by the start of 2007. Then eventually the financial crisis began and thus, businesses began to cut costs by eliminating any employment costs that they could decrease. From 2008 to 2010, the unemployment rate shot up dramatically from 4.9% to 9.9% (Labor, 2013). The introduction of the American Recovery and Reinvestment Act by the President Barack Obama led government targeted to fund the economy with an approximate $800 billion in the form of tax cuts and government spending on public benefits (CBO, 2012). The Act proved to be successful for its purpose, as employment rate since then has been steadily decreasing and from the highest point of 10% in 2009, the current rate in May 2013 has fallen to 7.6% (Labor, 2013).

As a person would be unemployed, he or she would have access to a lower disposable income. This will force them to control the spending and thus result in a decrease of their demand. This cumulative decrease in demand affects the economy in such a way that the production of goods other than everyday necessities decreases as demand is not there in the market. Thus, the overall impact on the national aggregate demand decreases. As unemployment falls gradually, the aggregate demand in the United States has began to rise again as more people have jobs now and are earning enough disposable income to spend on the luxury items as well. However, unemployment reduces the supply of labor in the country as well. Same has been the case in the United States. The aggregate supply of labor has reduced and thus, the businesses crippled down since the financial crisis. With the new Recovery Act in place and actively running, the labor supply has increased and has began to benefit the businesses as production levels have been increasing.

Interest Rates and Consumer Income

Another economic factor that would be used to evaluate the current state of the United States economy would be the interest rates in the country. One of the main reasons that led to the financial crisis in 2008 was the prevailing policies regarding to the interest rates. The financial crisis had primarily occurred because of the high interest rates existing at that time. The public was been given loans on lower interest rates for the acquisition of mortgage properties, but these rates would bubble up step-by-step so that repayments could be made easily. This policy backfired on the United States government as from the beginning of people failing to repay their loans, the interest rate shot up at a faster pace, leaving the general public in high amounts of debt to be paid to the banks, mortgage houses and insurance companies. Since 2004, the interest rates began to increase steadily and reached at the point of around 5.2% by mid-2006 (FED, 2013). Such dramatic increases led to a negative impact on the general public as people found it difficult to acquire loans as high interest rates deterred them from doing so. Thus, the spending power decreased and so did it affect the overall demand and impacted the economy negatively.

The government then acted to decrease the rate to a lower level whilst there was high unemployment and decreased spending power. The interest rates began to fall in 2008 and since 2010 till present, the United States government has set the interest rates to 0.25% with the mindset that this would make it easier for the general public to acquire loans and increased the spending and introducing the money in the economic system. The interest rate continues to be at 0.25%, with the government aiming to keep it low until the unemployment rate decreases to an optimum level.

As the interest rates are lower, the public has an easy and cheap access to loans that they would spend readily to acquire assets such as houses, cars, etc. As more people carry out such spending, the aggregate demand and supply for goods increases and the economic conditions improve gradually. This also results in the rise of the consumer income as businesses begin to earn more and therefore they hire more people to achieve higher production. The economic cycle functions positively in this manner and slowly the economic conditions begin to improve.

Recommendations

Considering the above evaluation of the current situation of United States economy, it would be recommended to the President to employ such policies that have an immediate effect on the employments, i.e. An estimated number of 125,000 jobs must be created every month to bring down the unemployment rate to the set targets. Moreover, the government should cut taxes to significant levels in the following years to promote economic development and increase in wealth of an average American citizen. However, the tax cutting should only target those members of the American public who fall in the middle class or lower level of income earners. In this manner, equality of wealth distribution will increase, allowing the poor members of the public to be able to improve their living standards. Moreover, consideration should be made to apply a super - tax on the rich members of the country so that burden decreases from the average or lower income group of the country. This super - tax model can be based on the example of the French parliament setting up a very high tax on the rich sport personnel (Samuel, 2013). Additionally, the government should increase spending on public welfare programs such as healthcare and unemployed compensation benefits.…

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