GDP and the U.S. Economy

GDP and the U.S. Economy

According to the Heritage Foundation's Index of Economic Freedom, government spending in the country as decreased slightly over the past couple of years. There was an enormous spike in government spending in the midst of the auto and bank bailout environment. However, as the nation continues to find itself trillions of dollars in debt, public outcry has demanded reigning in on government spending (Heritage Foundation's Index of Economic Freedom, 2013). This has helped decrease government spending in the last 2 to 3 years, after an initial surge at the beginning of the recession. Looking at the graph below, one can see the dip in recent years in terms of government spending. Yet, the percentage of government spending remains incredibly high in comparison to previous generations. We are still at an all-time high of around 45% of the GDP.

(Heritage Foundation's Index of Economic Freedom, 2013)

The years of looser government spending has taken a toll on the U.S. economy. Too much government spending in the past with the bailouts led to a decrease in the overall "score" that the United States receives in the Index of Economic Freedom. Essentially, with the economy so vulnerable already, increases in government spending is actually creating a situation where the national debt is rising at an alarming rate. In fact, "spending at the national level rose to over 25% of the GDP in 2010, and gross public debt surpassed 100% of GDP in 2011" (Heritage Foundation's Index of Economic Freedom, 2013). This was accompanied by increases in federal spending as well in order to fund public programs. As more bailouts were needed, federal spending spiked. However, recently "the election of a Republican party majority in the House of Representatives in late 2010 slowed spending growth, but divided government that has left economic policy influx likely to continue following the reelection of Pres. Obama in 2012" (Heritage Foundation's Index of Economic Freedom, 2013). This new tight policy coming from a conservative Republican majority has influenced a large decrease in government spending aimed at helping curb rising federal debt. When the government simply does not have the money to fund such a wide array of public programs, massive government spending can work against a vulnerable economy struggling to recover. Yet still, 2013 forecasts once again show increases in overall totals of government spending (Trading Economics, 2013). This once again places the economy in danger of incurring even more debt to the currently outrageous deficit. As such, the rate of government spending has continued to fluctuate up and down, hovering around $6 trillion mark.

Question 1B

Data from (U.S. Government Spending, 2013) and (U.S. Department of Commerce, 2013)

Question 2A

Ranked #1

Ranked #51

Ranked #101

Country Name

Hong Kong

Israel

Benin

GDP

$351.1 billion

$235.2 billion

$14.7 billion

Unemployment

3.4%

6.9%

1% (Trading Economics, 2012)

Government Spending as a percent of GDP

88.9 down

39.3 down

86.1 up

Growth rate of GDP

5%

4.7%

3.1%

Data from (Heritage Foundation's Index of Economic Freedom, 2013)

Question B

Hong Kong

Government Spending

Consumer Goods

Year

93.1

260000

2009

93.7

275000

2010

89.6

290000

2011

91

310000

2012

88

327000

2013

Israel

Government Spending

Consumer Goods

Year

35.1

96000

2009

35.4

103000

2010

44.8

109000

2011

41

111000

2012

39.3

114000

2013

Question 2C

With so much conflict continuing around the world, one can assume that government spending may begin to increase. From that perspective, they can then also be assumed that nonresidential fixed investment may also continue to go down. This is based on the qualitative relationship the two variables have with one another.

Question 3A & B