Macroeconomy of USA

Macroeconomy of United States

By Name XXXXX

Student ID

Course XXXX

Professor XXX

25 March 2008

1 . Introduction

This aims to present the overview of the economy of United States (US ) in a macro perspective , briefly discuss the movements of the economic variables , and present some government policies . The times series data from 2004 to 2007 are from the World Economic Outlook of the International Monetary Fund , Bureau of Labor Statistics of the US Department of Labor , and Bureau of Economic Analysis of the US Department of Commerce

p 2 . Review of US Economy : Prior to 2004

US economy had experienced three episodes of recessions in 1980s , 1990s and 2001 - growth in gross domestic product (GDP ) dropped significantly real income sunk , unemployment rates peaked , inflation rates shoot up and other economic activities fell down . These recessions and other economic issues challenged the government to implement expansionary programs and measures to bring the economy back to its normal track

3 . Gross Domestic Product

Figure 1 presents the four-year trend of US real GDP (the overall indicator of the economic performance ) from 2004 to 2007 . The economy produced a real GDP of 10 .6 trillion in 2004 . It increased to 11 .6 trillion in 2007 , but at a declining rate

Figure 1 . Gross domestic production in constant prices (Real GDP

and real growth rate from 2004 to 2007 (see Appendix Table 1

In 2004 , the economy registered a real growth rate of 3 .6 as it slowly recovered from the 2001 recession . However , Hurricane Katrina in the third quarter of 2005 damaged properties , left people homeless and jobless , and generally , disrupted the income flow of the economy Consequently , real GDP growth dropped to 3 .1 . The effects of the hurricane did not stall the economic progress for long as the government implemented a massive recovery program including housing program (US Department of Homeland Security , 2008 . With the largest single housing recovery program in US history , the housing markets peaked in 2005 and moved the economy towards recovery in the first quarter of 2006 . But the incremental movement of oil prices beyond 70 per barrel (Associated Press , 2006 ) in the second quarter caused the economy to slow down recording an overall 2006 real GDP growth of 2 .9

In the first quarter of 2007 , the housing market started to decline , but the strong export performance boosted up the GDP . In the fourth quarter real GDP growth decelerated to 0 .6 due to a larger decrease in residential fixed investment , a downturn in private inventory investment , and a deceleration in equipment and software (Mannering 2008 . Overall 2007 real GDP growth slipped to 2 .2

4 . Inflation

Overall (or "headline ) inflation is the rise in the general level of prices for goods and services . Several schools of thought provide various views on the causes of inflation - supply shocks and increased cost of production , increased private and government spending , and expectations

Historically , the overall inflation rate is volatile enough to spike up food and oil prices...