Introduction
As the currently released macroeconomic data indicates, the United States economy has not substantially recovered from the financial crisis that occurred in 2009. The U.S. economy continued to underperform despite the various macroeconomic policies employed to boost the economy. The data indicates that employment rate grows at a slower rate than the population growth in the country, and hence the high rate of unemployment. Another macroeconomic issue that has been bringing down the U.S. economy includes the high inflation, higher interest rates and gross domestic product that have been increasing at a decreasing rate (Plosser, 2012). Therefore, this paper provides an insight of the various economic issues affecting the U.S. economy.
According to the current macroeconomic data, for the past decade, the unemployment issues have been disturbing phenomena in the economy. Although from 2004 to 2014 the unemployment level has increased from 5.7% to about 6 percent, this has not been accounted a substantial improvement. However, this was also an improvement for 2010 where the employment level was as high as 9.7 percent. The deterioration of the employment level can be traced from the 2008 financial crisis that affected not only the U.S. economy but also the global economy (Bureau of Economic Analysis, 2014). The current situation of unemployment remains high above 6 percent in the current fiscal year.
Many economists expected that the harsh winter in the current year was going to deteriorate the economic growth by 1.6 percent less than the previous year, 2013. The Fed also expected that the labor market is growing weaker than anticipated and believes by keeping interest rates low is going to improve the situation. In addition, it is anticipated that the unemployment rate is going to be around eight percent by the end of year 2014. However, the GDP is anticipated to grow at annual rate of 2.25 percent between 2019 and 2023.
According to the current data released in 2013, the current median consumer income in the U.S. scores at $52,250. This has been considered as a 0.26 percentage increase from the previous year, 2012. As a result, the real consumer income in the country is growing, although at a slower rate of $133 or 0.26 percent (Bureau of Economic Analysis, 2014). However, the interest rates are lower but have increased from 2012 to 2013 by 1.5 to 1.7 percent. This can be considered as a relatively lower interest rate compared to the year 2009 when the interest rates were 2.5 percent.
As a result of the low-interest rates, the aggregate demand has increased in the economy. This is because the low-interest rates induce investment because of the reduced cost of borrowing. Consequently, the consumers are making larger purchases such as electrical appliances, home and cars because they can acquire loans at reduced cost. In addition, the aggregate demand has increased as a result of changes in expectation. As illustrated above, the economy is optimistic about the future, and this will induce more consumers to make large purchases and new investments. The unemployment level has also resulted to insufficient aggregate demand in the economy (Plosser, 2012). On the other hand, the improved inflation rates are anticipated to remain low in the following years and hence lower prices in the future. Consequently, this is expected to induce the aggregate supply.
In conclusion, in order to mitigate and improve the current macro and micro-economic situation in U.S., the federal government needs to implement expansionary fiscal and monetary policies effectively. The monetary policy involves reduction of the interest rates and reserve requirements by the central bank to an equilibrium point to induce saving and investment at the same time. On the other hand, the fiscal policies involve cutting taxes, increasing transfer payments and government expenditure. As a result, this is anticipated to reduce the unemployment level in the economy.
Bureau of Economic Analysis. (2014). U.S. Economy at a Glance: Perspective from the BEA Accounts. Retrieved August 17, 2014, from https://www.bea.gov/newsreleases/glance.htm
Plosser, C. I. (2012). Fiscal policy and monetary policy: restoring the boundaries - U.S.Monetary Policy Forum, The Initiative on Global Markets, University of Chicago Booth School of Business, New York, February 24, 2012
