Current State of Economy in the United States

John Lim

Current State of Economy in the United States

According to the second estimate of the 4th quarter GDP report by the Bureau of Economic Analysis, the 4th quarter GDP rose by .1%, meaning the market value of the United States' Goods has risen by a bit, but not much. Also, the inflation rate of the United States has been decreasing since the beginning of 2012. In the beginning of 2012, the inflation rate was at about 3% - by the end, the inflation rate was 1.7%. Although the inflation rate showed a decreasing trend, it maintained itself in between 1% to 2%, indicating a stable economy. The unemployment rate rose by 0.1% in January to 7.9%. Although the unemployment rate slightly in January, the annual unemployment rate demonstrates a downward trend. A downward trend in the unemployment rate is a positive sign, but 7.9% is still too high. Due to the key factors mentioned above, I would like to give the U.S. economy a B- for its results in 2012.

Due to the rising level of unemployment rate and decreasing inflation rate, the short term aggregate supply shifts left, indicating increases in per-unit wages, rent, business profits and taxes. With the short run aggregate demand shifting left, the short run equilibrium will not meet the long-run equilibrium, meaning that the U.S. economy is not at its potential. Also, the unemployment rate is 7.9%. It seems relatively low compared to the past few years in the severe recession, but compared to the unemployment rate before recession, which was usually about 4~5%, it is still too high. Also, the inflation rate may be considered stable with 1.7%, but it is barely hanging at the bottom edge. Due to the low inflation rate and high unemployment rate, the current U.S. economy is on the bottom right side of the Phillips curve.

The beginning of this high unemployment rate was the 3rd quarter of 2008, when Lehman Brothers crashed and the stock market went into a chaos. The GDP dropped from about 1.5% growth to -9%. Although the GDP quickly found its way back in late 2009, there are still millions of people who still suffer the impact of 2008. It has been about 4 and a half years since the market crashed in 2008 and many things such as the GDP and the inflation rate seem like they found their way back, but not the unemployment rate. The unemployment rate was around 5% in the beginning of 2008; in 2009 and 2010, the unemployment rate nearly doubled and hovered around 10%. Now, the unemployment rate is 7.9%, which is lower relative to the last few years, but still too high. That is because the business owners do not want to hire more employees until they see the economy settle; thus, the unemployment is a lagging indicator. The major cause of decreasing inflation rate is rising index of food and falling index of energy such as gas and electricity.

The US government in 2013 already started its major