Economic Conditions

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ECONOMIC CONDITIONS 1

EconomicConditions

Inthe past fifteen years, the U.S has witnessed various positive andnegative economic changes. This can be supported by examining variousmacroeconomics concepts during this period. For instance, the budgetoutlay of the US government has continued to grow especially inforeign aid, a fact that has become a topic in the currentpresidential debate. In FY2005 and some preceding years, theexpenditure was initiated by U.S military actions in foreign landsand rebuilding of those nations.

Subsequently,since the Obama administration took office, spending has increased inthe health sector as a result of Affordable Care Act, an issue thathas raised a lot of eyebrows both in the Democrats and Republicans.In the health sector, there have also been major changes in businessas most industries in this sector are merging making it difficult forsmall business to thrive as the venture is no longer viable with thesluggish economy recovery. This has been an effect of making thehealth care affordable to everyone, which resulted in an incline inhealth costs twice the economic growth rate.

TheU.S economy was doing well between the year FY2000 and FY2006, beforethe country went into a recession in FY2008 and FY2009 where manypeople become jobless. In these two years, the employment rate wasthe highest between FY2000 and FY2015 (Bureauof Labor Statistics Data, n.d.).This prompted the government to increase expenditure to createeconomic stimulus, but since then, the country has not fullyrecovered as its economy is modestly growing. This saw the rise inthe country’s deficit from $161 billion in FY2007 to $1413 billionin FY2009 (Usgovernmentspending.com,n.d).Despite this, the inflation rate has reduced from 3.4% in FY2002 to1.1% in FY2016 the year ended August as published by the governmenton 18th September 2016 (Usgovernmentspending.com,n.d).Thus,in some aspects, there have been positive changes in the economywhile in others negative.

Inflationrates

Year

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Ave

2016

1.4

1.0

0.9

1.1

1.0

1.0

0.8

1.1

&nbsp

&nbsp

&nbsp

&nbsp

&nbsp

2015

-0.1

0.0

-0.1

-0.2

0.0

0.1

0.2

0.2

0.0

0.2

0.5

0.7

0.1

2014

1.6

1.1

1.5

2.0

2.1

2.1

2.0

1.7

1.7

1.7

1.3

0.8

1.6

2013

1.6

2.0

1.5

1.1

1.4

1.8

2.0

1.5

1.2

1.0

1.2

1.5

1.5

2012

2.9

2.9

2.7

2.3

1.7

1.7

1.4

1.7

2.0

2.2

1.8

1.7

2.1

2011

1.6

2.1

2.7

3.2

3.6

3.6

3.6

3.8

3.9

3.5

3.4

3.0

3.2

2010

2.6

2.1

2.3

2.2

2.0

1.1

1.2

1.1

1.1

1.2

1.1

1.5

1.6

2009

0

0.2

-0.4

-0.7

-1.3

-1.4

-2.1

-1.5

-1.3

-0.2

1.8

2.7

-0.4

2008

4.3

4

4

3.9

4.2

5.0

5.6

5.4

4.9

3.7

1.1

0.1

3.8

2007

2.1

2.4

2.8

2.6

2.7

2.7

2.4

2

2.8

3.5

4.3

4.1

2.8

2006

4

3.6

3.4

3.5

4.2

4.3

4.1

3.8

2.1

1.3

2

2.5

3.2

2005

3

3

3.1

3.5

2.8

2.5

3.2

3.6

4.7

4.3

3.5

3.4

3.4

2004

1.9

1.7

1.7

2.3

3.1

3.3

3

2.7

2.5

3.2

3.5

3.3

2.7

2003

2.6

3

3

2.2

2.1

2.1

2.1

2.2

2.3

2

1.8

1.9

2.3

2002

1.1

1.1

1.5

1.6

1.2

1.1

1.5

1.8

1.5

2

2.2

2.4

1.6

2001

3.7

3.5

2.9

3.3

3.6

3.2

2.7

2.7

2.6

2.1

1.9

1.6

2.8

2000

2.7

3.2

3.8

3.1

3.2

3.7

3.7

3.4

3.5

3.4

3.4

3.4

3.4

1999

1.7

1.6

1.7

2.3

2.1

2

2.1

2.3

2.6

2.6

2.6

2.7

2.2

Fromthe data above, the inflation rate from FY2000 to FY2009 was highcompared to FY2010 to FY2016. This means that during FY2000 toFY2009, prices for consumer goods were high and grew over the period(US Inflation Calculator, n.d).This can be attributed to rise in oil prices, which led to upwardcost of production or excess government outlay, which increased themoney supply in the economy. In FY2009, the inflation rate was -0.4%,this is because during that period, the economy was struggling, andpeople went out of business people bought what was necessary andmany businesses struggled to operate and could not increase theprices of their products as this would result in low or no sales (USInflation Calculator, n.d).

Onthe other hand, in FY2010 to FY2016, the inflation rate started torise as the government wanted to initiate economic growth throughspending and most businesses tried to recover from economic losses asthey sought loans to sustain them (USInflation Calculator, n.d).In the later years of this period, there has been a steady inflationrate as global prices in oil have dropped, which has reduced the costof manufacturing, hence steady prices in consumer goods. Furthermore,rise in inflation in this period has been contributed by the increasein the cost of medical services, health care, and motor insurances.

Additionally,the issue of unemployment rate has continued to rise as it was lowestin FY2000, but since then, the trend has been moving upwards. InFY2002 and FY2004, the unemployment rate rose, but it graduallydropped before it went to the highest range in FY2009 and FY2010(Bureau of Labor Statistics Data, n.d.).This unemployment rate was contributed by the great recession as manybusinesses went bankrupt and out of business resulting in numerouslosses of jobs. From then, the trends seem to be moving downwards asthe economy is recovering and more jobs have been created both inprivate and government sectors. When you compare the two periods, theaverage unemployment has been high during FY2010 to FY2016 periodcompared to FY2000 to FY2009, which can be attributed to increase inpopulation and the recession (Bureauof Labor Statistics Data, n.d.).

Moreover,federal outlay has been rising steadily since the beginning of the21st century, but during the great recession, it jumped by anadditional $700 as the government poured more money into the economyas it tried to provide stimulus and bail out banks. From then, thefederal government has tried to maintain expenditure at approximately$3.6 trillion dollars per annum. Comparing the spending to GDP, itwas steady at 19% in the mid-2000s, but it galloped to 25% during therecession as indicated in the figure below (Usgovernmentspending.com,n.d).

Duringthe period between FY2010 and FY2016, the federal outlay declined toabout 20% of GDP in FY2015 as shown in the graph below. Thus, thefederal spending average has been higher in the period between FY2010and FY2016 compared to FY2000 to FY2009 (Usgovernmentspending.com,n.d).This has been due to the ratification of the American Recovery andReinvestment Act of 2009 (ARRA), which was intended to create andsave jobs(Usgovernmentspending.com, n.d).The Act covered the increase in outlay in federal tax incentives,education, infrastructure, health, energy, and expansion ofunemployment benefits among other social welfare provisions. Thejustification for this Act was the Keynesian Macroeconomic Theorythat states that the government can initiate economic growth duringthe recession by compensating the decrease in the amount ofexpenditure by the private sectors with rise in public expenditure.

Subsequently,the rise in government outlay led to a growth in the budget deficit.This began in early FY2002. In FY2000 and 2001, the country had nobudget deficit, but a surplus of $236.24 and $128.23 billion,respectively (Usgovernmentspending.com,n.d).In FY2002, the country was in bad shape after the 9/11, whichaffected it economically. Also, during that year, the nationincreased its spending on the foreign military mission, which movedthe deficit from $157.75 to $412.73 billion in 2002 and 2004,respectively as shown in the figure below (Usgovernmentspending.com,n.d).It started to drop as military expenditure in foreign territoriesreduced. The deficit was worsened by the great recession, whichprompted the government to inject the money through the TARP program.The highest deficit that has been witnessed in history was recordedin FY2009 at $1412.69 billion. As indicated in the graph, the deficitdid not go below the $1 billion mark from FY2009 to FY2012. In theperiod between FY2000 and FY2009, the deficit is minimal compared toFY2010 to FY2016, as shown in the graph below(Usgovernmentspending.com, n.d).

Onthe bright side, the GDP had continued to grow from FY2000 to FY2016without dropping apart from FY2009 when it dropped by a few billiondollars. Thus, regarding the comparison between the period FY2000 toFY2007 and FY2010 to FY2016, the GDP growth rate remained at anaverage 2.67% and 1.24% respectively supporting that the grossdomestic product was high during the early 2000s, this is truefactoring the great recession (Usgovernmentspending.com,n.d).

Conclusion

Thus,to determine the question of economic growth by comparing the twoperiods you have to factor in population and the great recession.Since the FY2000 to FY2016, there has been a population growth of 40million people. The GDP has increased since FY2000, but the rate ofGPD compared to the population had decreased in relation to the early2000 when the deficit was minimal. The deficit grew in FY2002 toFY2004 due the foreign military involvement and the effects of 9/11on the economy. Consequently, it rose during FY2009 to FY2012 as thegovernment tried to promote outlay with an effort to stimulateeconomic growth. As a result, government expenditure has been highduring FY2010 to FY2016 compared to FY2000 to FY2009. This can besupported by the initiation of ARRA Act, which expanded expenditurein federal incentives, unemployment benefit, and health care amongother social benefits.

References

Bureauof Labor Statistics Data. (n.d.). Bureau of Labor Statistics Data.Retrieved fromhttp://data.bls.gov/timeseries/LNU04000000?years_option=all_years&ampperiods_option=specific_periods&ampperiods=Annual+Data

USInflation Calculator. (n.d.). Current US Inflation Rates: 2006-2016 |US Inflation Calculator. Retrieved fromhttp://www.usinflationcalculator.com/inflation/current-inflation-rates/

Usgovernmentspending.com.(n.d.). US Federal Deficit by Year – plus charts and analysis.Retrieved fromhttp://www.usgovernmentspending.com/federal_deficit_chart.html

Usgovernmentspending.com.(n.d.). Government Spending in United States: Federal State Local for2016 – Charts Tables History. Retrieved fromhttp://www.usgovernmentspending.com/

Usgovernmentspending.com.(n.d.). US Federal Deficit by Year – plus charts and analysis.Retrieved fromhttp://www.usgovernmentspending.com/federal_deficit_chart

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