Economic Analysis of the US Current State

Introduction

The paper aims at giving information on the current state of the economy of the US. Some of the macroeconomic variables that will be reviewed are GDP, inflation, and unemployment rate. The paper will further discuss the state of recession and its possible impact on the state of Ohio.

A summary of the trend of key economic variables

The table presented below summarizes the key data of the national account for the economy of the US.

Current 2006
GDP $15,094,000,000, $13,314,500,000
Inflation 2.7% 3.2%
Unemployment 7.7% 4.6%
Interest rate 0.5% 4.6%

The GDP increased from $11.543 billion in 2002 to $15.094 billion in 2011. The inflation rate increased from 4.617% in 2002 to 8.95% in 2011. The rate of unemployment also increased from 4.6% in 2006 to 7.7% in 2011. An increase in both the inflation rate and unemployment contradicts the concept of the Philips curve. Interest rates declined from 4.6% in 2006 to 0.5% in 2011 (World Bank, 2012). The low-interest rate in 2010 was a measure taken by the state to stimulate money circulation.

This would, in turn, lead to job creation thus reducing the unemployment rate. The current account balance was negative for all the years. It implies that the import was greater than the export. The general revenue and expenditure of the company increased over the years. The population increased by a small margin over the period. The rate of population growth might impact on the labor force in the future. The total investment of the company declined over the ten year period. This reduces the amount of depreciation expense. Finally, the amount of savings also declined over the years (World Bank, 2012; International Monetary Fund, 2013).

Unemployment and inflation concerns

Based on the labor demand and supply model, unemployment level caused by recession creates disequilibrium in the labor market, that is, there is surplus labor supply with a corresponding low demand as was seen during the 2009 global economic recession. The disequilibrium state pushed the market wage rates down resulting in underemployment in the US economy. Often, transgression rate increases when individuals are incapable of acquiring their needs due to unemployment as was the case during the long period of economic depression (Dolch & Peck, 2001).

There are significant theoretical discussions concerning the cause, effects, and resolution of unemployment. For instance, classical economists viewed that market systems are dependable means that may be used to eradicate unemployment cases. These have discouraged employment rate for workers (Mankiw, 2007).

In the US, unemployment was largely escalated by the economic depression of 2008 that created disequilibrium in the economy. During this period, the US economy shrunk and lead to general GDP reduction. As a result, the supply of labor exceeded the demand for labor. Besides, the high minimum wage had a substantial influencing in increasing unemployment since it leads to higher labor supply than what the market demands (Dolch & Peck, 2001). Apart from unemployment, the country is also experiencing an increase in the rate of inflation. This has a serious economic implication on the key players in the economy that are the households and the firms in the country.

Recession

Recession differs from depreciation in a number of ways. Recession can be viewed as a significant decline in the amount of GDP for a short period of time. Such as a decline in the GDP is often accompanied by deterioration of a number of variables such as the unemployment rate and inflation. On the other hand, depreciation denotes a situation of a severe recession. Depreciation is often characterized by a decline in the rate of GDP by more than 10%.

In the last three years, there has been a persistent crisis that is triggered by widespread financial turmoil among many nations within the Eurozone. This crisis has seriously and extensively affected nations that trade in the Euro currency such as Greece and Ireland. As a result, these nations besides others have had unsustainable sovereign levels of debt and had to be bailed out in a desperate move to restore their financial order and stability across the European Union members.

As a result of the financial crisis, the affected countries have lost their competitiveness in global trade besides very high public debt in their expenditure economies. However, the areas that were much affected are the countries in the Euro Zone. The United States is also experiencing difficulties in recovery from the previous recession and economists are of the view that the situation might worsen in the near future (Interscience Organization, 2011).

Impact of the current state of the US economy in the state of Ohio

The state of the overall state of the economy of the US has an impact on the business in various states. With the strong possibility of the occurrence of another recession. People who own businesses shy aware from spending money on massive investment due to the possibility of making a loss. This has resulted in low levels of savings and investments in the country.

Conclusion

A number of both the contractionary fiscal and the monetary policies can be used to control inflation. Some of the fiscal policies entail reducing disposable income by increasing direct taxes, reducing government taxes as well as the amount of government borrowing. The fiscal policies implemented will reduce the aggregate demand in the economy. In the AD-AS model, the aggregate demand curve will shift inwards as a result of the policies implemented. This causes the price level to decline, hence resulting in a reduction in the rate of inflation. The aggregate supply curve will not be affected. Despite the fact that the unemployment rate in the US is at a single digit, it has created diverse effects on the performance of the economy through reduced GDP as a result of the shrinking economy (Mankiw, 2007).

References

Dolch, N., & Peck, D. (2001). Extraordinary behavior: a case study approach to understanding social problems. London: Praeger. Web.

International Monetary Fund. (2013). Data and statistics. Web.

Interscience Organization. (2011). The euro changeover and its effects on price transparency and inflation. Web.

Mankiw, N. (2007). Principles of economics. Mason: Thomson Higher Education. Web.

The World Bank Group. (2012). The world bank data. Web.