Economic Analysis

Economic Analysis

Question 1:

United States (US) is amongst the largest and the most technologically advanced economies in the world. It is a market oriented economy where, individuals and firms make most of the decisions. The federal and state governments buy goods and services they need from the private market. Currently US has an estimated (est.) GDP of 15.65 trillion dollars. United States economy has been continually growing. At present, it has a GDP growth rate of 2.2 % (est.). Though the economy is still recovering from the recession that hit it in December 2007, it is performing far better now as compared to that period. Presently the unemployment rate in the US is 8.2% (CIA, 2013). Major reasons contributing to it are weak labor force participation rate and underemployment. Currently the inflation rate is estimated to be 2% as compared to 3.85% in 2008 showing a reduction of 1.85%. As stated on the National Bureau of Economic Research website, the recession started in December 2007, spurred by the sharp dips in US Stocks, labor and housing markets which led the US economy into a downward spiral. The financial crisis in America and the downturn in the US economy spread across several nations leading to a global economic crisis. It was due to the low interest rates offered by the banks that encouraged people to buy houses that they could not afford. As the bubble burst in 2006, the house of prices started to decline which caught many home owners off guard. This forced the home owners to foreclose and resulted in banks earning substantial losses, which led to systems eventual collapse. This explains that the decrease in interest rates was the main factor that dragged the economy into recession. The recession led to increase in inflation rates, high levels of ...