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Topic:
Business cycle & Economic Outlook 2
Essay Instructions:
This Case Assignment focuses on the January 29, 2010, first estimate of U.S. real gross domestic product (Real GDP) for the fourth quarter of 2009, reported by the U.S. Bureau of Economic Analysis (BEA). The current data and historical data are explained. The meaning of GDP and potential impacts of changes of GDP are explored. This lesson will also raise questions about the impact of the current level of growth on the U.S. economy and individuals.
Here is an interesting article that was published the same day:
Rampell Catherine. "US Economy Grew at Vigorous Pace in Last Quarter." New York Times January 29, 2010. Retrieved February 22, 2010. Retrieved May 17, 2010 from: http://www(dot)nytimes(dot)com/2010/01/30/business/economy/30econ.html
Introduction:
Each month, the Bureau of Economic Analysis (BEA), an agency of the U.S. Department of Commerce, releases an estimate of the level and growth of U.S. gross domestic product (GDP), the output of goods and services produced by labor and property located in the United States.
This assignment focuses on the BEA's "first estimate" of real GDP released on January 29, 2010, for the fourth quarter (October-December of 2009. Understanding the level and rate of growth of the economy's output (GDP) helps to better understand growth, employment trends, the health of the business sector, and consumer well-being.
Current Key Economic Indicators (as of January 29, 2010)
Inflation
On a seasonally adjusted basis, the CPI-U increased 0.1 percent in December 2009 after rising 0.4 percent in November. The index for all items less food and energy rose 0.1 percent in December after being unchanged in November. (January 29, 2010)
Employment and Unemployment
U.S. nonfarm payroll employment edged down (-85,000) in December, and the unemployment rate was unchanged at 10.0 percent. Employment fell in construction, manufacturing, and wholesale trade, while temporary help services and health care added jobs. (January 8, 2010)
Real GDP
U.S. real gross domestic product (real GDP) increased at an annual rate of 5.7 percent in the fourth quarter of 2009 (from Q3 to Q4). In the third quarter, real GDP increased 2.2 percent. (January 29, 2010)
Federal Reserve
The FOMC will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. (December 16, 2009)
The size of the US. economy increased at an annual rate of 5.7 percent in the fourth quarter of 2009. The economy is growing and prosperity just around the corner. Right? Read more about the Q4 2009 GDP data and decide for yourself:
Module 5 Case Reading Retrieved May 17, 2010.
Read the above supplement and write a 4-5 page paper on the following questions:
1. What data from the BEA announcement supports the NBER decision that the U.S. is in a recession?
2. What measures did the U.S. government take to increase GDP during this time?
3. Recent GDP Data in Detail
Table 1 of the BEA's January 29, 2010 real GDP estimates is a detailed breakdown of the data by sector and specific types of goods and services, investments, and trade, from 2006 through 2009.
Go to Table 1 at: www(dot)bea(dot)gov/newsreleases/national/gdp/2010/pdf/gdp4q09_adv.pdf
Take a good look at the data. What are the areas of growth and decline? Was the data (growth rates) consistent throughout the period of time? Summarize your interpretation of the data in Table 1.
4. Go to the BEA web page, "National Income and Product Accounts Table, Table 7.1., Selected Per Capita Product and Income Series in Current and Chained Dollars." You can use this page to look at changes in GDP over any selected period of time. Try looking at the changes over the years sine you were born.
www(dot)bea(dot)gov/national/nipaweb/TableView.aspSelectedTable=253&Freq=Qtr&FirstYear=2006&LastYear=2008
*This lesson was adapted from the Council of Economic Education.
Case Assignment Expectations:
Use concepts from the modular background readings as well as any good quality resources you can find from the cyberlibrary or other internet search engines. Pleas be sure to cite all sources within the text and provide a reference list at the end of the paper.
Length: 4-5 pages double spaced and typed.
The following items will be assessed in particular:
Your ability to understand the different phases of a business cycle.
Essay Sample Content Preview:
BUSINESS CYCLE & ECONOMIC OUTLOOK
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(21, October, 2010)
Business cycle & Economic Outlook
1. What data from the BEA announcement supports the NBER decision that the U.S. is in a recession?
“A recession is a significant decline in activity spread across the economy lasting for a few months,” (National Bureau of Economic Research (NBER), 2010). The factors that characterize a recession period include the economy’s growth in production, employment, income and the trade, where the level of output and employment reduces at a substantial rate.
According to NBER employment should be the more reliable indicator of economic growth as the GDP is subjected to revisions and it is only calculated on a quarterly basis. According to the BEA report in the New York Times, the rate of unemployment rose to 10 percent for the fourth quarter of 2009. Then if employment is one of the factors that influence the determination of a recession, then the U.S economy was still in a recession. This is supported further by the loss of 208,000 nonfarm jobs. An increase in the rate of unemployment affects the economy in that there is less money to be spent which leads to a reduction in the consumer expenditure. A decrease in consumer expenditure means a reduction in the GDP growth rate.
The factors that influence the growth domestic product (GDP) are consumer expenditure, investments within the economy, government expenditure and exports net of imports.
According to a report in the New York Times, (Rampell, 2010), the U.S. economy grew by 5.7 percent in the fourth quarter of 2009. One of the factors that contributed to this growth was a production growth of 8.1 percent. The report indicates that the growth in production was a result of a reduction in supply reserves by business within this period. This reduction of stocks and supply reserves contributed to the growth of GDP by 3.4 percent. This improvement on GDP through inventory can only be short lived as businesses will need to rebuild their stock in the future. This means that the real production growth was not as high as reported.
The consumer spending grew only by 2 percent in the fourth quarter of 20009. According to the report in the New York Times (Rampell, 2010) consumer spending has been one of the driving factors that contribute to economic growth after a recession. The 2 percent growth is not strong enough to indicate growth.
A country’s GDP will be affected by the country’s government spending. The total government spending went down by 0.1 percent. This is another indicator that the US economy had not yet recovered.
According to NBER, industrial production and employment are the main determinants of a recessionally period. It therefore means that the U.S. economy is a recession as the rate of employment went down, while the rate of production growth was not as effective.
2. What measures did the U.S. government take to increase GDP during this time?
The U.S. economy growth rate went up by 5.7 percent. The U.S Government put some intervention measures to strengthen the GDP growth rate. One of the measures was that the government encouraged hiring by offering a tax credit of $5,000 to the employers. This tax rate was to be gained for every new hire. There was a further credit on Social Security which was granted for increasing the employees’ wage rates at a rate higher above the inflation rate. The incentive was to encourage employers to increase the employees as a measure to reduce unemployment. This would lead to increased expenditure income which would lead to an increase in consumer expenditure.
Another intervention measure by the U.S government was the increase in government expenditure through the increase in federal nonmilitary expenditure by 8.1 percent. An increase in government expenditure will lead to more funds with its citizens increasing the disposable income which will result to an increase in consumer expenditure.
3. Recent GDP Data in Detail Table 1 of the BEA’s January 29, 2010 real GDP estimates is a detailed breakdown of the data by sector and specific types of goods and services, investments, and trade, from 2006 through 2009. Go to Table 1 at: /newsreleases/national/gdp/2010/pdf/gdp4q09_adv.pdf
Take a good look at the data. What are the areas of growth and decline? Was the data (growth rates) consistent throughout the period of time? Summarize your interpretation of the data in Table 1.
There was a decline in growth between 2007 and 2009 in almost all sectors with the exception of Government consumption expenditures and gross investment. The GDP growth rate declined from 2.1percent in 2007 to 0.4 percent in 2008 and to -2.4 in 2009. The decline from 2007 to 2008 was b...
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