United States of America Economic Recovery
Student’s Name
Department, institutional affiliation
Course Name
Lecturer’s Name
Nov .19.2020
Part one
Name: Mastermind
Power: Intelligence and Logical
Weaknesses: Does not believe in world economics
Nemesis: Poor performing government economic advisers
Alias: Paul Krugman
Job: Economist
Family: Biological parents
Hobbies: Reading economic journals
Love Interest: Robin Wells
Catchphrase: “The United States Economic Recovery First”
Costume: Might suite and wears a mask
History: Mastermind suffered the Great Depression, and that is when he decided to save the United States from any depression that could occur in his lifetime.
Part two
Introduction
In order to understand the current economy of the United States of America, the analysts usually use economic indicators to study as well as interpret the current and future economic possibilities. Indicators also help analysts, private firms, and government organizations judge the overall health of the economy. Even though economic indicators may be released by the private or government, pieces of data released by the government and non-profit organizations are widely used in the United States of America ( Anderson, 2014). Three of the economic indicators widely used in the United States include the Gross domestic product (GDP), unemployment figures, and the Impact on Small Businesses.
Gross Domestic Products (GDP)
The United States of America is one of the countries whose economy has been greatly affected by the coronavirus. According to the United States Bureau of Statistics, the country suffered the biggest blow in the second quarter of 2020. The United States experienced a fall in Gross Domestic Products(GDP) of almost 33 percent, representing the highest decrease since the Great Depression. The United States’ economy is still going through the worst consumer and business spending, and there is a need for speed response for quick mitigation of the crisis (Maliszewska et al., 2020). The United States experienced a fall in the GDP because that is the time when the government was implementing the shutdown and other containment measurements. With containment measures, including the country’s lockdown, the country experienced underutilization of capital and labor. The shutdown also led to a decrease in the activities that require proximity between people.
Employment Rate
Unemployment rates in the United States of America sky-rocketed as the coronavirus infections were elevated in the country. According to the labor department, millions of American citizens lost their jobs in the second quarter of the year. This was when most states were implementing lockdown measures (Stock, 2020). The rate of unemployment rose to over 15 percentages in April, and in May, the unemployment rate rose to 19percentag while at the start of June, there was a decline in the rate of unemployment given that the economy was reopening and the businesses were recalling the workers. A reduction in the rate of unemployment was a success because the CARES Act ensured that all workers were connected to the businesses and firms, and it helped the firms to hire back almost all the workers as soon as the economy reopened.
Impact on Small Businesses
Small businesses create the highest number of employment opportunities in the United States, and with the coronavirus pandemic, most businesses were closed, resulting in increased unemployment in the country. In the second quarter of 2020, most small businesses in the United States faced bankruptcy as demand for goods and services and income fall (Fairlie, 2020). Many businesses in the United States closed as well as laid off some workers intending to stay afloat. Bankruptcy among the small businesses was high because the social-distance containment mechanism affected filling rates for the debtors. Even though small businesses have experienced bankruptcy, the government should extend loans to businesses to enable them to stay afloat through the Federal Reserve.
To start, Gross Domestic Product (GDP) is the total value of services and goods that a country produces and is usually measured in specific time frames. Real Gross Domestic Product (RGDP) is the measure of the value of goods and services produced in the country over a given period of time, adjusted for inflation. Real gross domestic products usually make a comparison of gross domestic products from year to year to get the quality and quantity of goods and services produced in subsequent periods (Konchitchki & Patatoukas, 2014). Gross domestic product is one of the key indicators that the United States of America’s government uses to measures the health of its economy, given that it takes into account both the consumption and the investment within the economy.
The Gross domestic product of the United States decreased drastically in the second quarter of the year because there was a rise in the unemployment rates. Unemployment is a situation that occurs when an individual who is actively searching for employment fails to find a job. With the coronavirus, many workers in the United States were rendered jobless hence some fewer workers could contribute to the production output of the United States economy (Clogg, 2016). One of the types of unemployment that is common in the United States is frictional unemployment. Frictional unemployment usually occurs when workers choose to leave their jobs in search of a new one. One of the factors that contribute to economic growth is the labor force. Economic growth is an increase in the services and goods produced in a given country and are usually compared from time to time. Increased labor force enhances economic growth. More workers can generate more economic goods and services; when the country has minimum unemployment rates, its production rates are high, hence increasing economic growth.
Inflation is the measure at which the general prices of goods and services rise, consequently decreasing the purchasing power of the currency. In most cases, inflation is witnessed when prices of goods and services rise, and a given amount of money can buy fewer services and goods as compared to before price rise; on the other hand, the Consumer price index (CPI) is the measure of the average change in prices of a basket of goods and services overtimes. According to the bureau of labor statistics, the consumer price index is calculated to quantify the aggregate price level in a given economy, hence the consumers’ purchasing power (Davig & Leeper, 2011). Inflation usually affects consumers and investors. Inflation decreases the purchasing power of the dollar due to a rise in prices across the country. Inflation also encourages investing in that as the purchasing power declines; investors prefer to buy and stock goods and valuables that won’t lose value as cash.
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Business cycles usually represent the economy’s position in the time of either recession or expansion. one of the ways of understanding the business cycles is through the use of the AD-AS model. The period between April and June saw the United States experienced a recession due to negative demand, which led to a fall of GDP equilibrium levels, as shown in point E1 in the figure above (Ritschl & Straumann, 2010). Looking at the above figure, the recession is a result of negative shocks in aggregate demand, which mostly occur when consumer confidence is low; hence AD shifts left from AD1 to AD2.when AD1 shifts left, the new equilibrium is established at E2, which is occasioned with lower quantity of output and lower price levels as compared to the initial E1.in order to realize a potential or maximum GDP, the government should consider the increasing its spending or decrease taxation rates since that is the only way it can raise consumer spending hence the shift of the AD to the right.
The government organizations in the United States can use either fiscal policies or monetary policies to achieve desirable economic performances. The fiscal policies that are in use in the United States include taxes and government spending. The fiscal policy looks at how increasing or decreasing government taxes and spending can influence the flow of money, employment, and inflation in the economic system ( Aktas, Kaya & Özlale, 2010). Since employment, inflation, and taxes factor into the final gross domestic product, it is the government’s mandate to initiate appropriate fiscal policies that can help achieve desirable economic performance. On the other hand, the monetary policy encompasses all the economic policies and measures undertaken by the central to manage the growth rate and the size of the money supply in the economy. The central bank of the United States of America uses discount rates, open market operations, reserve requirements, and interest rates to achieve certain monetary policy goals.
The United States of America is witnessing depression due to the coronavirus pandemic, which is occasioned by price instability, unemployment, and slow economic growth. Inflation is one of the problems that affect the purchasing power of customers. A low inflation rate is healthy for the economy, and since the inflation rate in the United States is very high, the central bank should consider using the contractionary policies to achieve price stability sine by so doing, there will be a shrink in the monetary supply in the monetary market ( Monnin, 2014). Price stability can be achieved by raising reserve requirements, performing open-market operations, and raising the bank interest rates.
The coronavirus pandemic has contributed to increased unemployment in the unites states of America. It is the government organizations’ mandate, especially the central bank, to initiate programs that can help achieve full employment. Expansionary monetary policy can help to achieve full employment in the united states given that monetary expansionary policies including lowering of the reserve requirements, purchase of government securities, and decreasing of the interest rates will stimulate business activities and consumer spending in the country hence increased employment opportunities ( Piore, 2017). The expansionary monetary policies can also help the government achieve improved economic growth, given that such policies stimulate business activities and consumer spending.
Over the last years, the United States’ federal government has been running on substantial deficits, which has led to increased debt. The mounting deficits usually increase government liabilities. Even though the central bank does not use various monetary policies to help the finance department, its decisions still impact the deficit and debt held by the federal government. First, the federal’s balance sheet include the united states treasury securities, which serve as relief for financing the treasury needs; second, the federal’s interest rate policy affect the cost at which the government services its debts, and lastly, the federal remits its profits to the treasury which serves as additional revenue for the federal government. It is expected that in the future that the federal fund rates will rise steadily in response to an increase in interest rates, and with such an increase, the federal will incur more cost when it comes to servicing its debts (Osipov et al.,2017). One thing that should be changed in the budget is ensuring that deficit reduction is achieved by setting an appropriate debt ceiling. With deficit reduction, the general public will be affected. The government will have less money at its disposal; hence it will consider increasing taxes or reducing the number of public services financed by the federal government.
References
Aktas, Z., Kaya, N., & Özlale, Ü. (2010). Coordination between monetary policy and fiscal policy for inflation targeting the emerging market. Journal of International Money and Finance, 29(1), 123-138.
Anderson, V. (2014). Alternative Economic Indicators (Routledge Revivals). Routledge.
Clogg, C. C. (2016). Measuring underemployment: Demographic indicators for the United States. Academic Press.
Davig, T., & Leeper, E. M. (2011). Monetary–fiscal policy interactions and fiscal stimulus. European Economic Review, 55(2), 211-227.
Fairlie, R. W. (2020). The impact of Covid-19 on small business owners: Evidence of early-stage losses from the April 2020 current population survey (No. w27309). National Bureau of Economic Research.
Konchitchki, Y., & Patatoukas, P. N. (2014). Accounting earnings and gross domestic product. Journal of Accounting and Economics, 57(1), 76-88.
Monnin, P. (2014). Inflation and income inequality in developed economies. CEP Working Paper Series.
Osipov, Vladimir Sergeevich, Olga Alekseevna Bykanova, Ravil Gabdullaevich Akhmadeev, Mikhail Evgenievich Kosov, Aleksei Valentinovich Bogoviz, and Vladimir Mihaylovich Smirnov. “External debt burden and its impact on the countries’ budgetary policy.” Journal of Applied Economic Sciences 12, no. 2 (2017): 342.
Piore, M. (Ed.). (, 2017). Unemployment and inflation: institutionalist and structuralist views. Routledge.
Ritschl, A., & Straumann, T. (2010). Business cycles and economic policy, 1914-1945. The Cambridge Economic History of Modern Europe. Volume 2: 1870 to the present, 156-80.
Stock, J. H. (2020). Data gaps and the policy response to the novel coronavirus (No. w26902). National Bureau of Economic Research.