United States of America’s Macroeconomic
Analysis
Introduction
United States of America is the world’s only super
power, after the fall of Soviet Union in 1991. This
country gained independence from the British
Government in 1776 and was recognized as a nation in
1783 following the Treaty of Paris. This nation lacks
an official language at Federal level. However, English
is the most common language.
The variation with which they speak this language
makes it be referred to as American English. Over 90%
of the inhabitants can communicate comfortably in this
language. Other commonly used languages are
Spanish, French, Germany, Japanese, Chinese, and
American Sign Language among other local languages.
The currency commonly used in this country is the
American dollar.
The country is ranked the world’s largest economy,
with most of its companies dominating the world’s
market. Some of the United States’ firms dominating
the world markets are the Coca Cola Company in
beverage industry, The Wal-Mart in retail industry,
General Electrics and General Motors in manufacturing
sector among a host of other multinational
corporations.
Certo reports that United States of America has the
largest and most advanced military. This country is
technologically advanced, and the living standard of its
populace is well above average. Although there are a
few Americans living below a dollar a day, most of its
citizens are in stable employment, earning decent
salaries.
The political system in the U.S. has been relatively
stable over the years, making it the leading democracy
in the world. The transition of power from one party to
another or from one president to another has been done
smoothly, making the economy very stable. There are
two predominant political parties in this country: the
Democrats and the Republicans.
Politics has played a big role in the economic
development the U.S. In their manifestos, these
political parties always put forth their economic plans
for the country. This has increased accountability and
transparency in the management of public funds. Other
than the Great Depression of 1930’s that shook the
economy and rendered almost a third of its citizens
jobless, the country has enjoyed a relatively consistent
positive growth in its economic growth.
However, this stability in economy was shaken once
again in 2008, when the country was hit by another
economic recession. Many industries registered
negative returns, and many financial institutions had to
be rescued by the government from eminent fall.
Employment opportunities became scarce, and the
government revenues sharply declined. Currie reports
that the rate of unemployment reached a record high of
9%. The government had to act swiftly in order to
reverse this unfortunate situation. Currently, there is
recovery from the economic slum. The country’s
economy is growing positively, estimated at about 3%
in this last quarter.
Gross domestic product has had a consistent growth
since the end of the economic recession of 1930’s. For
the last twenty years, American Gross Domestic
Product has grown from six thousand billion dollars to
fourteen thousand five hundred billion dollars in the
year 2010. This is a growth of over 250%. The
country’s gross domestic per capita has also improved
from $ 19,354 in 1990, to $ 39,945 in 2010.
Despite this positive trend in the two economic
indicators, the country’s unemployment rate has been
very inconsistent. Since 1990, the rate was highest in
the year 2009, when it was estimated to be at 9%. This
was attributed to the economic recession which started
out in the late 2007 and ran till mid 2009. War on Iraq
has had negative impact on the economic growth of the
country.
The budgetary allocation to the military is as huge as
what the rest of the world put together spends on their
military. This has seen the country forced to run on a
budget deficit in order to finance its operations. Gomez
and Balkin report that the country has been running on
a budget deficit since 1969.
This year’s budget deficit was projected at $ 1.3
trillion. This is 8.5% of the country’s gross domestic
product. Analysts predict that the country may not be
able to finance all its operations in the year 2012, and
therefore may need to borrow for the government to
keep running.
However, they predict that it will be lower than the
current deficit. United States of America is one of the
world’s greatest exporters. Most of the world’s top
companies dominating international markets currently
are Americans. Companies like the Coca Cola
Company and the General Motors are known in the
world markets.
There are many other manufacturing firms, service
providers like the Hollywood Films and virtually all
other industries which are American. This would
therefore make one believe that this country will have a
zero balance of payment or even a positive one.
However, this is not the case. The United States of
America has had a negative balance of payment for
several years in a row. This may be attributed to the
war on Iraq, war on terror, willingness of American
consumer to purchase more on credit, constant US
budget deficits and the emerging of China as the
world’s top exporter.
Since 1995, the US has experienced a free fall on its
balance of payment. By then, the balance of payment
for this country was standing at -1.85%. This trend
deteriorated and by the end of 2006, the figure was
standing at -7.45. The economic recession of 2008 to
2009 worsened the situation.
Basically, inflation may be defined as the general
increase in price of commodities in a given country
over a specific period of time. This country has not
experienced any serious inflation in the recent past.
However, there has been some form of inflation felt
within this country. Inflation has been ranging from
1.59% to 3.85% since 2000, with the country
experiencing deflation of -0.34% in 2008.
The Behavioral Patterns of the Economic Indicators
for the Last Since 1990
Since the fall of the Soviet Union, the United States of
America had experienced a relative dominance in the
world’s economy. However, emergence of China as a
world economic powerhouse has put this country in an
awkward position. China is eating most of the US
world markets at a speed that Washington had not
predicted it would. China is currently the preferred
trading partner to many African nations.
Some of the markets that was predominated by
American firms are now going east. Mankin reports
that China has devalued its currency, making its
exports cheaper in the world market, while the imports
to this nation are relatively expensive. This has seen it
export more of its manufactured goods to foreign
countries, challenging the US as the world’s top
exporter.
Although the Gross Domestic Product has been on the
rise, this has not been happening at a proportionate rate
to the country’s expenditure. The graph below shows
the country’s growth in Gross Domestic Product since
1990.
For the last twenty years, United States of America has
experienced a positive growth in its gross domestic
product. By the last quarter of 1990, its GDP was
estimated to be six thousand billion dollars. This has
consistently grown and by end of 2010, this figure was
at fourteen thousand five hundred billion dollars.
The rise can be attributed to the consistent increase in
production of the country. Many American firms are
still very productive. Other American firms like Apple
have based their production in China, but the proceeds
go back to the US. Most of its citizens are also very
entrepreneurial, making it one of the countries in the
world with the highest business start-ups.
These private firms are employing the highest
percentage of the Americans. Over the years,
unemployment has been put under control. Other than
the unfortunate economic recession of 2008-2009, the
rate of unemployment has never been more than 5.5%.
The graph below shows the percentage rate of
unemployment since 1995.
This low unemployment rate has made living standards
of the Americans be well above average. Although
there are many of its citizens who are super rich, the
national wealth is evenly distributed to the citizens.
Majority of the population are in employment, which
would translate to increased gross domestic product.
The GDP per capita is one of the best in the world.
With most of the population absorbed in various
employments, the per capita has also increased over the
years since 1990. By the end of 2010, the country’s per
capita was standing at $39,945.
The graph below shows the growth in per capita since
1990.
The graph above shows that the living standard of the
Americans has been on the rise since 1990. This is
despite the 2008-2009 economic down turn that
affected many industries in America and the world at
large.
Historical Analysis of the Relationship of Economic
Indicators
Economic status of any country is determined by its
political temperatures. A stable political atmosphere
will mean a stable environment for doing business.
More investors will be attracted to such a market and
the infrastructural developments will be witnessed.
The United States of America has experienced a rare
political calmness since the end of the civil war soon
after its independence. This has seen it grow to become
the economic giant it is today. The First World War
worked to its benefit. At first this country did not align
itself to any country. It remained neutral, making it
able to form economic pact with any side of the
warring nations.
The American nation had then just attained industrial
revolution. Its industries produced goods in mass
because the world’s economic powerhouses like
Britain, France, Germany, Japan and many others were
too busy fighting to make any production. The U.S.
had to export food to these nations because they could
not engage in any agricultural activity. It was also the
main supplier of arms and ammunitions to both rivals.
This incident helped the economy grow at supernormal
speed, making it narrow the economic gap between it
and the then economic leader, the Great Britain.
When it joined the war latter, it emerged as one of the
strong nations both economically and military wise.
The GDP, GDP per capita and employment rate was on
the rise. The government employed many of its citizens
in the military, drastically reducing the rate of
unemployment that was on the rise.
Unfortunately, this positive trend was brought to an
end in the late 1929 when the country was struck by its
worst economic recession that would last for almost a
decade. Many firms closed down or were bought off by
foreign investors who relocated them to other
countries, laying off the employees. This trend was
reversed by the Second World War of 1939 to 1945.
Since then, the economy of this nation has been
relatively stable. These economic indicators have direct
relationship with one another.
Relationship between Real GDP and Labor
Productivity
Labor productivity is a ration of real GPD. It refers to
the effectiveness of the labor force of a given country.
It is the measure of what the labor can produce within
an hour against what it is expected to produce within
the same period. Real GDP refers to a country’s output,
having taken into consideration factors such as
inflation and deflation. The output of labor will have a
direct bearing on the total output of the nation.
Growth in productivity of labor will have a positive
bearing to firms because they will be in position to
meet their strategic plans within the set timeline. This
will lead to their expansion. Labor productivity
translates to increased living standards as the populace
will have enough to spend from their productive work
in various companies.
Real GPD will be felt if the population can afford to
make purchase of what they consider basic to them.
This therefore means that labor productivity directly
influences the real GDP. Classical theorists have
related GDP and labor productivity. Adams Smith
agued that output is directly affected by labor
productivity. This relationship can be illustrated as Y =
∫ L, K, T; where, T – land, L – Labor, and K – capital.
Relationship between Real Economic Growth and
Labor Productivity
Real economic growth is achieved when there is a
trickle down effect to the general public. It is achieved
when the population experiences improvement in the
infrastructure and other facilities that improve their
living standards. Real economic growth can only be
attained when the labor force positively work towards
having a better economy.
Labor productivity will determine this economic
growth. If the labor force is able to meet the set target
in their respective working places, the economy will
witness an improved growth. This will in turn enable
the government achieve its development plans within
the stipulated time. Basically, these development plans
are always infrastructural. This would mean that
citizens will feel this effect in form of improved living
standards. Labor productivity therefore leads to real
economic growth.
In the United States of America, labor productivity is
very high. Many of the Americans have the
entrepreneurial ability, hence unemployment is
reduced. This means that many Americans are
employed, making it one of the nations with the
highest per hour output of labor. This has been directly
reflected in its real economic growth. The country has
some of the best schools, hospitals, roads and other
infrastructural facilities in the world.
Relationship between Real GDP and
Unemployment
Unemployment is a situation where individuals with
the right qualification and willingness to work are not
able to get the right job. This occurrence is very
common in developing nations. Unemployment is a
direct result of poor growth in real GDP. If real the
GDP is having a positive growth, it will translate to
more jobs for the citizens, hence leading to increased
per hour output of labor.
This will in turn increase the real GDP. This creates a
circle, where failure in one will lead to failure in the
entire circle. If labor productivity becomes low, the
real GDP will fall, and a fall in GDP will lead to
increased unemployment which directly translates to
reduced per hour output of labor.
This system is open to external forces. Any
disturbances from the external environment may affect
one of the two players, and this would interfere with
the entire system. The relative political stability of this
country has seen its labor productivity improve,
thereby improving the real GPD which in turn reduces
the rate of unemployment.
Relationship between the Variable
These variables are related. Labor productivity has a
direct bearing on real GDP. A positive growth in real
GPD will lead to increased employment. An increased
employment means that per hour output of labor is
increased; which translates to increased labor
productivity. Increased real economic growth lowers
the rate of unemployment.
This is reflected in the Macroeconomic Theory and
policy, which holds that a country’s economic growth
is directly dependent on the ability of its population to
produce more than it can consume. This theory holds
that local population should have the ability and
willingness to purchase. This would help local
companies experience growth. For this reason,
unemployment will hinder both real GDP and real
economic growth.
Historical Analysis of Economic Indicators
The United States of America has had a stable
economy despite its constant budget deficits. Inflation
has always been put under check as supply of money is
regulated. The following is an analysis of the
relationship between various economic indicators.
Relationship between Inflation and Real Economic
Growth
Inflation refers to an economic situation where price of
commodities are above normal. This phenomenon
happens when the supply of money exceeds the output
of the country. Inflation can deal a dangerous blow to a
country’s real economic growth. For a country to
experience a healthy economy, it should be in a
position to balance its exports and imports.
Inflation will always make a country’s products appear
more expensive in the world market, while imports
would be relatively cheap. This will make its products
less attractive in the world market; hence its exports
will be reduced. On the other hand, imports will
increase.
This imbalance is dangerous as the country will spend
more on importing but gets little from its exports. This
situation may force a country to run on a budget
deficit; hence it may not be able to experience real
economic growth.
Relationship between Inflation and Money Supply
Growth (M1)
Money supply has direct effect on the rate of inflation.
When the supply of money exceeds a country’s total
output, the value of such currency will fall. This will
mean that one would need more of such currency to
buy a similar item that was costing less before the
surplus currency was introduced. Money supply should
be a reflection of the level of economy. If the economy
has grown, there should be a proportionate supply of
money.
The United States of America has had a tight check on
its supply of the dollar. Dollar is used by many nations
and therefore its devaluation would affect many other
countries besides the US. Despite the economic
recession of 2008-2009, the rate of inflation was
maintained at manageable levels. This was because the
supply of money to the economy was put under check.
Relationship between Unemployment and Money
Supply Growth (M1)
In as much as there is no direct link between money
supply growth and employment, the effects of money
supply affects the rate of employment. If the supply of
money is more than the total output of a country, there
will be an overflow of the currency. This would in turn
increase the production cost as manufacturers will have
to pay more for the inputs they use in the process of
production. The increased cost of production may
make some firms consider relocating, down sizing or
complete closure.
In whichever way, the ultimate effect will be a reduced
rate of employment. To reverse such a situation, a
country may be forced to withdraw the excess
currency. These economic variables have close
relation. Money supply in the economy will have a
bearing on the rate of inflation. Inflation directly
affects real economic growth. Unemployment is
affected by and affects real economic growth.
High rate of unemployment leads to reduced real
economic growth. Reduced real economic growth in
turn affects the rate of employment as many firms will
be producing below their capacity and therefore will
have to employ lesser number of individuals.
Historical Analysis of the Relationship between
Accounts of Balance of Payment, Average Interest
Rate, and the Government Budget Balance
Balance of payment accounts refers to a record of all
the financial transactions of a given country to other
countries in the world. This is done after a specific
period of time, in the concerned country’s currency.
All the incomes from the production process are
recorded as surplus, while all the payments are
recorded as balance deficits. Average interest rate is a
ratio of a country’s liabilities. Government budget
balance refers to the budget deficit. This happens when
the proposed expenditure exceeds the expected income
within a specific accounting year.
The United States of America has constantly been
forced to have a budget deficit because its total
expenditure exceeds the income. The economic survey
done by the end of 2009 indicated that the average
interest rate of this country stood at 3.290. This was
reduced to 2.992 by the end of 2010. This was because
of reduced government budget deficit. Balance of
payment for the country is also experiencing positive
growth.
Conclusion
United States of America is the leading economic
powerhouse in the world. Although it faces serious
challenges in the growth of the economy, it has
maintained a positive trend over the years. Economic
indicators are showing the same.
Rate of unemployment has been completely put under
check, making majority of its populace economically
productive. This in turn increases the gross domestic
product, which in turn affect the real economic growth.
If the currency supply of a country exceeds its output,
chances are high that such a country may experience
inflation, a fact that may destabilize the economic
growth.
Works Cited
Certo, Samuel. Modern Management: Concepts and
Skills. New York: Prentice Hall, 2011. Print.
Currie, David. Country Analysis: Understanding
Economic and Political Performance. Burlington:
Gower Publishing Limited, 2011. Print.
Gomez-Mejia, Luis and Balkin, David. Management:
People, Performance and Change. New York: Prentice
Hall, 2011. Print.
Mankin, Gregory. Principles of Economics. New York:
Cengage Learning, 2009. Print.
Moss, David. A Concise Guide to Macro Economic
Analysis. Massachusetts: Harvard Business School
Publishers. 2000. Print.
Whelan, Charles. Naked Economics: Undressing the
Dismal Science. New York: W.W. Norton and
Company, 2010. Print.
