Question

What is the current GDP growth rate? Also, examine the trend of GDP growth over the past few years. What stage of the business cycle is the U.S. economy currently in given the trend of GDP growth? What components of GDP tend to decline significantly during recessions (particularly during the 2008 recession), and what GDP components rise during expansion? In other words, what aspects of GDP are mostly affected when the economy slows down, and why?

Answer 1

Current GDP growth is close to 3 % which is a comfortable level and the unemployment rate is below 4 % in the economy. The economy is operating below the natural rate of unemployment which suggests that the economy has created enough jobs to go around.

Thus the economy is in the expansionary phase and has almost reached its peak. No further increase in employment seems a cumbersome task.

During the recession, consumption and investment decrease significantly, These components cause the fall in the aggregate demand. People are more skeptical about future income, so they reduce their demand massively. Investors do not find worthwhile and profitable to earn profits due to slowdown, so they also decrease investment activities.

During the expansionary phase, the consumption and investment are most affected, There is significant rise in the consumption and investment,

Answer 2

GROSS DOMESTIC PRODUCT

GDP is the money value of all final goods and services that produced in a country in a year. It is also known as National Income.

The present GDP growth rate in United States is 2.1%, it is moderately less than preceding years. The main cause of this fall is the rise in corona virus infections. The US economy grew 2.1% in current scenario, and it is same as the previous year. The contribution from net trade was revised higher and the drag from the inventories was smaller. Considering the year 2019, the economy enhanced 2.3%. In January 2017 it was also 2.3%. And in 2018 it was rose up to 3.5%. Then it started to decline.

FOUR PHASES OF BUSINESS CYCLE

1. Expansion

2. Peak

3. Contraction

4. Recession

Current Business Cycle

The US economy has been in expansion period since the last recession in 2008. Expansion stage is last for merely five years. But since 2008 to this day the US economy is in expansion stage. As result, some of the economists saying that there will be one more recession in upcoming years.

FACTORS AFFECTING ECONOMIC GROWTH

1. Natural Resources: The finding of natural resources like oils and minerals will improve the economic development. For example, Saudi Arabia’s economy has dependent on their oil deposits.

2. Infrastructure: Increased investment in physical capital like buildings, machinery, etc. will subordinate the price of economic activity.

3. Population: High population gives increase in the availability of workers and employees.

4. Human Resources: High investment in human resources will increase the productivity and capacity of the employees.

5. Technology: Improved technology helps in productivity of the nation.

FACTORS LIMITING ECONOMIC GROWTH

1. Lack of Health: Persons who don’t have access to the healthcare have little level of output.

2. Lack of Education: People who don’t have enough education have less productivity than others.

3. Institutional Outline: Resident law does not gratify all the rights of the individuals.