Question

Talk about the US Gross domestic product in first quarter of 2019.Why did It drop from 2018 last quarter. Write your normative or value judgement point of view on how the economy seems to be taken.Will we see a turnaround in the upcoming quarters for this year?

Answer 1

It has been observed that growth rate of GDP declined in the first quarter of 2019 after seeing an increase in the fourth quarter of 2018. It has declined because of the following reasons:

a. Fall in the government spending - It was observed that there there was no increase in the level of government spending during the first quarter of 2019 which led to fall in overall aggregate demand.

b. Increase in the rate of interest- The Fed has been following monetary tightening in the past few years which has led to increase in the level of interest rate in the economy. This has reduced the investment expenditure in the economy thus decreasing aggregate demand.

c. Fall in Consumer spending- Increase in the rate of interest has also prompted consumers to save more and spend less money on consumption. This has led to fall in overall aggregate demand in the economy.

In the upcoming quarters we see that the economy will not see a turnaround because it is expected that Fed will keep on increasing interest rates for few more quarters to attract foreign investment which can lead to fall in investment expenditure and thus fall in aggregate demand and this will reduce growth rate of GDP in the economy.