Question

use the data below to explain the current state of the economy. Explain what EACH piece of data illustrates about the economy’s health as well as the OVERALL health of the economy. Use the information from this week's lesson to help you formulate your answer and use those economic terms and concepts.

Economic Data:

1. According to the Bureau of Economic Analysis the 2^nd quarter of 2020 saw anunprecedented decline in real GDP of 32.9% due to the Coronavirus pandemic.

2. According to the Bureau of Labor Statistics the Inflation Rate calculated using the CPI is 0.6% as of June 2020 which is significantly lower than an average of 2.3% in 2019. According to the Federal Reserve, the inflation rate over the past 18 years as measured by the PCE index is as follows:

3. According to the Bureau of Labor Statistics the unemployment rate for August of 2020 is 10% which has risen significantly from 3.5% from March of 2020.
4. The Dow Jones Industrial Average (Links to an external site.) indicates the movement of the stock market over the past 130 years:
5. According to the University of Michigan’s Consumer Sentiment Survey, consumers’ expectations are:

Answer 1

The current economy is in recession as the Real GDP has contracted because of the pandemic in the 2nd quarter of 2020. The output generation has declined drastically year on year as the entire economy was shut for a few months in 2020. However, now GDP growth is starting to pick up as the economy opened up and the 3rd quarter growth would see a significant improvement in light of restarting the economy.

Inflation rate has also declined drastically to 0.6% as there has been limited demand in the economy for goods and services. This has led to prices falling as people are consuming less and saving more in the economy as the consumer confidence has declined.

The economy has followed the inverse relationship which exists between inflation and unemployment as exemplified by the Phillips Curve. The unemployment rate has risen as the country was shut and people were laid off. This caused the reduction in demand as people turned cautious and started saving up.

Stock market declined drastically after the lockdown measures were imposed, but it has since recovered as the global future expectations of the economy have started to improve in light of the world getting used to the virus and working along with it.

Consumer expectations have improved in September 2020 at 75.6 from 68.5 in August 2020. As people are expecting the economy to start picking up growth going ahead and expect overall demand to increase led by significant fiscal and monetary measures.