Question

Since 2011 the US economy has been in the expansion phase of the business cycle, but annual GDP growth has averaged well below the US 3-5% norm. Some economists contend that this slow growth is the product of poor monetary policy. Do you agree? If yes, explain what the Fed has done wrong since 2011. If no, explain what the Fed has done right since 2011 and why the economy has been growing so slowly.

Answer 1

US economy has clocked a very low expansion growth since the year 2011. The primary reasons for this are discussed below:

For example in the year 2016 the economy grew at 1.6% the lowest since 2011, further down from 2015 where it grew at 2.6%. The primary reason for this was lower business investment in various sectors. For example, low oil prices during 2016 have brought US energy sector to a halt.

However there are various instances where this trend have been reversed. For example in the year 2014, due to increasing commodity prices, the growth has picked up. But now, the opposite is happening due to lower commodity prices.

There were many geopolitical uncertainties as well due to which the businesses were holding on its investment and hence slowing down its growth.

There are many challenges to achieve 4% growth like working age population that is shrinking, and sluggish productivity growth etc.