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An Analysis of Gross Domestic Product (GDP)

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An Analysis of Gross Domestic Product (GDP)

The current state of the economy in the United States has been slow in recent months. While the economy is not currently in a recession, we may eventually fall victim to the first recession we’ve had in nearly ten years. The economy in general is showing growth, just not much. It will be difficult to predict what exactly will happen to the US economy in the future. Many economists do not agree on what will become of the economy. Some feel that we will begin a recession over the next year, and some feel that there is significant policy implementation that will allow us to dodge a recession and regain our economic strength. There are many factors that make up the US economy. The means in which I will discuss the overall growth and current status of the economy is by analyzing the Gross Domestic Product, and discuss the factors that cause it to rise and fall.

The GDP is the total aggregate income of the United States. It is comprised of consumption, investment, government spending, and net exports. The GDP in the fourth quarter of 2000 grew at a 1.1% annual rate, the lowest since a 0.8% increase in the second quarter of 1995. The below par performance in GDP is due to those factors that comprise the GDP. The most important of which is consumption. Consumption in the United States has been less than expected mainly due to low consumer confidence. Consumer confidence has hit a 10 year low with an index of 106.8 as reported by Alan Greenspan. In the past 2 months the index number has plummeted nearly 22 points, the biggest decrease since the 1990-1991 recession. The reason for this recent drop in consumer confidence is due to several key factors. One factor is the poor performance of the stock market. The Dow Jones is down from its peak that was hit last year, but has now rebounded slightly. The Nasdaq took a dive with the decrease in the prices of tech stocks. The Nasdaq has fallen nearly 56% from its peak in March of 2000. The Wilshire 5000, which is a broader market, is also down by about 22%. Also a factor in dropping consumer confidence is the fear of more layoffs by major employers. The media has paid a lot of attention to large layoffs of companies, yet the labor markets still remain fairly tight. The natural rate of unemployment in the US is approximately 5%, which is higher than the actual rate...

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...ints on congress never materialized. If the rate of domestic spending had risen at the same rate as inflation, at the end of his presidency, the government would have had a surplus of almost 250 billion dollars. The way that supply-side economics works is by increasing the disposable income of the taxpayer, which will inevitably increase consumption. The theory is that if people get to retain more of the money that they earn they will work better and longer thus increasing productivity as well as the quality of goods. President Bush’s tax cut plan if done correctly will help greatly to get the US economy to increase its growth.

So is the United States in a recession? The answer is no it isn’t. The US has had a period of sluggish growth, but still it has been positive. The economy will have to grow at a negative rate over the next two quarters in order for the US to be in a recession. But is there cause for concern that a recession may occur? Yes there is, but the government’s interventions should keep the US from falling victim to recession. I believe that the economy will eventually pick itself back up and avoid a recession. The GDP will once again grow at a quick pace.