Forecast for Economy

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FORECAST FOR ECONOMY

The economic variables of employment

Employment variables are important economic indicators. They pointout the changes in the percentage of the population that iscontributing to the production of goods and services, andconsequently the gross domestic product. The level of economicactivity and employment are interdependent. For example, theintensity of labor is a measure of productivity in the economy. Inthe recent past, employment trends have posed a huge challenge in theUnited States. This is due to unhealthy levels of unemployment andjob loss since the financial crisis in the late 2000s (Mankiw, 2014).

In the 1990s and early 2000s, the levels of employment rose steadily.However, due to economic challenges that faced the world during thefinancial crisis, unemployment rates have been on the increase.Despite there being some improvement, the labor markets are yet torecover from the impacts of the recession. Some of the factors thataffected employment variables include government policies,demographic factors, technological evolution, business trends, andeconomic conditions. Additionally, it has social, political andeconomic implications, due its effects on disposable income andsocioeconomic stability (O`Sullivan, 2014).

Inflation

The rate of inflation is an important determinant of the soundness ofthe economy. Hyperinflation can result in a collapse of the economicsystems, while the reverse causes a reduction in purchasing power andthe inability of business organizations to predict future trends. Itemanates into higher opportunity costs in holding money, whichdiscourages savings and investments. Usually, lenders are likely torespond to high inflation by increasing the interest rates. This isaimed at compensating the decline in value compared to the principleamount loaned (Mankiw, 2014).

In the United States and other nations, the inflation ratesstatistics are updated monthly based on the ‘Current Consumer PriceIndex” (CPI-U). The figures are released by the Bureau of LaborStatistics. Hyperinflation is good for the government and FederalReserve but has negative impacts on the economy in general.Therefore, there is a need for constant balancing act to ensure thatbenefits to the government and the economy are complementary (Mankiw,2014).

Gross domestic product (GDP)

Gross domestic product refers to the value of goods and servicesproduced in a given economy within a particular period. It is one ofthe most critical aspects of economic performance. The nominal GDPcompared a country with others. There are three approaches that canbe used to determine the GDP. They include expenditure, income, andproduction methods. The United States is the largest economy in theworld. Although it was adversely affected by the financial crisis in2000/2001 and 2008/2009, there has been steady growth in GDP over theyears. It is projected that it will grow from 17, 348 to 21, 873billion dollars between 2015 and 2020. This indicates a steadyincrease in the productivity (Council of Economic Advisers, 2016).

Interest rates

Interest rates describe the amount charged by lenders to borrowers ofassets, usually expressed as a fraction of the principal sum orvalue. Several factors impact on the interest rates. They includedemand and supply, risks involved, administration costs, maturitydate, and amount rented. It is also affected by monetary policiesadopted by the government. For example, to increase investments andconsumption, the government can employ tools that reduce interestrates to increase borrowing. Additionally, they impact on savings,depreciation, exchange rates, and the prices of assets (O`Sullivan,2014).

Consumer spending

Consumer spending refers to the value of goods and servicesindividuals, and households can buy within a given period. It has twocomponents, `induced consumption`, which is dependent on incomelevels, and `automatic consumption`. Consumer spending accounts for ahuge percentage of the United States economy. Government purchasesfrom the economy exceeded consumer expenditure during the SecondWorld War. Since then, consumer spending has increased steadily toabout 71 percent in 2013 (Mankiw, 2014).

There are several macroeconomic and microeconomic factors that havean impact spending in the economy. Tax policies have a direct bearingon the purchasing power of the government as well as individuals andentities. The sentiment and feelings of the consumer about themarkets have an enormous influence on their expenses. For example,people spend more if they have confidence in the economy. Otherfactors include stimulus programs and level of income (Mankiw, 2014).

Government spending

The government is one of the largest entities in an economy. This isbecause it is a huge spender, through transfer payments, investments,and direct consumptions. In the United States, this occurs at thelocal, state, or federal levels. There are several ways through whichthe Treasury budget is financed. This includes taxation, borrowing,and returns from investments. Fiscal policies that alter governmentexpenditure can have huge impacts on the economy. Consequently, itcan have adverse effects on various aspects such as aggregate demandand consumption (Mankiw, 2014).

Trade balance

Due to the role of international trade in the modern economies, tradebalance is an important economic indicator. It refers to thedifference between the value of export and import within a givenperiod. A deficit indicates that the country exports less that itimports, and the reverse results in a surplus. The latter ispreferable because it shows that the country is a net exporter, thus,higher GDP (Mankiw, 2014).

References

Council of Economic Advisers. (2016). Economic Report of thePresident. Washington DC: Government Printing Office.

Mankiw, N. (2014). Brief Principles of Macroeconomics.Stanford, CT: Cengage Learning.

O`Sullivan, S. (2014). Macroeconomics. Boston: Prentice Hall.