We will write a custom Case Study on American Economy’s Phase in the Business Cycle specifically for you
301 certified writers online
The economy in the United States has tended to grow over the past decade. Due to economic expansion, the gross domestic product is growing steadily, and the job market is improving. The purpose of this paper is to analyze the data of National Accounts presented by the Bureau of Economic Analysis to evaluate the U.S. economy from the standpoint of the business cycle.
It is possible to divide the business cycle into four phases such as expansion at the period of the developing economy, peak at the highest development point, contraction at the period of the declining economy, and trough at the lowest development point. The United States is famous for its dynamic, entrepreneurial, and flexible economy. Some researchers note that “dynamism and flexibility have enabled the US economy to adapt to changing economic circumstances and recover from recessions in a robust manner” (Decker et al. 3). The thorough investigation of quarterly data over the past few years made it possible to state that the U.S. economy is currently in the phase of expansion, although there is a tendency of dollar weakening.
The main factor that is crucial for evaluating the economy and phase of the business cycle is gross domestic product because it measures the production output of the nation. Its rate is remaining to grow up to two or three percent. Thus, the U.S. is slowly eliminating the harm caused by the last financial crisis. The factors that influenced the postcrisis economy were lost investments, unemployment, as well as short weekly hours (Hall 72). Still, the U.S. economy has a number of automatic stabilizers such as the system of personal income tax and proportional taxes, which are believed to play a significant role in the recovery of the economy.
The other factor that assists in evaluating the phase of the country’s business cycle is the level of unemployment. It is a general opinion that unemployment figures have declined recently, which is confirmed by the quarterly data. Some researchers state that “unemployment benefits greatly increase in every recession as the number of unemployed rises” (McKay and Reis 147). It is also noted that if shocks related to specific markets are not correlated properly, the dynamics of market-level exposure results in changes in the volatility of firms (Decker et al. 149). Thus, the U.S. economy is in the phase of stable growth despite recent changes in government and increasing world competitiveness.
The United States is known for its rather generous unemployment benefits at the times of regression. Some researchers emphasize that “the fact that the optimal policy accelerates the recovery of employment indicates that the distortionary effects of increasing benefit generosity in the short run are outweighed by the commitment from the government to lower them” (Mitman and Rabinovich 100). Thus, optimal unemployment benefits are related to increasing employment and productivity.
The phase of the business cycle can also be detected by the level of inflation and manufacturing. The inflation in the U.S. amounts to 2-3 percent on average at present. Therefore, it is a general opinion that the dollar is weakening, which might lead to a possible contraction phase in the future. Still, the domestic production grows steadily according to the quarterly reports.
The analysis of the U.S. economy made it possible to state that it is in the phase of expansion according to the business cycle. Although the forecast is rather positive, some researchers note that the U.S. economy has shown lower employment and weaker GDP growth under Republicans (Blinder and Watson 1021). Thus, it is generally recognized that the tendency of economic growth might change to regression as well.
Blinder, Alan S., and Mark W. Watson. “Presidents and the US economy: An Econometric Exploration.” American Economic Review, vol. 106, no. 4, 2016, pp. 1015-1045.
Decker, Ryan A., et al. “Market Exposure and Endogenous Firm Volatility over the Business Cycle.” American Economic Journal: Macroeconomics, vol. 8, no. 1, 2016, pp. 148-98.
Decker, Ryan, et al. “The Role of Entrepreneurship in US Job Creation and Economic Dynamism.” Journal of Economic Perspectives, vol. 28, no. 3, 2014, pp. 3-24.
Hall, Robert E. “Quantifying the Lasting Harm to the US Economy from the Financial Crisis.” NBER Macroeconomics Annual, vol. 29, no. 1, 2015, pp. 71-128.
McKay, Alisdair, and Ricardo Reis. “The Role of Automatic Stabilizers in the US Business Cycle.” Econometrica, vol. 84, no. 1, 2016, pp. 141-194.
Mitman, Kurt, and Stanislav Rabinovich. “Optimal Unemployment Insurance in an Equilibrium Business-Cycle Model.” Journal of Monetary Economics, vol. 71, no. 1, 2015, pp. 99-118.