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Analysis of Unemployment and Inflation in the United States Report

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The current unemployment rate in the United States is 8.3%. This is an improvement from last year and the last quarter. The economy generated around 240,000 jobs with the private sector taking over 60% of this tally.

The economy is set to continue generating jobs in the next few months further reducing the unemployment rate to 7.8% according the bureau of labor statistics’ prediction. This is the best growth in economy since 1995 and it is set to continue at a steady but moderate rate of 3% as the country heads to 2013.

The inflation rate was at around 7%. The rate is not conclusive but hovers around that figure. This is because different indices measure rates of inflation. This includes Consumer Price Index, Producer price indices, Import and Export Prices, unemployment trends among others. Notably, improved unemployment rate leads to lower inflation levels.

The lowest rates of unemployment were recorded in 2010. This was at the height of the recession that continues to grapple the country with major negative implications in the economy. The highest rates of unemployment the economy recorded were in 2007. Economists attribute this sudden discovery and subsequent embrace of the internet in various institutions following its discovery in the previous years. This resulted to notable growth in the economic activity.

At its lowest peak in 2010, around 90% of the workforce had occupations as shown by unemployment rate of 9.7%. the second lowest was in 2011 recording an unemployment rate of 9.1%. This indicates that around 90% of the workforce in United States had work. The unemployment rate was lowest in 2007. In 2008, the country plunged into an economic crisis after the property and liquidity market bubble. This was preceded by robust economic activity in 2007. Hence, the high rates of employment.

Business Cycle and GDP Trends

Business cycle is the periodic up and down fluctuations in economic activity measured by changes in real GDP plus other numerous macroeconomic variables. Currently, the economy is at prosperity in the wake of a recession. The last signs of a recession were in 2009.

The economy has been prospering for the last 7 quarters. Before the recession that rocked the country in 2008, the economy was growing steadily since 2000. This was occasioned largely by growth in the tech world and the recession came because of a banking and property trade crisis.

Gross Domestic Product

Real GDP refers to the output of products (goods and services) which are produced in the United States of America. The production uses property and labor situated in the country. Unemployment was highest in 2000 with percentage from preceding period of 4.1 while it was lowest in 2008 with percentage change from preceding period of -0.3. This indicates that unemployment rate has a very critical bearing on the outcome of the economy.

It especially affects the GDP very drastically. Hence, it is paramount for the government to put into consideration this important factor and spur growth in employment to improve GDP levels steadily. The last recession before 2008 was in 1998. This was after the South American recession, which had started in Brazil. Later, the United States of America had its own recession moment.

It is highly attributable to the bilateral relationship that United States had with its neighbors economically. Hence, the shake-ups from the economic activity in the south affected the economy in the country. The economy was at its peak in 2007 and in early 2000 and the early 1990. The major factors include revolution in the internet world plus robust American borrowing, which increased their purchasing power. Incidentally, in 2008 this was the reason the economy went to a downturn according to government statistics.

How to Calculate CPI

CPI (Consumer Price Index) is a measure that economists use to calculate the rate of inflation in a country. Economists use it alongside other measures such as imports and exports, Producer Price index etc. There are indices for different groups of consumers. This includes CPI for all urban consumers and CPI for urban wage earners.

CPI = (Updated cost/Base Period cost)*100

Updated/current cost is the cost of a particular item in a certain year. Base period cost is the cost of that particular item in a year of reference. E.g. if we want to find the CPI in 2012 using price of bread, we take the price of bread in 2012 (say $1.5) and the price of bread in a certain base year (say 1980, $0.95).

CPI = 1.5/0.95*100

The factor interest rates are quite confusing when calculating CPI. This is because it leads to variability and changes. For example, governments through their monetary policies constantly adjust interest rates, which affect CPI. To handle this, it is important to look at averages critically and come up with a baseline.

Limitations of CPI are many. The most prominent is which products the government use and which base year should an economist should employ. Selecting base year affects the size of CPI. To solve this, economists look for the year with the greatest influence in the current economic situation or an ideal historical economic situation.

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