Introduction
In the five years (see Table 1), the key indicators demonstrate notable improvement, which could signify economic expansion. Namely, the GDP continually grows while the unemployment level gradually drops. At the same time, the inflation rate varies within the 1-2% range, another indicator of a healthy economy. Ultimately, the five-year period is an example of significant economic expansion and could also be called an economic boom.
Table 1 – US Economic Indicators for a Five-Year Period
Reasoning and Predictions
Economic expansion is a complex and multifaceted process, and several reasons can explain the acceleration in this example. First, the GDP growth is consistent throughout the period, reaching 4+% %. In theory, the two primary reasons for such prosperity are innovations in the market and consumer surplus (Henderson, 2022).
An example that highly resembles the current case is the economic boom in the late 1990s when the introduction of IT solutions significantly changed the national economy (Wunker, 2021). Any type of rapid improvement due to innovations is likely to positively impact economic growth without reducing other vital financial parameters (Henderson, 2022). As a result, the continuous GDP growth is the first sign of economic expansion in this example.
Secondly, it is critical to examine inflation and unemployment since these metrics are related. In general, when unemployment decreases, inflation rises – this rule is called the Phillips Curve and was first identified in 1958 by A. W. Phillips (Tretina, 2022). However, in the current case, this relationship is not evident, and the inflation varies within the healthy range of 1-2% despite the improvement in national employment.
This phenomenon is another indicator of substantial economic growth that is so notable that it even mitigates the Phillips Curve. Such developments can occur during positive or negative financial shocks when external factors are exceedingly influential (Tretina, 2022). Two examples of this phenomenon are the economic boom in the late 1990s (positive) and the impact of COVID-19 (negative) (Tretina, 2022; Wunker, 2021). As a result, all three key metrics indicate significant economic expansion and prosperity.
The examined positive trend is unlikely to persist in the long term due to the rules of macroeconomics. First, if unemployment decreases, the inflation rate will react to this development, and the government might wish to intervene (Tretina, 2022). Secondly, the positive impact of innovations will gradually decline since the market and societies will adjust to new realities (Henderson, 2022).
Lastly, external financial shocks, such as the 9/11 terrorist attacks, the 2008 financial crisis, and COVID-19, are relatively frequent in economic history and present additional risks to financial growth and prosperity. As a result, the economic expansion in the examined period may continue to develop in the short term. However, it is also likely that some financial recession will occur shortly after due to financial policies to balance unemployment/inflation or external factors.
Conclusion
In summary, the five-year period is an example of notable economic growth. Innovation and consumer surplus are the likely causes of this development since all three financial metrics demonstrate superior measurements. Moreover, this trend does not adhere to the Phillips Curve, meaning external factors greatly impact the national economy. Nevertheless, such growth is typically unsustainable in the long term, and a consequent economic recession is possible. It might occur because of government intervention to balance the inflation/unemployment rates or external financial shocks.
References
Henderson, D. R. (2022). What causes economic growth? Hoover Institution. Web.
Tretina, K. (2022). Inflation and unemployment. Forbes Advisor. Web.
Wunker, S. (2021). 9 lessons from the 1990s to prepare for the coming boom. Forbes. Web.