Macroeconomic Analysis of a Country: USA

Group 5 – Section G
Ankit PGP35311|Anoushka PGP35312|Prashant PGP35333|Ritija PGP35336|Richaa PGP35335
|Varun FPM20023|Vishal PGP35348

Very Long-Run Growth Analysis:

Table 1 shows that the US economy has been experiencing a low GDP growth rate in range of
(2-3%) except for the 5-year period of 2005-09 during which the US and the world economy
experienced a recession. ​In the last two decades, like in the case of many other developed
nations, its growth rates have been decreasing.
The inflation rate has seen a constant decline from 8.2% in 1990 to 1.7% as of Sep 2019.
The unemployment rate as expected is negatively correlated to the GDP growth rate .Currently,
the unemployment rate is at a 50 year low at 3.5%.

Structural Changes:
From Table 2 it is evident that the industrial sector has seen a change from 24.7% in 1980-89
to 13.56% in the year 2010-16 .The service industry recorded a slight growth from 61% in
1980-89 to 71.34% in 2010-16. The agricultural sector has changed from 10% in 1980-89 to 2%
in 2010-16. Therefore the economy can be rated as going through a stable rate focussing on the
contributions of the service sector as around 80% of the economy of the USA is service driven.

Analysis of Long-Run:
With adoption of production enhancing technology, the years 1998-2001 marked sustained GDP
expansion. The stock market was driven up by “dot-com bubble” and fiscal strength was also
driven by tax increases introduced by President Clinton. However, there was a sharp decline in
economic activity following dot-com burst. The 9/11 attacks also weakened business
confidence. The Fed intervened and lowered interest rates which initially expanded economy
but later caused high inflation and housing market bubble. GDP growth saw a deep trough
between 2009-14 due to Great Recession followed by a period of high unemployment levels
and low inflation which have since been declining due to Government efforts of bailouts, QE and
low interest rates.

Output Gap:
Starting from year 2009, the output gap is the lowest in this phase due to the financial crisis.
Thus, the unemployment level during this phase was also very high. Post that, once the
economy started recovering the output gap has been pretty stable. In the most recent year
2018, we can see that there is a positive output gap of 0.64%, which shows that demand for
goods and services exceeded the US’s capacity to supply them which leads to heightened
demand for labor and a positive pressure on inflation. (The graph shows the unemployment rate
has fallen in 2018 while inflation has risen).

Summary:
Overall growth rate of USA has remained low (2-3%) which is expected of a developed nation.
Few exceptional events had a destabilizing effect on the economy in the short run, such as the
dot com bubble, subprime mortgage crisis and the 9/11 attacks. However, the economy has
largely remained stable. Currently, the unemployment rate is at a 50 year low at 3.5%, and
inflation is at a 30 year low at 1.7%, which are great signs. The Fed is also more vigilant this
time and decreasing rates cautiously to boost economy in view of trade war and other crises.
Very Long Run Analysis Tables:
GDP Growth Rate:
Year GDP Growth Rate % Inflation Rate % Unemployment %

1990-91 to 1994-95 2.44 3.64 6.59

1995-96 to 1999-00 4.03 2.36 4.93

2000-01 to 2004-05 2.69 2.54 5.21

2005-06 to 2009-10 0.94 2.59 5.88

2010-11 to 2014-15 2.12 1.99 8.03

2016-17 to 2018-19 2.21 1.8 4.62

Table 1: Source: The World Bank and Bureau of Labour Statistics

Table 2

Period Real GDP growth (%) Inflation Rate (%) Unemployment Rate (%) Events

1999-2004 2.9 2.4 4.8 Tech bubble burst, 9/11

2004-2009 2.4 2.68 5.06 Great Recession

2009-2014 1.14 2.08 8.6 QE starts, Dodd Frank act

2014-2019 2.46 1.52 4.68 QE ends, Trade war

Table 3: Source: World Bank