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The U.S.

In 2001 : Macroeconomic Policy and the New Economy

Syndicate I Team Member : 29112003 | Widya Wardani 29112006 | Gekan Purnama Zainal 29112032 | Eliandri S. Wulandari 29112098 | Imam Hudori 29112114 | An Am Ta

America History
United State of America (USA) or United States (US) is a federal republic consist of fifty states and a federal distric. (Washington & North America). Is the thirt largest country by land area and population. One of the worlds most ethnically diverse and multicultural nations. On July 4, 1776, delegates from the thirteen colonies unanimously issued the declared of Independent which established the United States of America. Barack Hussein Obama is the President of America.

Global Macroeconomic Situation

Since late 2000, economic no significantly growth almost all major regions of the world, accompanied by a marked decline in trade growth, lower commodity prices and deteriorating financing conditions in emerging markets The global economic is moving forward, but divergence between countries and regions reflects the uneven progress made toward recovery from the economic crisis, historically high unemployment remains the most serious challenge facing governments.

Global Macroeconomic Situation

US vs Other Country Economic Outlook


Europe area

US vs Other Country Economic Outlook



US vs Other Country Economic Outlook

In the US, activity is projected to rise by 1.9% this year and by a further 2.8% in 2014. GDP in the euro area is expected to decline by 0.6% this year and then rebound by 1.1% in 2014, while in Japan GDP is expected to grow by 1.6% in 2013 and 1.4% in 2014.

source: OECD economic outlook

Macroeconomic Outlook of US
1970s 1990s Economy was plagued by persistent inflation Periodically high unemployment Slow growth in productivity Rising inequality and large Federal budget deficits.

Macroeconomic Outlook of US
Well executed monetary and fiscal policies-each focused importantly on their respective long-run goals of achieving price stability and reining in deficit spending-played some role in creating economic conditions that fostered non inflationary economic growth. The business landscape by allowing, indeed forcing, businesses to focus more clearly on a more competitive market place with fewer constraints and increased flexibility.

Macroeconomic Impact During 1970s 1990s

The United States is grow more Slowly Population growth slowly in a view decade

Macroeconomic Impact During 1970s 1990s

The Continental Congress, the rough equivalent of the Federal government in revolutionera America, lacked the power to tax. It first tried to pay for stuff by printing money. This currency, known as the Continental, collapsed. The nascent US government also raised cash by borrowing under all sorts of authorities.

The analysis dates to 1790 and puts the newborn US at around a 30% debt-toGDP ratio, with the debt a bit higher than $75 million.

Macroeconomic Impact During 1970s 1990s

Economic History of US

Economic History of US
A distinct change from the 1970s and 1980s, decades in which the economy was plagued by persistent inflation, periodically high unemployment, slow growth in productivity, rising inequality, and large Federal budget deficits. 1970s, as two major oil shocks were followed by simultaneous inflation and recession. The massive and costly recession of the early 1980s and the collapse of oil prices in 1986 broke the back of the very high inflation rates that had emerged in the late 1970s. But as unemployment fell below 6 percent in the late 1980s, core inflation started to climb again.

Economic History of US
Between 1973 and 1993, GDP growth received a boost from the large numbers of women and baby-boomers entering the work force. But at the same time, persistently slow productivity growth (averaging less than half of what it had been during the preceding 25 years) kept GDP growth in check. in 1993 that the U.S. economy could achieve and sustain low unemployment rates, moderate inflation, or robust productivity growth. The Federal Government seemed incapable of balancing its budget, and there was little to suggest that U.S. incomes could grow more rapidly than those in other major industrial countries.

US Economic Growth Era

Long Run Analysis
1. Until the recent financial crisis, large deficits have been associated with great warsthe War of 1812, the Civil War, and World Wars I and II. The only large peacetim deficit occurred in 1933 during the Great Depression, when the deficit hit a peak of 6.6 percent of GDP. In contrast, the deficits for 2009, 2010, and 2011 have all exceeded 8.7 percent. 2. Each large deficit was followed by a period of budget surpluses or very small deficits. Indeed, with the exception of major wars and the Great Depression, the deficit relative to GDP averaged essentially zero. 3. A marked change in the behavior of the deficit occurred circa 1970. For the decade preceding 1970, the United States also had fairly persistent deficits, but they were relativelysmallon average, 0.8 percent of GDP. In contrast, the deficit averaged 2.1 percent for the 1970s,3.9 percent for the 1980s, 2.2 percent for the 1990s, and 3.0 percent for the 2000s. Over the entire1970-2010 period the deficit averaged 2.8 percent of GDP.

US Economic Timeline

US Economic Growth Era

In particular, the debt problem began around 1970 when the government decided to significantly increase spending without a corresponding increase in revenue.

US Business Model Outlook

New Business Model

Combination of entrepeneurship and the internet has allowed new economy companies to achieve thise very efficient business model. Cost came down and are being pushed lower every day. New economy has created such downward pressure on prices that it is safe sot say inflation is dead. The new economy resulting entrepeneruship where money is flowing in to them with enermous ease.

The Golden Age

Stock market has actually played an important in increasing productivity and decreasing inflation The more money that flows into disruptive companies of the New Economy; inefficiency-busting, inflation crushing model works. New economy grow stronger; they put more competitive pressure on existing players, pushing prices and costs down. The New Economy is strong and resilient; many workers will be required to learn new skills or find new jobs altogether.

Monetary Policy in US
"monetary policy" refers to what the Federal Reserve, the nation's central bank, does to influence the amount of money and credit in the U.S. economy. What happens to money and credit affects interest rates (the cost of credit) and the performance of the U.S. economy. The goals of monetary policy are to promote maximum employment, stable prices and moderate long-term interest rates. The Fed can maintain stable prices, supporting conditions for long-term economic growth and maximum employment. The Federal Reserves three instruments of monetary policy are open market operations, the discount rate and reserve requirements The FOMC formulates the nations monetary policy. The FOMC committee discusses the outlook for the U.S. economy and monetary policy options.

The Effect of Monetary Policy

Changes in real interest rates affect the publics demand for goods and services mainly by altering borrowing costs, the availability of bank loans, the wealth of households, and foreign exchange rates. Wages and prices will begin to rise at faster rates if monetary policy stimulates aggregate demand enough to push labor and capital markets beyond their long-run capacities. Anticipate higher inflation so its not directly affected the financial market of US.

The Vice-Chairman of the Federal Reserve (1995s)

Real gross domestic product has grown, more than 4.5% per year. The unemployment rate as fallen to 4% and the underlying rate of price inflation has slowed. Productivity growth and Cost Reductions. The Macroeconomic Implications of faster productivity growth.

The Economic Growth of US

The Economic Growth of US

Bush expansion vs. the Clinton expansion. And 21 quarters into each, the economy has grown 16.6 percent under Bush vs. 19.9 percent under Clintonadvantage. The unemployment rate 22 quarters into each expansion jobs numbers come out more frequently show that the current unemployment rate is 4.4 percent vs. 4.5 percent under Clinton.

The Out-going Clinton Administration

What Makes The Economy New ?

The interrelated factors lie behind the extraordinary economic gains ( of 1990s) : Business Organizational Changed

Technology Innovation

Public Policy

The Facts of New Economy

Simultaneous advances in Information Technology computer hardware, software and telecommunications. Entrepreneurs instituted widespread changes in business organization. The (Clinton) administration embraced policies anf strategies beased on fiscal discipline, investing people of technologies, opening market at home and abroad and developing an institutional framework that supported continued global integration.

It is Creared the virtuous cycle in which developments in one area reinforce and stimulate development in another

The Virtuous Cycle

The Omnibus Budget : In 1992, the new (Clinton) administration wan elected to promise to turn the (Federal Budget) deficits around. In 1993, The administration was able to deliver on the promise The market responded quickly to this serious effort to address the deficit : Lowering expectation of inflation Long term interest rates accordingly fell

"The Clinton administration clearly benefited from an expansion that began well before the election and well before they ever passed a single piece of economic legislation. This administration was clearly hurt by being greeted with a recession and the implosion of the technology bubble well before we ever passed any part of our economic policy."

The President of The United States

America Today (In 2001s Era)

Nation with great challenges, but greater resources
Warning Signs Figures : Increasing Layoffs Rising energy prices To many failing schools Persistent poverty The Stubborn vestiges of racism Blessing Figures : A Balance Budget Big Surpluses Military that is second to none A country at peace with its neighbors Technology that is revolutionizing the world Greatest strength & care each others

George W Bush was elected as the President of United States, 27 February 2001

Problem Facing in Bush Era

those who want more government, regardless of cost Those who want less government , regardless of the need.

Several economic uncertainities condition. Unenployment and inflation were at low levels. Technological and innovations and organizational changes associated with the emergence of the socalled new economy. Business and consumer confidence fell. Federal Reserve reduced interest rates by a total of one percentage point in January alone. Nasdaq stock market had declined by more than 50%. Inflation remained subdued, unemployment remained at low levels and the US dollar remained strong on currency markets.

Condition Analysis
Previous Condition
Budget debates seem to come down to an old, tired argument. Too much government crowds out initiative and hard work, private charity and the private economy. Tax Regulation & Policy Tax relief or right or urgent with faltering

New Condition
Leave those arguments to the last century, and chart a different course. New governing visions : government should be active, but limited, engaged but not overbearing. Honor hard work, never punish it Help the lower interest

Resolution : 1. Create economy growth and opportunity (put money back into the hands of people who buy goods and create jobs. 2. Act quickly : tax cut often come too late stimulate economy recovery, give an economy an important jump-start by making tax relief retractive.

Bill Clinton
VS George W. Bush Era

Comparison Analysis
In 2001, Bush Cut the Tax rate

Clinton VS Bush Era

Clinton VS Bush Era

From January 1993 to December 2000, businesses created over 21 million jobs. Businesses only created 141,000 under the Bush Administration. Businesses created nearly 150 times as many private sector jobs under President Clinton than they did under President Bush.

Clinton VS Bush Era

When Bill Clinton was President, America enjoyed a booming economy and surpluses. The Pew Fiscal Analysis Initiative : Between 2001 and 2011, about twothirds (68 percent) of the $12.7 trillion growth in federal debt has been due to new legislation. Forty percent of this legislative growth was the result of tax cuts enacted after January 2001, and 60 percent resulted from spending increases. Technical and economic revisions combined caused about one quarter (27 percent) of the growth, and changes in other means of financing accounted for 6 percent. The Center on Budget and Policy Priorities : If not for the Bush tax cuts, the deficit-financed wars in Iraq and Afghanistan, and the effects of the worst recession since the Great Depression (including the cost of policymakers actions to combat it), in fact, the Bush tax cuts and the wars in Iraq and Afghanistan will account for almost half of the $20 trillion in debt that, under current policies. The stimulus law and financial rescues will account for less than 10 percent of the debt at that time.

America in years of 2000s

Economic Recovery of US
The economy is recovering because consumers are spending, resisdential contrustion is growing, business investment remark ok, and net exports have not been drag on the ecomony. The recovery has been slow because of continued weakness in the labor market, the loss of household wealth, the overhang of motrgage foreclosures anf underwater mortgages, and the decline in government spending. The Federal Reserve has kept the Federal Fund rate close to zero and use quantutative easing. This has raised the inflation concerns (ex. Oil prices).

As $7.4 trillion decline in US household net worth erased all increases in the wealth-income ratio. The household saving rate jumped higher and is projected to remain above trough. US trade gap has begun widening as imports pick up. The rise in inflation has been a concern to tohse who see the FEDs huge balance sheep as likely to cause monetary inflation.

Financial and Economy Reform

The Dodd-Frank legislation contained many element that will make US financial sector more stable and lower the changes of crisis. Some regulation were not needed or misguides. The legislation left a lot for the regulation to do and the different regulatory agencies are competing against each other and not cooperating well.

Financial and Economy Reform

Macroeconomy is best seen as a system of interlinked markets, all tending toward equilibrium. Disturbances or shocks may temporarily divert markets from equilibrium but they will tend to return without government intervention. Government intervention intended to stimulate the economy or reduce unemployment can only have a very short. The new economy is that it reflects an exogenous surge in innovation and capability in the high-tech sector.

Inovation is strongly demand driven so the old or traditional economy was a vital driver of innovation in high-tech. A highly competitive economic environment in which new companies enter and expand and old companies contract or die is one that fosters the adoption of innovation.