Analysis of History of Changes in GDP, Savings, Investment, Real Interest Rates, and Unemployment and Comparison to Forecast for the Next Five Years
The US GDP has shown positive growth and changes in the recent times and in particular the third quarter of the year 2016 that has surpassed many predictions and forecasts by economic analysts. From the year 1974 to the present 2016, the averaged growth rate is 3.22 percent. However, from the year 2014, it showed the strongest growth in the recent past reaching 5 percent in the third quarter and 4 percent in the second quarter. The year 2015 posted a growth rate in GDP of 2.0, 2.6, 2.0 and 0.9 percent respectively in each quarter. However, the first three-quarters of the year 2016 have indicated a steady growth of 0.8 and 1.4 for the first and second quarters and an exceptional performance of 2.9 percent in the third quarter that surpassed forecasts and analysts prediction. It is hence able to predict the performance of the GDP by analyzing the trend (Carter, 2016). The trend indicates that there is an upward and steady growth projected especially in the fourth quarter of the year 2016. The forecasts for the GDP growth in the next five years indicate that GDP will grow between 2.0-3.0 percent in the next five years from the year 2016. Analysts note that in the year 2017, GDP growth rate will be 3.0 percent and 2018 2.7 percent. 2019 would be 2.4 percent; the year 2020 would be 2.6 percent, and finally 2021 would be 2.6 percent according to forecasts by economic analysts. The history of savings indicates that from the year 1959 to date (2016) it averages to 8.32 percent growth rate with the highest noted in the year 1975 that was a 17 percent and the lowest 1.90 percent in the year 2005. However, in the recent past from 2014, it indicates a steady figure that ranges between 5.0 to5.7 percent noted in all the quarters of the year 2016. However, forecasts for the next five years indicate that the savings growth rate is projected to grow but at a slow rate as experienced presently. The year 2017 is expected to grow by 5.76 percent, 2018 and 2019 by 5.78 percent, 2020 by 5.79 percent and 2021 by 5.81 percent.
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The history of Investment indicates a mixed result that varies steadily in the past years hence difficulty in prediction. The years 2011 to 2015 recorded a 6.4, 9.8, 4.2, 5.3 and 4.0 percent respectively. However, the Investment forecast in the next five years from the year 2016 indicates that it is most likely to range from 4.0 percent to 5.1 percent. However, with a stronger US dollar, analysts predict that the investment forecast might stand at 4.8, 5.0, 5.0, 5.1 and 5.3 percent in the next year from the year 2017 to the year 2011 respectively. The Real interest rates in the US economy over the past years have indicated changes as well. In the recent past from the year 1970s to the present, the highest percentage of growth rate was noted in the year of early 1980s that had 8.5 percent growth rate while the lowest over those years in mid-1970s with a growth rate of negative 1.80 percent. However, in the recent years between 2009 and year 2016 it has ranged between 1.0 and 5.4 percent regarding changes. 2014 had a 5.2 percent that has indicated a slow but steady increase to 2016 with a 0.1 increase in the year 2015 and 2016. Forecasts, on the other hand, suggest a possible stable growth rate in real interest rates due to the continued increase in demand for the US dollar in the international market. They project that the growth in demand is fueled by the British exit in the European Union that has destabilized the economy of Europe and in particular loss of value of the British pound. Many people have opted to trade and use the US dollar in the international market hence enabling a justification of positive growth in the next five years. The forecasts indicate the growth rate to be 6.0, 6.2, 6.5, 6.4 and 6.1 percent respectively in the next five years from the year 2017 to 2021. However, they note that the political actions in the international arena and particular Britain in Europe would determine the extent of the growth rate in real interest rates. Finally, unemployment has also indicated tremendous changes as far as the US economy is concerned in the recent past. In the recent past, from the years of 2008 to 2012, the US economy realized some of the highest figures regarding the percentage of unemployment that was highest in the year 2010 at over 9 percent. It indicated the most difficult times in the economy of the US. However, in the past five years from the year 2011 to 2015 it has reduced steadily showing 8.9, 8.1, 7.4, 6.2 and 5.3 percent respectively. 2016 has also noted reducing figures in the quarters that range from 4.7 to 4.9 percent. However, analyst’s forecasts that predicts a steady rise and increase of the figures from the year 2017 to 2021 to increase to 5.0, 5.2, 5.2, 5.4 and 5.0 percent respectively over the next five years. The drastic reduction in unemployment in the recent past is attributed to government policies that have aimed at creating more jobs for its people in the recent past by encouraging investment and creating a favorable environment for investors through policies that promote investments. It also indicates a period that the US economy is recovering from the recession that was experienced in the years from 2008 to 2012.
How Government Policies Can Influence Economic Growth
Governments across the world have a responsibility to improve the economic conditions in their countries and thus improve the welfare of its citizens. Governments, therefore, have to develop policies that encourage investments and spending among other factors to attract investors and hence, directly and indirectly, improve the economic growth. The government policies impact either the demand or supply sides of their economies with the objective of projecting and sustaining growth. The policies, therefore, that government formulates that improve the demand sides include monetary policies, quantitative easing, fiscal policy and devaluation. On the contrary, policies that increase supply side of economic growth include lowering of income tax, flexible labor markets and privatization and deregulation. The monetary policy mostly executed by the governments (central banks) includes actions such as reducing interest rates. Such actions encourage consumer spending and investment. The action also reduces the motivation to save and encourage spending. The policy hence when applied can spur economic growth. Quantitative Easing also a monetary policy executed by governments entails actions such as an increase in money supply and buying bonds to keep bonds rate low. The objective is to boost investment and economic activities that lead to economic growth. Fiscal policy is also another alternative that governments can pursue. It entails actions such as cutting tax and increasing government spending. Lowering tax encourages consumer spending that ensures the economy remains on course to positively grow while increasing government spending provides more jobs that create the economic stimulus that ensures steady and positive economic growth. Finally, devaluation is another option that governments can pursue to increased demand in their economies and ensure growth. It applies mostly to countries that have a fixed exchange rate that makes imports more expensive and exports cheaper, therefore, boosting domestic demands and also restore competitiveness. Lowering of the income tax by governments can also increase inducement to work, and as a result, note increased supply in labor that impacts on economic growth. Governments, therefore, can either take a policy either monetary or fiscal that best suits their environment to increase economic growth.
Analysis of How Monetary Policy Could Influence the Long-Run Behavior of Price Levels, Inflation Rates, Costs, and Other Real or Nominal Variables
The most common monetary policy entails central banks reducing interest rates. Such actions reduce the cost of borrowing encouraging more people to spend (consume) and at the same time encourage investment where people borrow and start businesses and investing in the short-term. However, in the long run, the policy might increase prices as too much spending by the consumers would increase demand and ultimately increase supply to cater for rising demand that in most cases result in an increase in price level (Beckworth, Moon & Toles, 2012). Such policy might also increase inflation rate. It mostly results from the Quantitative Easing part in the monetary policy because too much flow of money in the hands of consumers and increased demand and supply that results in increased price levels sustainable over the period that the monetary policy applies. If it takes long, it results in inflation. The cost of borrowing in the long-run when the economies of the countries stabilize might experience challenges in returning to normalcy or increase that means more profits for businesses. It thus would create a stagnation of the economic growth as people will be reluctant to borrow because of the high costs of borrowing. In the long run, the monetary policy also affects the real or nominal variables such as the inflation rate. The inflation rate might increase and reduce it might prove a challenge in the long-run.
Description of How Trade Deficits or Surpluses Can Influence the Growth of Productivity and GDP
When there is trade deficit or surpluses in the economic environment, it impacts the productivity and also GDP. Trade deficits happen when import exceeds exports. It encourages and stimulates more growth domestically that try and fill the gap that exists in the business to realize the full economic potential and growth productivity by encouraging the importation of capital to finance investments in productive capacity and hence help achieve a balance of trade. It, therefore, increases the GDP as more production is realized that means more income for countries through the foreign trade that tries to restore the balance of trade. Trade surpluses; on the other hand, encourages more productivity as it means availability of market of goods or services produced. It promotes productivity that leads to more job creation and more exports resulting to an improved GDP. Trade deficits or surpluses hence can influence the growth of productivity and GDP.
Discussion of the Importance of the Market for Loanable Funds and the Market for Foreign-Currency Exchange to the Achievement of the Strategic Plan
The supply and demand in the loanable fund determine the real interest’s rates in both closed and open economies allowing borrowing and lending from the rest of the world that can support execution of the strategic plan. The supply of the market for loanable funds comes from the national savings while demanding from domestic investment (I) and net capital Outflows (NCO). The real interest rate determines supply and demand, and higher interests rate encourages people to save that encourage domestic investment and net foreign investment. Investments bring more benefits to the economy of countries such as the creation of jobs and hence reduce unemployment as well as spur growth of productivity among other benefits. The interest rate automatically adjusts for loanable funds to bring it into balance. The market for foreign- currency exchange, on the other hand, the NCO and net exports (NX) balance each other out. Real exchange rate brings the balance between the supply and demand of the market for foreign-currency exchange. The two markets thus have proved valuable because they allow formulation of models that indicate actions and their impacts to the economies. For example, the impact of government budget deficit to the economy and the resultant policy formulated. It also helps in the formulation of trade policy for countries that affects imports and exports (Mésonnier, 2007). Finally, they help address instances that result from Political instability and capital flight. The markets hence can contribute to achieving the strategic plan as it provides additional options that can help execute the strategic plan with ease.
Recommendation Based On Above Findings, Whether the Strategic Plan Can Be Achieved and Provide Support
The strategic plan can be accomplished because the findings provide more clear options those critical aspects of the strategic plan such as an aggressive growth plan is considered. It is because from the forecast and recent analysis of the GDP and relevant factors such as savings, investments, and interests rates have shown a positive growth of the economy enabling projections of a good growth plan. The reduced unemployment rate is also an indicator of improved economic situation that encourages organization success. The environment also encourages investment in facilities and equipment required by the organization to launch the project. It also anticipates growth in productivity as noted in the trade deficits and surpluses in the above examples and also due to the improved economy. The labor market is steady with a reduced rate of unemployment that indicates that more people are offering labor at existing market rates that mean labor can be provided sustainably for the next five years and ensure that the strategic plan works as intended.
References
Beckworth, D., Moon, K. P., & Toles, J. H. (2012). Can Monetary Policy Influence Long-Term Interest Rates? It Depends. Economic Inquiry , 50(4): 1080-1096.
Carter, R. (2016). A Multiple Regression Analysis Fiscal Strategies and Unemployment Rates. Insights To A Changing World Journal , 2016(1): 48-91.
Mésonnier, J. (2007). Interest rate gaps and monetary policy in the work of Henry Thornton: Beyond a retrospective Wicksellian reading. European Journal of the History of Economic Thought, 14(4): 657-680.
