GDP

 

GDP (Gross Domestic Product) measures the economic activity of a country, which indicates the size of an economy. GDP indicates the growth and health of an economy and businesses take into consideration the provided information of GDP into their business strategy. (Chappelow, 2019) GDP influences the personal finance, investment and job growth. The central bank examines the GDP rate to monitor the economy. For instance, a growth in GDP predicts a rise in interest rates as the economy overheated, which indicates higher mortgage and less spending in the economy. In this case the Central Bank can stimulate the economy by expansionary monetary policy and raise the money supply to lower the interest rate. In case of decrease in GDP can cause inflation, higher unemployment rate and slowing the economy down (Amadeo K. , Gross Domestic Product and How It Affects You, 2019). An ideal GDP growth rate is approximately between 2% to 3 % (Amadeo K. , 2019). The graph below predicts the GDP of the United States, which indicates an annual increase in GDP from 2010 to 2018. The GDP growth rate measured 3% in 2018 and 2,2 % at the beginning of 2019. (Trading Economics, 2019) This figure represents a healthy economy, where the economy grow steadily each year in the past 9 years.

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Interest rate

 

The interest rate is a percentage of loaned money for the use of money. In many cases the banks loan money and set an interest rate for borrowing the amount of money. However, in United States, the Federal Reserve monitoring the interest rate by the Fed Funds Rate, which also has an impact on the nation’s money supply and the health of the economy. A high interest rate indicates that borrowing money is more expensive for businesses and individuals. However, it has a positive effect, as people spend less and the money saved has an increase in the savings rate. On the other hand, business have less capital to expand the business. A low interest rate affect the real estate sector by lower the price of properties. Nevertheless, it encourages consumers to spend more money in the economy, and it has also a positive effect on the stock market. Moreover, it enables businesses to loan money on a fair rate, which is more affordable. It also drives businesses to expand and create more jobs in the economy. (Amadeo K. , 2019) The graph shows below the interest rate set by the Federal Reverse (Tradin Economics, 2019). According to New York Times, the raising interest rates, set by the Federal Reverse, predicts concerns on the financial market and the confidence measured in the economy. The Federal Reverse chairman, Jerome H. Powell, recognized the fallen stock prices as well as the slower economic growth, however, he defends the movement of the Federal raising interest rate: “We think this move was appropriate for what is a very healthy economy”. The raising interest rate means the stimulus of the economy by the Federal Reverse, which ensure the balance between expansion and inflation. Despite the increased interest rate, the economy is growing, where businesses are creating new jobs and the unemployment rate steady. However, economist the raising interest on car and real estate mortgage are rising, which encourage consumer to spend their money in the economy. (Appelbaum, 2018)

 

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According to Marketline (2019), income inequality has remained a major issue in the United states since 1970. In fact, the Gini coefficient which measures dispersion of income and therefore wealth distribution, equaled 0.39 in 2015. That leads to the US being among the worst performers in terms of income inequality out of the OECD member countries. Different genders, ethnicities and origins indicate wage gaps. (Market line, 2019) In simple terms, income inequality will lead to wealthy people gaining more wealth and poorer people remaining poor in the long run. The one percent at the top earned an average of $421,926 before tax in 2015, whereas the other ninety-nine percent on the bottom bring home an average of $50,107 per family. This is the co-called top-to-bottom ratio which can be seen in the figure below. The income of the one percent at the top is compared to the average income of the lower ninety-nine percent. It varies by state, however the average is at 26.3 percent. Currently, it seems like that higher positions in the US are being paid unreasonable amounts. Whilst they benefit from the growing economy, the gap between rich and poor keeps growing dissatisfaction among the average workers.

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Income Inequality

 

According to Marketline (2019), income inequality has remained a major issue in the United states since 1970. In fact, the Gini coefficient which measures dispersion of income and therefore wealth distribution, equaled 0.39 in 2015. That leads to the US being among the worst performers in terms of income inequality out of the OECD member countries. Different genders, ethnicities and origins indicate wage gaps. (Marketline, 2019) In simple terms, income inequality will lead to wealthy people gaining more wealth and poorer people remaining poor in the long run. The one percent at the top earned an average of $421,926 before tax in 2015, whereas the other ninety-nine percent on the bottom bring home an average of $50,107 per family. This is the co-called top-to-bottom ratio which can be seen in the figure below. (Reinicke, 2018)

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The income of the one percent at the top is compared to the average income of the lower ninety-nine percent. It varies by state, however the average is at 26.3 percent. Currently, it seems like that higher positions in the US are being paid unreasonable amounts. Whilst they benefit from the growing economy, the gap between rich and poor keeps growing dissatisfaction among the average workers. (Reinicke, 2018)

 

 

Unemployment Rate

 

The unemployment rate can be defined as the percentage of people in the work force that are currently not contributing to the labour force. The unemployment rate in the United States was measured at four percent in January, 2019 which is quite low compared to South Africa with 27.8%. (OECD DATA, 2019) According to Cox (2018), 213,000 jobs have been added to the job market in June 2018. (Cox, 2018) Just last year in 2018, the unemployment rate decreased to the lowest level in the last fifty years indicating a strong and growing economy. It is not just the overall unemployment rate that went through changes but also some historic lows have been reached for a variety of different demographic groups such as Hispanics, women and people with no college attendance. Now, less than six million people are unemployed in the United States. (Council of Economic Advisers, 2018)

 

References

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Chappelow, J. (2019, 04 11). Gross Domestic Product (GDP). Retrieved from Investopedia: https://www.investopedia.com/terms/g/gdp.asp

Amadeo, K. (2019, 03 28). Gross Domestic Product and How It Affects You. Retrieved from The Balance: https://www.thebalance.com/what-is-gdp-definition-of-gross-domestic-product-3306038

Amadeo, K. (2019, 03 28). What Is the Ideal GDP Growth Rate? Retrieved from The Balance: https://www.thebalance.com/what-is-the-ideal-gdp-growth-rate-3306017

Trading Economics. (2019). United States GDP. Retrieved from Trading Economics: https://tradingeconomics.com/united-states/gdp

Amadeo, K. (2019, 03 14). Interest Rates and How They Work. Retrieved from The Balance: https://www.thebalance.com/what-are-interest-rates-and-how-do-they-work-3305855

Tradin Economics. (2019). United States Fed Funds Rate. Retrieved from Tradin Economics: https://tradingeconomics.com/united-states/interest-rate

Appelbaum, B. (2018, 12 19). Fed Raises Interest Rates, Showing Confidence in Health of Econom. Retrieved from The New York Times: https://www.nytimes.com/2018/12/19/business/fed-interest-rates.html

Marketline. (2019). Country Analysis Report: United States, In-depth PESTLE Insights. Retrieved from Marketline Advantage: https://advantage-marketline-com.ezproxy.hro.nl/Product?ptype=Countries&pid=ML00002-032

Reinicke, C. (2018). US income inequality continues to grow. Retrieved from CNBC: https://www.cnbc.com/2018/07/19/income-inequality-continues-to-grow-in-the-united-states.html

OECD DATA. (2019). Unemployment Rate. Retrieved from OECD DATA: https://data.oecd.org/unemp/unemployment-rate.htm

Cox, J. (2018). US adds 213,000 jobs in June, better than expected, but wage growth is light. Retrieved from CNBC: https://www.cnbc.com/2018/07/06/nonfarm-payrolls-june.html

Council of Economic Advisers. (2018). America’s Unemployment Rate Falls to Its Lowest Level in Almost 50 Years . Retrieved from White House : https://www.whitehouse.gov/articles/americas-unemployment-rate-falls-lowest-level-almost-50-years/