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Economic Growth in the United States.

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Kimberly Morgan December 5, 2003 Economic 104 Dr. Meyers Economic Growth in the United States During Bush's first year as president, real Gross Domestic Product (GDP) grew very slowly in the second half of 2000 and the first half of 2001, and then actually declined in the second half of 2001. (Baumol) In the year 2001, the United States realized that we were experiencing a recession. A recession is a period of time during which production falls and people lose jobs. (Baumol) Over the pass four years, our economy has been moving very slow. Many people are losing jobs, and the GDP has fallen. Below is a graph of a recession: "The tax cut of 2001 turned out to be remarkably well timed, however, and the war on terrorism led to a burst of government spending. Both of these policies helped shift the aggregated demand curve outward, mitigating the recession." ...read more.


(Christie) This is good news, especially since cyclical unemployment (The portion of unemployment that is attributable to a decline in the economy's total production.) rose due the to recession. (Baumol) This is a sign that prosperity is being restored. The ideal situation would be the have full employment. Full employment is a situation in which everyone who is willing and able to work can find a job. At full employment, the measured unemployment rate is still positive. (Baumol) At full employment we are at our potential GDP, which means that output is at the highest level possible. Because our equilibrium level of real GDP fell short of our potential GDP we had a recessionary gap. Below is a graph of a recessionary gap: Also the FED found that the "regional manufacturing index soared to a nine-year high in November." (Christie) This is especially important because the manufacturing sector was the hardest-hit part of the economy during the recession. ...read more.


(Christie) This means that the Consumption Function Curve shifted inward. William J. Baumol, one of the authors of Macroeconomics: Principles and Policy, states that Consumer Wealth, the Price level, the Real Interest Rate, and Future Income Expectations can cause the consumption function curve to shift. I believe the reason that consumption function shifted inward during the recession is because the price level increased and therefore "eroded the purchasing power of consumer wealth." (Baumol) Because the economy was slow, prices went up to compensate. The public then stopped spending and began to save because they realized the economy was bad. This would fall under the category of future income expectations. Below is a graph of shifts of the consumption function. In conclusion, the article Positive Economic Data Rain Down contains data that shows that the United States is coming out of its economic recession. Which is good news for the GDP and employment. No the United States is not inferior to recessions, but we know that we can over come a recession. Word Count: 810 ...read more.

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