Us Economy And Economic Indicators Essay Research

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Us Economy And Economic Indicators Essay, Research Paper Daekwon the chef and Rza Shogun, Sergio Suarez, Sylvia Lin, Anne-Sophie Young Economics Final Report A Treatise on the Value of Economic Indicators The US Economy and Economic Indicators The United States economy is the strongest and the most affluent in the world. Besides having the highest GDP (Gross Domestic Product), the United States has a complex system of regulating economic policy and controlling the money supply. The system also regulates banks and financial institutions, and even has a central bank (Federal Reserve Bank) that decides on significant issues, such as raising interest rates. There are many economic indicators that affect the economy such as the CPI, which is the measure of prices at the consumer

level for a fixed basket of goods and services, and the unemployment rate. Other indicators include the GDP, which measures the dollar value of all the goods and services of a nation, retail sales, and the consumer confidence index (CCI). The CPI is the measure of inflation, and is released every month by the Bureau of Labor Statistics. Prices are collected in 85 cities across the country on thousands of different products and services from establishments of all kinds. It reflects prices of food, clothing, shelter, fuels, transportation fares, charges for doctors? and dentists? service, drugs, and all sorts of other goods and services that people buy for day-to-day living. The CPI is used by the Federal Reserve to analyze the data and act accordingly to the interpretation of it.

For example, on May 19, 1999, the Federal Reserve decided to hold interest rates for now but are debating to raise interest rates in the near future because the CPI increased seven-tenths of a percent, the highest in eight and a half years. There are two types of CPI. The CPI-U relates to the urban workers, and accounts for about 80% of the civilian population. The CPI-W relates to the wage earners, and accounts for about 40% of the population. The CPI, a reliable measure of the current state of the economy, is used as a warning for inflation, deflation, and disinflation. The CPI generally increases every year because the standard of living rises through time. The unemployment rate is also significant in the fact that it measures the percent of the population that are currently

not legally employed and are actively seeking employment. Recently, because of the strong, healthy US economy, the unemployment rate was the lowest in peacetime since 1957. Low unemployment correlates to a good economy but it can mean increasing inflation because the workers, who have been working as wages increased, can spend more and drive up prices. More jobs have become available because of economic growth including strong consumer confidence and low interest rates. Too low of an unemployment rate is bad because it will cause inflation due to the wealth effect, which means that people will get richer and richer until inflation sets in. According to the Phillips curve, it was widely believed that as unemployment decreases, inflation would increase. Recently, there has been an

anomaly because this theory hasn?t been true. This relationship has not been so prominent due to the recession in foreign markets. Recession in foreign markets can cause an increase in the unemployment rate because factories that export goods to other nations will have to cut down on production because people there cannot buy the products. Inflationary pressures caused the Fed to announce an expected rise in increase rates because of high CPI, but the unemployment rate remains almost fixed at 4.3 percent, which is still low, as well as being a factor in inflation. The GDP measures the dollar value of a nation?s spending and output in goods and services. The GDP can increase when there are inflationary pressures, which meant that the economy is growing at an unhealthy rate. The