Economic Factors Essay

The GDP (Gross Domestic Product) or The Gross Domestic Income (GDI) is defined as the gross total market value of all the final . products (goods and services) produced by a country in a given period of time more specifically a calendar year. Gross Domestic Products can also be considered as the sum of all value added at every stage of production of all the final goods and services produced in a country and are always given a money value(kuznets,1932) Since the GDP is a measure of national income and output it is always equal to the total government spending, the total consumer spending and the total investments in a country. It can be calculated using the formula below; Gross Domestic Product= Total Consumption +Gross Investment + Government Spending+ (Exports – Imports) or it ca n be as GDP=C+I+G(X-M) Inflation can be described as the general rise in the level of prices of goods and services in a country over a specific period of time. It is the rise in prices of all goods and services and a rise in the price of one good or service cannot be referred to as inflation. Inflation mostly involves the decrease in value of a countries currency, and measured as a percentage rate of change of prices. This is mostly caused by high rates of money supply in a country without significant increase in the economy. (Kuzneta,1932) There are different factors in a country that are blamed for high rates of inflation in the product markets, these factors sometimes vary from markets to markets and from country to country. The factors are mostly determined and controlled by the level of a country’s performance in the international stock markets and money markets. The factors are as fluctuations in the real demand for goods and services or scarcity of goods and services and sometimes the change in the supply or the real demand for money. These two factors have brought a lot of controversies among the monetarists and Keynesians. The inflation in a country can be easily determined by measuring the different price indices and analyzing how these affects different people, these indices are the consumer price index which is used to measure individual consumer prices and the GDP deflator which measures the price associated with domestic production of goods and services. (kuznets,1932) History and records made shows that the United States has never seriously recorded high level of inflation, as it was in the 1970’s. This was recorded; inflation of the 1970’s was a marked deviation from America’s typical peacetime historical pattern as a hard-money country. We should expect America to continue to be a hard-money–low inflation–country in the future, at least in peacetime. (http://www. j-bradford-delong. net/Econ_Articles/woodstock/woodstock4. html ) The low rate of future inflation that we thus forecast changes the balance of macroeconomic risks and opportunities, the risk of debt-deflation-mediated recessions is somewhat higher because a low trend rate of goods-and-services price index inflation somewhat increases the chances of deflation. But it does not raise such risks as much as one might think. The failure of the Fisher effect to hold empirically means that a low inflation era will in all likelihood is a high real interest rate era. But such high real interest rates do not appear to significantly discourage investment or growth. The burst of inflation that struck the United States in the 1970s shapes much American thought about macroeconomic policy. The decade of the 1970s saw GDP-deflator inflation rates peak at nearly ten percent per year. It saw consumer price inflation rates peak at three or four percent higher. ( Because of the inflation experiences America has had a long war and strong policies to significantly inflation and to increase the GDP, this has been because hampered in the last five years, this has been because of the Iraq invasion five years ago, in economic terms, the wars in Iraq and Afghanistan now cost $275 million each and every day. Nearly half a trillion dollars has been spent so far. That’s $4,100 for every household in America. According to a recent Congressional Research Service (CRS) report, the average monthly cost reached $10. 3 billion in 2007, up from $4. 4 billion in 2004. By the end of 2009, the cost of the Iraq and Afghanistan wars could reach $1 trillion. ( http://www. marxist. com/usa/war-economy-elections. htm) The cost of the war even in a country as wealthy as the United States cannot endure this drain forever. Every dollar spent on the war is a dollar not spent here at home on health care, education, affordable housing, jobs, or repairing the country’s decaying infrastructure. The effects of the war are directly felt here at home. And this is during a so-called economic boom. The war has had a big effect on the US economy(http://www. marxist. com/usa/war-economy-elections. htm) The official declaration that the country has entered a recession usually doesn’t come until months after it actually begins, as the analysts from the National Bureau of Economic Research (NBER) look back over the facts and figures. But top economists from major Wall Street firms such as Merrill Lynch and Goldman Sachs think a tipping point into recession has already been reached. Even the number of unemployment rose sharply in December 2007 to 5. 0 percent, up from the cyclical low of 4. 4 percent in March. Also, the economy slowed dramatically in the fourth quarter of 2007, growing by just 0. 6 percent, with total growth for the year at just 2. 2 percent, the worst figure since 2002. Never in the last 60 years has such a sharp rise in unemployment, combined with such low growth, not led to a recession. (http://www. marxist. com/usa/war-economy-elections. htm) The housing and credit crisis has begun to spread to the broader economy. Defaults for adjustable rate loans issued in 2007 hit 11. 2 percent in November. This is twice the default rate for 2006. Most worrying is that none of these loans had yet â€Å"re-set† to the higher rate. This represents some 300,000 households, yet more people who will almost certainly lose their homes as a result of this crisis. Spending on new housing projects fell in 2007 by 16. 9 percent, the worst fall in 25 years. And as reported by Reuters, the services sector, which accounts for over two-thirds of U. S. economic activity, fell sharply in January, to levels not seen since the 2001 recession. The Reuters/University of Michigan index of consumer sentiment fell to 69. 6 in February from 78. 4 in January, the lowest reading since February 1992. The index has only been this low during the recessions of the mid 1970s, the early 1980s and the early 1990s. The Institute for Supply Management’s index for the non-manufacturing sector plummeted to 41. 9 from 54. 4 in December: a reading below 50 indicates contraction. The employment index fell to 43. 9 from 51. 8, corroborating the late January U. S. payrolls report, which showed the first net monthly contraction in the labor market in more than four years. While it is impossible to say exactly when or how deep or how long the slump will come, it already feels like it to millions of American workers (. http://www. marxist. com/usa/war-economy-elections. htm) This has already led to decreasing government revenues, and still Bush proposes a budget that tops $3 trillion for the first time in U. S. history. By Bush’s own estimates, it will lead to deficits of $410 billion in 2008 and $407 billion in 2009, bringing the overall Federal deficit to $5. 9 trillion, up from $3. 3 trillion when he took office. $2. 3 trillion of this debt is held by foreign banks and investors. ( http://www. marxist. com/usa/war-economy-elections. htm) The proposed American Budget would dramatically increase spending on the military and military aid to â€Å"key allies† around the world, in other words, countries that are actively repressing their own people to defend U. S. corporate interests. To pay for all of this, the government will have to further cut already depleted domestic programs such as Medicare and abolishing dozens of other social services programs. ( http://www. marxist. com/usa/war-economy-elections. htm ) Not surprisingly, the budget allocates $515 billion to the Defense Department, not including a separate request for billions more for the wars in Iraq and Afghanistan. Adjusted for inflation, this will be the largest military budget since World War II. This is a true â€Å"guns before butter† budget, an open declaration of increased militarism abroad and a further relentless attack on workers here at home. The American ruling class will expect more of the same ruthless cuts from the next Republican or Democrat to sit in the Oval Office. ( http://www. marxist. com/usa/war-economy-elections. htm) During such hard times for and at appoint in history that America is high in politics and this being an election year there are many people looking for an electoral solution to the serious and growing problems they face. While the Iraq War is still high on voters’ lists of concerns, the economy is now number one for voters of both main parties. Many youth in particular are looking to the Democrats, and especially to Barrack Obama. The Republicans’ almost-certain candidate John McCain has staked his entire political future on continuing the war in Iraq. But do the Democrats’ candidates offer anything even closely approximating the majority of Americans’ demand to bring the troops home now? (http://www. marxist. com/usa/war-economy-elections. htm) It is at this point in time that we live the whole life and the economic future of America in the sound political policies that will be fronted by the candidates. We believe we can change America. REFFERENCES Bradford DeLong and Etal (1999), America’s Historical Experience with Low Inflation http://www. j-bradford-delong. net/Econ_Articles/woodstock/woodstock4. html http://www. marxist. com/usa/war-economy-elections. htm retrieved on the 2nd June 2008 Kuznets Simon, (1934). â€Å"National Income, 1929-1932†. 73rd US Congress, 2d session, Senate document no. 124, page 7. http://library. bea. gov/u? /NI_reports,539