Economics Economy Has Recently Emerged From Recession. Essay

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Economics

economy has recently emerged from recession. During 2009, real GDP declined 2.6%, the largest drop during the study period beginning in 2009. This came following flatlined GDP in 2008. The only similar instance on record was in the early 1980s when GDP declined 0.3% in 1980, rebounded slightly and then declined again in 1982 by 1.9% (BEA, 2011). The most recent recession was, because there was no rebound in the middle and because it was deeper in intensity, the most serious decline in economic output in the last thirty years. Whereas the recovery post-1982 was strong (4.5% growth in '83 and 7.2% growth in '84) this has not been the case now (2.9% growth in 2010 and forecasts for 2011 are not much better). The unemployment situation at present roughly mirrors that of the early 1980s recession. During that recession, unemployment moved to 9.7% in 1982 and 9.6% in 1983. During the current recession, unemployment moved to 9.3% in 2009 and 9.6% in 2010. This rate moved down quickly starting in 1984 and has begun to move down today, where it currently sits at 8.8%. It can be argued therefore that the impacts of the current economic slowdown have been at least somewhat stronger than those of the early 1980s recession, and that prospects for recovery are perhaps more challenging.

While the recovery in the mid-1980s was relatively strong, the current recovery seems to be weaker in intensity, especially with respect to the GDP figures.

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There are significant differences between the two recessions that makes direct comparison only somewhat useful. The early 1980s recession was caused primarily by Federal Reserve policy that raised interest rates sharply in the face of high inflation, the latter being caused in part by skyrocketed oil prices. The high interest rates, therefore, were deemed necessary to cause a recession and bring inflation under control (TCU, no date). The more recent recession has a number of causes including instability in the banking system that led to a credit crunch. Whereas the early 1980s recession was characterized by very high interest rates, the current recession is characterized by interest rates at the zero bound. Thus, the early 1980s recession -- the only other major recession in the study period -- makes a poor guidepost for predicting future economic indicators.

My predictions for the future of GDP, unemployment and inflation are as follows:

1-year

3 years

10 years

GDP

+3.0%

+4.0%

+2.6%

Unemployment

7.5%

4.8%

5.0%

Inflation

+2.0%

+2.5%

+3.0%

The GDP figure is based on a continued recovery and is the rate of growth expected for 2012. The current fiscal policy from the federal government is in general not going to help much with the recovery. There is little to stimulate either the economy directly via government spending -- all indications are that government spending will be reduced in coming years (Bull & Bohan, 2011). There is ample.....

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