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US has the largest national economy in the world. According to the world factbook 2007 GDP is believed to be $13.84Â trillion.. But according to Economy Watch web site, the recent failures in the US housing and credit markets have resulted in a slowdown in the US economy. 2007 GDP growth was estimated at 2.2% but in 2008 it is projected to be just 0.9%, down from the 10-year average of 2.8%
According to Economy Watch web site The forces of supply and demand directly drive the price levels of goods and services. What to produce, and how much of it is to be produced depends on the price level fixed by the interaction of supply and demand.Â The role of government in the US economy is crucial when it comes to decision-making regarding monetary and fiscal policies. The federal government takes all the necessary initiatives to ensure the growth and stability of the United States.Â The US government makes full use of economic tools such as money supply, tax rates, and credit control, among other things, to adjust the rate of economic growth. For the most part, the US Federal Government also regulates the operations of private business concerns in order to prevent monopolies. The government renders a number of direct services in the form of providing support for national defense, monetary aid for research and development programs, and funds for highway construction & infrastructure in general.Â The question of national debt is a controversial one within the US. At the start of 2008, the US federal debt stood at $9.2 trillion. This is a worrying 67% of GDP and equates to $79,000 for each American taxpayer, a number just over 117 million people. To add to the concern, American consumers are also increasingly dependent on debt and have been re-mortgaging their houses to higher loan amounts, and using theÂ extraÂ cashÂ to fund high street purchases.Â This debt figure is the largest in the world in absolute terms, but as a percentage of GDP it is less than Japan and similar to several European countries.Â Most of the debt is funded by central banks and sovereign wealth funds from Asia, Europe and the Middle East.
WHAT IS ECONOMY
According to Vanderbilt web site economics is the study of how people choose to use resources. Resources include the time and talent people have available, the land, buildings, equipment, and other tools on hand, and the knowledge of how to combine them to create useful products and services. Important choices involve how much time to devote to work, to school, and to leisure, how many dollars to spend and how many to save, how to combine resources to produce goods and services, and how to vote and shape the level of taxes and the role of government. Often, people appear to use their resources to improve their well-being. Well-being includes the satisfaction people gain from the products and services they choose to consume, from their time spent in leisure and with family and community as well as in jobs, and the security and services provided by effective governments. Sometimes, however, people appear to use their resources in ways that don't improve their well-being. In short, economics includes the study of labor, land, and investments, of money, income, and production, and of taxes and government expenditures. Economists seek to measure well-being, to learn how well-being may increase overtime, and to evaluate the well-being of the rich and the poor. The most famous book in economics is theÂ Inquiry into the Nature and Causes of The Wealth of NationsÂ written byÂ Adam Smith, and published in 1776 in Scotland. Although the behavior of individuals is important, economics also addresses the collective behavior of businesses and industries, governments and countries, and the globe as a whole. Microeconomics starts by thinking about how individuals make decisions. Macroeconomics considers aggregate outcomes. The two points of view are essential in understanding most economic phenomena.
There are some economic factors
Eg-: 1) Economic growth rate(GDP & GNP)
2) Efficiency of financial market.
3) Business cycle stages
4) Exchange rates and stability of post country currency
5) Discretionary income
6) Unemployment rates
7) Interest rates
8) Deflation rate
Normally every country have their major economic goals.
A high level of economic growth
A strong balance of payments
A low level of inflation
A low level of unemployment.
Government cannot do all of these because as a example it may not be possible to have a high level of economic growth and strong balance payment. But because of the higher levels of economic growth any country can lead to increase in the rate of inflation (Weatherston,2000,p90 and 91)
According to Weatherston(2000,p92) government have a range of economic policies which they can use to achieve their targets. For example, a government which wishes to improve yhe sales of its domestic industries could try and stimulate its domestic economy by:
Increasing the amount of money available or lowering interest rates in economy
Erecting trade barriers to encourage domestic consumers to by more home produced goods.
What are the reasons for US economic downturn
GDP real growth rate
Household income or consumption by percentage share
Lowest 10%: 2% (2009)
Highest 10%: 30% (2007)
Investments ( gross fixed)
12.5% of GDP (2009)
Country comparison to the world : 144
Inflation rate (consumer prices)
Central bank discount rate
0.5% (31 March 2009)
4.83% ( 31 December 2007)
Commercial bank prime lending rate
5.09% ( 31 December 2008)
8.05% ( 31 December 2007)
Industrial production growth rate
Country comparison to the world : 113
Current account balance
$380.1 billion (2009)
Country comparison to the world : 190
$706.1 billion (2008)
The cause of this downtrend ( general)
1. American has been providing a excess supply for the past 30 years. People produce a lot of unnecessary products; people believe no matter what to produce, there is a customer. This is what makes retail store expanding so fast.
2. The financial system hasn't been regulated since last crash in 1987. The lending rules are loose.
3. Europeans follow U.S lead, boost economy by increasing the debt which causes a lot of "bubbles". Especially Americans, heavily consume with debt.
4. Banks, financial institutions, big firms speculating the future too often too good, they use future money to expand just like Enron. They race, especially the banks, competing by lending the money(see who lends faster) , which cause this supreme loan crisis.
5. House bubble, credit crisis came up together drag U.S down to the hell.
6. U.S is the biggest debtor now.
( investment watch web site, 2010)
How Us economy started to decline
1.Unemployment rate increases
Date Of Information
December 2008 est.
(Index mundi, 2010)
According to Fernando (2010) unemployment is : The proportion of the labor Force (LF) that is unemployed
If the unemployment rate of a country is high it means there are not enough jobs. It means businesses are not developing and expanding. According to above graph we can see that US unemployment rate is getting high.
Company can get labors very cheaply
Company can invest that money or using that money company can be developed.
If labors don't get good salary they will not work properly.
Then efficiency goes down
Can't get full use of labors
Less money comes to the company
Business can't expand.
2. ECONOMIC GROWTH RATE
(trading economics, 2009)
According to trading economics web site (2009) The Gross Domestic Product (GDP) in the United States expanded at an annual rate of 5.90 percent in the last quarter. The United States Gross Domestic Product is worth 14204 billion dollars or 22.91% of the world economy, according to the World Bank. The economy of the United States is the largest in the world. The United States is a market-oriented economy where private individuals and business firms make most of the decisions. The federal and state governments buy needed goods and services predominantly in the private marketplace.
When the economic growth rate is high business can produce more. So then they can export more. Then more money comes to the organization. Then business can be expanded. When the business are getting profit its good for the country same as the business. But if the economic growth is low then business cannot produce more. Then they cannot export their goods. Businesses cant be expanded.
Source; (authors work)
This is what happened to the US. Their economic growth rate (GDP) is becoming low. Then businesses cannot survive. General motors was the world's biggest auto mobile company. But due to this US economic downfall they were closed. Because didn't buy what they creat.
Source; (authors work)
3. HIGH INFLATION RATE
Source ;( inflation data,2010)
Source ;( the financial forecast centre,2010)
According to reserve bank of Newzealand Inflation is the term used to describe a rise of average prices through the economy. It means that money is losing its value.
When money lost its value prices of imported goods will rise. And when business export their items they get very low profit. When business gets low profit they cannot be developed or expanded. They cannot creat new items. Then their sales will be drop down.
Source; (author's work)
4. DISCREATIONARY INCOME
According to reference of business One problem that plagues studies of discretionary income is how to define it precisely. The concept is seemingly simple-money left after basic needs are met-yet where is the line between "basic" or "essential" spending and discretionary spending? The conventional definition holds, for example, that spending on food is nondiscretionary. But what if most of an individual's food spending occurs at expensive restaurants?
When the discretionary income is high
People going to buy goods so sales will be increase
Business produce more products
Business get more profit
Business can be expanded
Can export more
When the discretionary income is low
People not going to buy goods. They satisfy only with their needs
Business cannot produce more products
Business get low profit
Business cannot be expanded
5. INTEREST RATE OF A COUNTRY
According to investors word (2009) aÂ rateÂ which isÂ chargedÂ orÂ paidÂ for the use ofÂ money. An interestÂ rate is often expressed as anÂ annual percentageÂ of theÂ principal. It is calculated by dividing theÂ amountÂ of interest by the amount of principal. Interest rates oftenÂ changeÂ as aÂ resultÂ ofÂ inflationÂ and FederalÂ ReserveÂ policies. For example, if aÂ lenderÂ (such as aÂ bank)Â chargesÂ aÂ customerÂ $90 in a year on aÂ loan of $1000, then the interest rate would be 90/1000 *100% = 9%
(Federal reserve, 2009)
When interest rate is low
Business invest more
They take more loans and try to expand the business
When the interest rate is high
Business are not going to invest
Because of high interest rates business cannot take loans so its hard to develop the company
Source; (authors work)
6. EXECHANGE RATE OF A COUNTRY
The price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another. For example, the higher the exchange rate for one euro in terms of oneÂ yen,Â the lower the relative value of the yen
British pounds per US dollar:Â (2009), 0.6494 (2009), 0.5302 (2008), 0.4993 (2007), 0.5418 (2006), 0.5493 (2005)
Canadian dollars per US dollar:Â 1.1548 (2009), 1.0364 (2008), 1.0724 (2007), 1.1334 (2006), 1.2118 (2005)
Chinese yuan per US dollar:Â 6.8249 (2009), 6.9385 (2008), 7.61 (2007), 7.97 (2006), 8.1943 (2005)
euros per US dollar:Â 0.7338 (2009), 0.6827 (2008), 0.7345 (2007), 0.7964 (2006), 0.8041 (2005)
Japanese yen per US dollar:Â 94.5 (2009), 103.58 (2008), 117.99 (2007), 116.18 (2006) 110.22 (2005)
(The world factbook,2010)
Socio cultural factor looks at seven sub factors given below
According to Fernando (2010) Work patterns are related with the work revolutions that has taken place over the years. At the "Agriculture Age" work has commenced at dawn and finished at sunset and with the "Industrial Revolution" in 1800, and going further to the "Information and Knowledge Society", people have started working in the night as well.
If there is a proper work pattern in a business, business can get more profit. With new creative ideas business can develop and expand. If there is a proper work pattern efficiency of the company wil increase.
Source; (author's work)
According to AFL CIO (2010) web site SomeÂ 47 million U.S. residents have no health insurance, and the numbers keep growing.Â Because employers increasingly are moving in the direction of providing Wal-Mart-style health coverage by shifting health care costs to employees, America's workers struggle to pay higher premiums, deductibles and co-payments-if they can afford such coverage at all.
In a business also health is a major part. Because if workers are not healthy they cannot work properly. Then business cannot earn profits. If labors are not healthy then efficiency is not there. Then business cannot expand and develop.
Source; (author's work)
(Internet Mental Health, 2010)
In each and every country education plays a major role. Without education we cannot do anything. To run a business or to be a good businessmen you should have to have a good educational background. Because to run a business you should analys some economic factors. To do that you shoul have knowledge. To gain that required knowledge you you have to be well educated.
source; (google images)
No one can work continuesly for a long time. Every person should have leisure time to refresh their minds. If you work hours and hours you cant concentrate on a one thing.
As the above graph shown USA people have no time to refresh their minds. Because of not having free time labor's health level will decrease. Managers administrators cannot make good decisions. So business cannot get profit.
According to Fernando (2010)Attitudes are composed of
Affective (feelings) component
Cognitive (beliefs) component
Behavioural (actual actions) component
E.g. Environmental Consciousness: attitudes towards environmental issues. The awareness and concerns for: Clean air, Clean water, Deplete resources, Endangered Species, Global Warming, depletion of the Ozone