ECO 372 Week 3 Learning Team

Economic Critique
Team C
Augusta Gose, Rudy Burns, Steven Delgado
ECO/372
March 4, 2013
Laurence Hagan
Economic Critique
The United States current economic status has improved from 2010 to 2012, as far as, unemployment rates, consumer income, and (lower) interest rates are concerned. When we examine the Gross Domestic Product, we are continuing to increase the United States debts. In 2009, the United States estimated GDP (purchasing power parity) was $14.38 trillion, which increased $0.44 trillion in 2010. From 2010, the GDP at $14.82 trillion increased $0.22 trillion, putting the U.S. at 15.04 trillion in debt (Stephanie Mandell, 2012).
GDP (purchasing power parity)
$15.04 trillion (2011 est.)
$14.82 trillion (2010 est.)
$14.38 trillion (2009 est.) note: data are in 2011 US dollars
GDP (official exchange rate)
$15.06 trillion (2011 est.)
GDP - real growth rate
1.5% (2011 est.)
3% (2010 est.)
-3.5% (2009 est.)
GDP - per capita (PPP)
$48,100 (2011 est.)
$47,800 (2010 est.)
$46,800 (2009 est.) note: data are in 2011 US dollars
GDP - composition by sector agriculture: 1.2% industry: 19.2% services: 79.6% (2011 est.)

The unemployment rate in the United States has dropped significantly ever since the economy crashed in 2008 when unemployment rapidly climbed. Unemployment is still higher than it should be but at least the rate is decreasing. On a national level the unemployment rate has dropped from 8.3% in January 2012 to 7.9% in January 2013 (United States Department of Labor, 2013). Over the past year unemployment has changed very little with an exception of a drastic decline in unemployment during the third quarter of 2012 (United States Department of Labor, 2013). According to the United States Department of Labor, more than 300 thousand persons was removed from the labor force willing and able to work; however, did not actively search for a job within the last four weeks. This contributed to the fall in unemployment rates. Employment has shown an increase in January 2012 in some industries more than others like health care, construction, and retail (United States Department of Labor, 2013). Unemployment rates by demographics is listed below. Unemployment rates
Total, 16 years and over.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.9
Adult men (20 years and over).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3
Adult women (20 years and over).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3
Teenagers (16 to 19 years).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.4

White.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.0
Black or African American.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13.8
Asian (not seasonally adjusted).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5
Hispanic or Latino ethnicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.7

Total, 25 years and over.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5
Less than a high school diploma.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.0
High school graduates, no college.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1
Some college or associate degree.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.0
Bachelor’s degree and higher.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 The expectations that the economy will turn around are not mutually agreed upon by the economists. There are many factors, including the fiscal cliff and the payroll tax that will affect the economy. The uncertainty has reduced the economic activity more than in previous recessions. However, economic life has shown promise in the United States economy. Discouraged workers is on the decline accounting for 1.6% of the total unemployed labor force (United States Department of Labor, 2013).
As of 2011 the personal income has shown a pattern of steady growth, which has reached a peak in December 2012. The period after the December 2012 has shown a constant decrease in personal income up to present-day. Although the graph reveals an increase for personal income during the years of 2011 and 2012, future forecast predicts a continual decrease in income during 2013. The forecast for June 2013 is a prediction, and possibly may change depending on future policies and governmental support. It is believed that consumer incomes have reached a low unseen in 20 years and will continue to drop off for the remainder of 2013. A responsible factor for the decrease of consumer income is the rising gas prices being experienced and predicted for 2013.
U.S. Personal Income
Past Trend Present Value & Future Projection
Billion US Dollars. Annual Rate Seasonally Adjusted. The Financial Forecast Center. (1-997-2013)Interest rates for Prime Loan and Federal Funds have been at 3.25% since 2009 and demonstrate no immediate signs of adjustment through 2014. Rates will remain low through an attempt by the government to boost the economy, and bring about financial recovery. A negative aspect of low interest rates is the possibility for inflation, but many consumers are still unwary of making large purchases such as homes, vehicles, refinancing, or other large interest loans. For individuals in the market for such large purchases the time is now, but criteria is stricter when qualifying for such loans. Regulatory agencies are monitoring lending organizations to prevent risks of inflation.
Prime Loan Interest Rate
Past Trend Present Value & Future Projection
The Financial Forecast Center. (1-997-2013) Aggregate supply and demand are affected by such factors as unemployment, business/consumer expectations, consumer income, and interest rates. Possessing a high unemployment that is much higher than what is reported and generally accepted puts downward pressure on demand. This is because unemployed consumers have less income and thus less money to purchase items. The small amount of unemployment insurance would be spent mostly on necessities instead of wants. Having less demand would decrease the price of supply. However, prices are not dropping like expected because of the inflation we are seeing because the amount of money that has been printed and borrowed. Second, an economy with low expectations or consumer confidence will also bring aggregate demand down. The majority of consumers and businesses are uncertain of their economic situation in the near future. More individuals fear of losing their jobs given the current state of the economy. Therefore, they are “tightening their belts” and trying to save for uncertain times ahead. When consumers feel safe in their job and confident of wages/promotions increasing they will spend more and save less, the opposite is true today. Consumer income will then obviously affect aggregate supply and demand. The more money individuals have, the more they spend on things they want. Therefore, demand for normal goods would increase and demand for inferior goods would decrease. Consumer income is down in our economy putting downward pressure on normal goods demand and increase on inferior goods demand. Finally, interest rates effects on aggregate supply and demand are different depending on sectors. Really low interest rates that exist today increase the demand to refinance mortgages and loans. It also normally increases the demand for business loans and home improvement/expansion loans. However, the combining factors of banks holding on to large amounts of money and consumers/individuals doing the same thing due to uncertain economic circumstances puts a kind of plateau on demand.
There are two principal types of fiscal policy, which are contractionary and expansionary. The United States economy is practicing a form of expansionary fiscal economy to enhance spending in the United States. The concept behind expansionary fiscal policy is to reduce taxes and employ government spending through methods that increase aggregate demand. One example of expansionary fiscal policy is the implementation of low-level interest rates to increase spending and boost the economy. The United States government also extended unemployment benefits to increase consumer spending. The disadvantage of unemployment benefits is the payment transfer necessary to complete the unemployment process. The president’s focus for fiscal policy is to transition from current methods of borrowing and outsourcing to focusing on education, innovation, and building. Other ideas are to place emphases on cutting wasteful spending, and requesting that society do its fair share of work.
In Keynes ' theory, one person 's spending goes toward another person 's earnings, and when that person spends his or her earnings, he or she is, in effect, supporting another person 's earnings (Rhodes, 2012). The fundamental principle of the classical theory is that the economy is self-regulating. Classical economists maintain that the economy is always capable of achieving the natural level of real GDP or output, which is the level of real GDP is obtained when the economy 's resources are fully employed ("Cliff notes," 2011). The Keynesian Theory makes perfect sense. If the economy spends its earning, it pays toward another person’s earning, which cycles the money through our economy. When money cycles through the economic cycle it helps keep the money flow in a positive flow. The Classical Theory, is not logical. When the great depression hit, people got scared and wanted to save what earnings they had. It stopped the money cycle, and the economy was at a standstill. This theory is only logical if the economy is doing well.

References
Stephanie Mandell, V. R. (2012, July 19). Retrieved from http://www.indexmundi.com/united_states/economy_profile.html
Oak, R. (2008-2013). The Economic Populist. Retrieved from http://www.economicpopulist.org/content/consumer-spending-04-personal-income-03-july-2012
The Financial Forecast Center. (1-997-2013). Retrieved from http://www.forecasts.org/index.htm
United States Department of Labor. (2013). Retrieved from http://www.bls.gov/
FEDERAL RESERVE statistical release. (2013). Retrieved from http://www.federalreserve.gov/releases/h15/current/h15.pdf
U.S. government Accountability Office. (n.d.). Retrieved from http://www.gao.gov/cghome/fiscalimb/img10.html
Rhodes, C. (2012, November 26). Retrieved from http://www.wisegeek.org/what-is-keynesian-economics.htm
Cliffnotes. (2011). Retrieved from http://www.cliffsnotes.com/study_guide/The-Classical-Theory.topicArticleId-9789,articleId-9741.html

References: Stephanie Mandell, V. R. (2012, July 19). Retrieved from http://www.indexmundi.com/united_states/economy_profile.html Oak, R. (2008-2013). The Economic Populist. Retrieved from http://www.economicpopulist.org/content/consumer-spending-04-personal-income-03-july-2012 The Financial Forecast Center. (1-997-2013). Retrieved from http://www.forecasts.org/index.htm United States Department of Labor. (2013). Retrieved from http://www.bls.gov/ FEDERAL RESERVE statistical release. (2013). Retrieved from http://www.federalreserve.gov/releases/h15/current/h15.pdf U.S. government Accountability Office. (n.d.). Retrieved from http://www.gao.gov/cghome/fiscalimb/img10.html Rhodes, C. (2012, November 26). Retrieved from http://www.wisegeek.org/what-is-keynesian-economics.htm Cliffnotes. (2011). Retrieved from http://www.cliffsnotes.com/study_guide/The-Classical-Theory.topicArticleId-9789,articleId-9741.html