Macroeconomics is one of the branches of economics that analyses the structure, performance, decision-making and behavior of the general economy. There are a variety of variables in microeconomics, identified as “microeconomic variables” that are essential in the analysis of the market performance (Mankiw 176). The key microeconomic variables include price levels, inflation rates, the rate of growth, national income, gross domestic product (GDP), as well as the changes in unemployment. Empirically, all the variables outlined above are more essential in shaping the economic functions, controlling economic changes, formulation of the economic policies, analyzing the national income, as well as controlling inflation and deflation. Therefore, the undertaking of the essay seeks to explore how the key microeconomic variables have affected the stability of the US economy.
For more than two decades, the US economy has been regarded as one of the most stable economies around the globe. The country’s economic benchmarks appeared quite good, depicting low unemployment rates and fast economic growth. However, the recent developments trigger much questions and worries on the ability of the US economy to maintain its global position in reference to economic stability. The past two reports presented in the survey of approximately 13,000 Americans conducted by new Federal Reserve regarding their finances and the report by the new United Way on financial hardship indicated that a large number of the Americans are living in an unstable life condition (Van Erkel and Van Der Meer 182). The hardships were associated with the increasing negative downfall of the US economic stability, steered by the high inflation rates the country is currently experiencing and the GDP effects.
Analysis of the effect of inflation in the US economy
Inflation is an economic term referring to a quantitative measure the average changes in the price levels of goods and services in a specified economy over a period of time. Inflation is often presented as a percentage and demonstrate a decline in the ability of a country’s currency to make a purchase. When inflation occurs, the unit of money’s purchasing power also reduces. The increase in money supply in the economy is identified as one of the major causes of inflation. Similarly, national debt, cost-push effects, demand-pull effects, and exchange rates are also argued to be the causes of inflation (Saez 41). From 2016 to 2018, the United States of America has experienced a consistent percentage increase in inflation rates. In 2016, the US inflation rate was estimated at 1.23% while in 2017 the rate was approximated at 1.26%. Between 2017 and 2018, the inflation rate drastically increased to 2.7% as indicated by the U.S Labor Department (Gilchrist et al. 790). The impact of the drastic changes in inflation rates has significantly affected the stability of the US economy. For the past one year, the rise in the rate of inflation has affected most areas of the American consumerization. The groceries, gas prices, car prices as well as the housing market have been affected greatly by the current inflation state experienced in the country.
The US exchange rate and inflation
The rise growing rate of inflation in the US has been influenced significantly by its exchange rates. Weale et al. (237) assert that the exchange rates affect a nation’s inflation in so many ways. As explained in the study, variations in the prices of imported goods and services have caused tremendous impacts on the consumer price index. In most often, an appreciation in the rate of exchange depreciates the prices of imported goods and services, raw materials as well as capital goods. The commodity prices such including the oil and foodstuffs in the United States have been significantly affected by the changes in the exchange rates.
A chart of US/Euro Foreign Exchange Rate
The US Gross Domestic Product and the economy
GDP comprises the monetary value of all manner of goods and services produced within a country’s geographic boundary over a defined period of time. It is usually the known expansive quantitative measure of determining the total economic activity of a country. In most cases, the GDP is regarded as the major determinant of the stability of a country’s economy. In the US, the GDP is used to gauge the total value of goods and services in dollars. When the growth of the GDP is strong, firms tend to hire services from more workers, thus reducing unemployment. Besides, when a nation’s GDP is strong, firms can afford to reward higher salaries and wages. Consequently, underemployment alongside the better pays triggers additional spending on goods and services from consumers, which eventually leads to an adequate circulation of money in the market contributing to economic stability. Currently, the US GDP has been analyzed to be consistently rising and the US dollar has emerged to be the most used currency internationally. Since the “Great Recession” which lasted from December 2007 until June 2009, the US has strived to ensure that attains the highest GDP and it is projected that by 2028 the country will have a 35% growth in its GDP (Weale et al. 248). The growth is expected to create more jobs in the country to enhance its economic stability.
Figure 2. A chart showing projected GDP up to the year 2028
Works Cited
Gilchrist, Simon, et al. "Inflation dynamics during the financial crisis." American Economic Review 107.3 (2017): 785-823.
Mankiw, N. Gregory. Principles of macroeconomics. Cengage Learning, 2014.
Saez, Emmanuel. "Striking it richer: The evolution of top incomes in the United States." Inequality in the 21st Century. Routledge, 2018. 39-42.
Van Erkel, Patrick FA, and Tom WG Van Der Meer. "Macroeconomic performance, political trust and the Great Recession: A multilevel analysis of the effects of within‐country fluctuations in macroeconomic performance on political trust in 15 EU countries, 1999–2011." European Journal of Political Research 55.1 (2016): 177-197.
Weale, Martin, et al. Macroeconomic policy: inflation, wealth and the exchange rate. Routledge, 2015.
