Business Cycles and Economic Outlook
1. What data from the BEA announcement supports the NBER decision that the U.S. is in a recession?
Answer:
In December 2008 the National Bureau of Economic Research (NBER) declared that a recession had begun in the U.S. economy in December 2007.
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion (NBER Recession Announcement, 2008)
Although the NBER’s declaration that a recession had begun did not fit the commonly held definition of a recession, the overall economic conditions had deteriorated enough for the committee determined that the decline in economic activity in 2008 met the standard for a recession and that a recession had begun. The 2008-2009 bears out the NBER’s decision to call a business cycle peak and the beginning of a recession. In addition, the U.S. unemployment rate doubled between January 2008 and November 2009.
The Bureau of Economic Analysis produces the national income and product accounts (NIPAs).
These are a set of economic accounts that provide the framework for presenting detailed measures of U.S. output and income, which incorporate a vast amount of data from a variety of public and private sources.
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The NIPAs provide information to help answer three basic questions. First, what is the output of the economy—its size, its composition, and its use? Second, what are the sources and uses of national income? Third, what are the sources of saving, which provides for investment in future production? The NIPA estimates are presented in a set of integrated accounts that show U.S. production, distribution, consumption, investment, and saving. The conceptual framework of the accounts is illustrated by seven summary accounts, and detailed estimates are provided in approximately 300 supporting NIPA tables. The NIPA information is supplemented by a set of fixed-asset accounts, which show the U.S. stock of fixed assets and consumer durable goods (Concepts and Methods of the U.S. National, 2009).
2. What measures did the U.S. government take to increase GDP during this time?
Answer:
“Government consumption expenditures and gross investment” consists of government purchases of investment measures final expenditures by Federal, state, and local governments. “Government consumption expenditures” represents the value of goods and services provided to the public by governments (such as defense or education).
“Gross investment” consists of government purchases of equipment, software, and structures to use in producing those goods and services. These expenditures do not include government spending for social benefit programs (such as Medicaid), interest payments, and subsidies (Measuring the Economy, n.d.).
3. Recent GDP Data in Detail
a. Take a good look at the data. What are the areas of growth and decline? Was the data (growth rates) consistent throughout the period of time? Summarize your interpretation of the data in Table 1.
Answer:
Overall I feel there are only a few areas of growth. The first being services personal consumption expenditures. The growth has been fairly consistent from 2006 to 2009 with only a couple instances of negative growth. Another area of growth is in the National Defense. However, it is very inconsistent. Speaking from personal experience, National defense spending relies heavily on the passing of the next fiscal budget. You will usually see having spending in the final quarter of the fiscal year with a dramatic drop in defense spending the following quarter. This is usually compounded when the following years budget is not passed in a timely manner
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As for negative growth areas, fixed investments under gross private domestic investments have continued to have continued negative growth. Additionally, residential under the same heading has had tremendous negative growth.
To summarize the Bureau of Economic Analysis table of Real Gross Domestic Product and Related Measures: Percent Change from Preceding Period, it appears that we are starting to reverse the trend of two years of negative growth, but may continue to see negative growth in the gross private domestic investment area.
References
Concepts and Methods of the U.S. National. (2009).
Bureau of Economic Analysis, National Economic Accounts. Retrieved January 17, 2011, from www.bea.gov/national/pdf/NIPAhandbookch1-4.pdf
Measuring the Economy. (n.d.).
Bureau of Economic Analsis. Retrieved January 17, 2011, from www.bea.gov/national/pdf/nipa_primer.pdf
NBER Recession Announcement. (2008) “Determination of the December 2007 Peak in Economic Activity.” Retrieved January 14, 2011, from wwwdev.nber.org/cycles/dec2008.html
Open Market Operations. (n.d.).
Investopedia.com – Your Source For Investing Education. Retrieved December 31, 2010, from http://www.investopedia.com/terms/o/openmarketoperations.asp
