What is an Economic System? An Economic system is a long-term arrangement by which various units with in a society are induced to cooperate in production, distribution and the use of aggregated product, including the means of control over productive factors and freedom or constraints on individual units in the existing factor or goods market.
Currency United States Dollar (USD) Fiscal year 1 October - 30 September Trade organizations NAFTA (North American Free Trade Agreement), WTO( World Trade Organization), OECD (Organization for Economic Corporation and Development) and others Statistics GDP (PPP)$13.84 trillion (2007 est.) GDP growth 2.2% (2007 est.) GDP per capita $46,000 (2007 est.) GDP by sector Agriculture (0.9%) Industry (20.6%) Services (78.5%) Inflation (CPI) 5.0% (Jun 2007 to Jun 2008)
Labor force 154.5 million (includes unemployed) (May 2008) Labor force by occupation managerial and professional (35.5%) Technical, sales and administrative support (24.8%), Services (16.5%), Manufacturing, mining, transportation, and crafts (24%), Farming, forestry, and fishing (0.6%) (excludes unemployed) Unemployment 5.5% (May 2008) Main industries: Petroleum, Steel, Motor vehicles, Aerospace, Telecommunications, Chemicals, electronics, Food processing, Consumer goods, Lumber, Mining, Defense
History of US Economy In 1933, Congress created the Federal Deposit Insurance Corporation (FDIC) which presently guarantees checking and savings deposits in member banks up to $100,000 per depositor to prevent bank failures. This was in response to the widespread bank runs of the early 1930s during the Great Depression. The economic history of the United States has its roots in European settlements in the 16th, 17th, and 18th centuries.
CONTD…. The American colonies progressed from marginally successful colonial economies to a small, independent farming economy, which in 1776 became the United States of America. In 230 years the United States grew to a huge, integrated, industrialized economy that makes up over a quarter of the world economy. The main causes were a large unified market, a supportive political-legal system, vast areas of highly productive farmlands, vast natural resources (especially timber, coal and oil), and an entrepreneurial spirit and commitment to investing in material and human capital. The economy has maintained high wages, attracting immigrants by the millions from all over the world.
For many years following the Great Depression of the 1930s, recessions—periods of slow economic growth and high unemployment—were viewed as the greatest of economic threats. When the danger of recession appeared most serious, government sought to strengthen the economy by spending heavily itself or cutting taxes so that consumers would spend more, and by fostering rapid growth in the money supply, which also encouraged more spending. In the 1970s, economic woes brought on by the costs of the Vietnam conflict, major price increases, particularly for energy, created a strong fear of inflation. As a result, government leaders came to concentrate more on controlling inflation than on combating recession by limiting spending, resisting tax cuts, and reining in growth in the money supply.
CONTD.. Ideas about the best tools for stabilizing the economy changed substantially between the 1960s and the 1990s. In the 1960s, government had great faith in fiscal policy—manipulation of government revenues to influence the economy. Since spending and taxes are controlled by the president and the U.S. Congress, these elected officials played a leading role in directing the economy. A period of high inflation, high unemployment, and huge government deficits weakened confidence in fiscal policy as a tool for regulating the overall pace of economic activity. Instead, monetary policy assumed growing prominence. Since the stagflation of the 1970s, the U.S. economy has been characterized by somewhat slower growth.
Government Intervention Some efforts seek, either directly or indirectly, to control prices. Traditionally, the government has sought to prevent monopolies such as electric utilities from raising prices beyond the level that would ensure them reasonable profits. At times, the government has extended economic control to other kinds of industries as well. In the years following the Great Depression, it devised a complex system to stabilize prices for agricultural goods, which tend to fluctuate wildly in response to rapidly changing supply and demand.
CONTD… A number of other industries—trucking and, later, airlines—successfully sought regulation themselves to limit what they considered as harmful price cutting. Another form of economic regulation, antitrust law, seeks to strengthen market forces so that direct regulation is unnecessary. The government—and, sometimes, private parties—have used antitrust law to prohibit practices or mergers that would unduly limit competition.
Monetary Policy The federal government attempts to use both monetary policy (control of the money supply through mechanisms such as changes in interest rates) and fiscal policy (taxes and spending) to maintain low inflation, high economic growth, and low unemployment. A relatively independent central bank, known as the Federal Reserve, was formed in 1913 to provide a stable currency and monetary policy. The U.S. dollar has been regarded as one of the most stable currencies in the world and many nations back their own currency with U.S. dollar reserves. During the last few years, the U.S. dollar has gradually depreciated in value and its reserve currency status is no longer as high as previously.
National Debt The national debt, also known as the U.S. public debt (part of which is the gross federal debt), is the overall collective sum of yearly budget deficit owed by all branches of the United States government, plus interest. The economic significance of this debt and its potential ramifications for future generations of Americans are controversial issues in the United States. As of January 30, 2008, the total U.S. federal debt was approximately $9.20 trillion, or about $79,000 in average for each of the 117 million American taxpayers. The borrowing cap debt ceiling as of 2005 stood at $8.18 trillion.
CONTD… In March 2006, Congress raised that ceiling an additional $0.79 trillion to $ 8.97 trillion, which is approximately 68% of GDP. Congress has used this method to deal with an encroaching debt ceiling in previous years, as the federal borrowing limit was raised in 2002 and 2003. While the U.S. national debt is the world's largest in absolute size, a more convenient measure is that of its size relative to the nation's GDP. When the national debt is put into this perspective it appears considerably less today than in past years, particularly during World War II. By this measure, it is also considerably less than those of other industrialized nations such as Japan and roughly equivalent to those of several western European nations.
EXTERNAL DEBT: LIABLITIES TO FORIGNERS Gross U.S. liabilities to foreigners are $16.3 trillion as at end 2006.(over 100% of GDP). The U.S. Net International Investment Position (NIIP) deteriorated to a negative $2.5 trillion at the end of 2006, or about minus 19% of GDP. This figure rises as long as the US maintains an imbalance in trade, specifically, when the value of imports substantially outweighs the value of exports. It should be noted that this external debt does not, for the most part, represent lending to Americans or the American government, nor is it consumer debt owed to non-US creditors. However, this is not the whole picture, as foreign holdings of government debt currently amount to about 27% of the total, or some 2 trillion dollars.
CONTD… For countries like the United States, a large net external debt is created when the value of foreign assets (debt and equity) held by domestic residents is less than the value of domestic assets held by foreigners. In simple terms, as foreigners buy property in the US, this adds to the external debt. When this occurs in greater amounts than Americans buying property overseas, nations like the United States are said to be debtor nations , but this is not conventional debt like a loan obtained from a bank. However, foreigners also purchase U.S. debt instruments, such as government bonds, which are forms of conventional debt.
Poverty Here is significant disagreement about poverty in the United States, particularly over how poverty ought to be defined. Using radically different definitions, two major groups of advocates have claimed variously that (a) the United States has eliminated poverty over the last century; or (b) it has such a severe poverty crisis that it ought to devote significantly more resources to the problem. The debate includes how poverty should be defined. Measures of poverty can be either absolute or relative. Absolute poverty is defined in real dollar values, whereas relative poverty is a comparison of the highest to the lowest standard of living at a particular time period.
Economic predictions and forecasting Predictions about the direction of the United States economy in the short term and long term are crucial factors in determining federal government policies, business decisions, and Federal Reserve decisions. Several institutions make economic predictions, including: Global Insight, and the UCLA Anderson Forecast. Various state agencies, including the California Department of Finance.