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Ameican Economy 2005-2007

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Over the past three years American government has seen some changes in its economy that were influenced not only by the economical but as well political and environmental factors. We will study the development of economic factors such as, inflation, unemployment, growth, balance of payments and the overall well being of the population and how the wealth of the nation was distributed, on the period going from November 2004 to November 2007. The steady economy is always growing and developing at a slow pace, which allows us to see that the Starting 2004, President G.W. Bush was reelected for a second term we can notice many changes: noticeably there have been some major differences influencing economy such as devastating natural disasters as Hurricane Katrina (2005). It cost not only lives, but as well the damages of $105 billion for reconstruction and repairs including ones that have touched the oil factories, environment and the employment which had lead to the amount of more than $300 billion to be paid off by the government. Many of the charity workers and donations were helping to cope with the situation.

This might be one of the economic examples on how the natural causes might influence the economy, considering that the people became unemployed and could not pay taxes to maintain the stability in the society where they used to live.

On of the other examples that always come to attention is the War in Iraq. As some of the articles from 2006 suggest that the war budget might increase to over $1 trillion, the other article from the Herald tribune international confirms these suggestions by showing that at the beginning of 2007 the war budget went over $1.2 trillion which are founded by the government taxes. Overall the national debt has risen to the amount exceeding $9 trillion of which $3.5 trillion were attributed only to G.W. Bush administration.

Talking about the unemployment as the economic factor the rate has eventually decreased from 2004 of being 5.5% to 4.7% in 2007, but at the same time considered to be slowly rising comparing to 4.4% in 2006.

The Inflation :

One of the other factors taken into consideration is the inflation rates throughout the period of 2004-2007. The data shown below indicates the evaluation of the inflation taking into the consideration the CPI and the core inflation with the difference that the core inflation does not include basic items that might face the price variation such as food and drinks. The data below shows monthly evaluations of the inflation from November 2004 to September 2007.

Even though extracted from the data there are evident fluctuations from 4 to 1 on the CPI index, the Core inflation seems to vary between 1 and 2 which would mean that the consumer goods prices stay relatively the same comparing to the basic need products such as food. The other reason for such fluctuation in the CPI is the oil price variations in the past year due to the import-export reasons and the market influence on the prices overall throughout the world. On the other hand the stable inflation rate shows that the economy was stable and other variables such as interest rates might not have changed as much as if they would for the reason of the low inflation.

The Interest Rates:

In the recent years in the United States the interest rates have grown and stayed relatively high as one of the reasons to generate economic revenue which then supplied most of the investment into Bush administration which still tries to found more money in the war in Iraq. One of the most recent phenomena is that since September 2007 we already could see the cuts in the interest rates, as well as from the recent publication stating that on the 1st of November the Federal government has cut the interest rates to the quarter point. If the oil prices stay at the same rate the consumer spending will decrease, but at the same time as noticed the housing prices are going down. However, the recent problems have shown that even though the inflation was stable and the interest rates were high, many people couldn’t pay up their loans and mortgages and lost their houses. If now the economy stays at a current pace there might be no need to worry as much, but on the other hand the dollar value decreased comparing to some stronger currencies have shown that many foreign countries such as China have much more foreign money in their Federal reserves. This might influence and even bring down most of the American economy if the money is used widely by the foreign nations. On the diagram below we can see the fluctuations of the interest rate :

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

2007 4.50 5.25 5.25 5.25 5.25 5.25 5.25 5.25 5.25 4.75 4.50

2006 5.25 5.25 4.50 4.50 4.75 4.75 5.00 5.25 5.25 5.25 5.25 5.25

2005 4.00 4.25 2.25 2.50 2.75 2.75 3.00 3.25 3.25 3.50 3.75 3.75

2004 2.00 2.25

If we try to interpret the data, we can notice that the interest rate increased from 2.25 in November 2004 to 5.25 November this year (2007); the Fed then lowered to 4.50 it in order to minimize the impact of the actual financial crisis trying to stimulate consumption.

One of the other data which also fluctuated a lot is the oil prices that have risen up since 2005 as shows the following graph: they went from $60/ barrel in 2005 to $77/barrel in mid 2006, suddenly fall to an enormous difference. In the beginning of 2007 the prices went from $50/barrel up to $98/barrel this Friday, November 8th 2007.

There are many factors that made the oil price that high; some of these factors are the high demand, the adjustment to the inflation, limited amounts of the resources, as well as the instability in producing countries. There have been other factors that have influenced the oil prices to grow in the United States such as Labor strikes, hurricane threats to oil platforms, fires and terrorist threats at refineries.

The Balance of Payments:

As for the balance of payments, the United States is considered to be in the deficit of the exporting goods and services to other worldwide countries and their expenses are growing higher over the time. We will talk more about the exports and imports in the second part that is focused



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