Macroeconomics Final Paper

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Dear Dr. Bernanke,
All economic indicators point to the fact that the United States has been in a recession for at least a year now. The Gross Domestic Product (GDP), the market value of all final goods and services produced within a country in a given period of time (as defined by Gregory Mankiw in his textbook, “Brief Principles of Macroeconomics”) clearly indicates that the U.S. economy has entered a recession. Consistent with the past three recessions in the U.S. (early 80’s, early 90’s, and 2001-2003), the Real GDP’s growth rate has become increasingly volatile over the past five quarters. In fact, per the Bureau of Economic Analysis (BEA), the GDP has contracted in two of the past four quarters. According to the BEA’s Table 1.1.1 – Percent Change from Preceding Period in Real GDP, the only other times in the past 30 years when the real GDP decreased in two of any given four consecutive quarters was during the aforementioned recessions. This lack of growth, and in some cases, contraction of the Real GDP is a direct indicator that U.S. production is also shrinking…something that occurs during a recession. The nation’s cost of living is largely measured by the consumer prices index (CPI), the overall cost of the goods and services bought by a typical consumer. A rising CPI indicates that people are paying more for the things they are buying. Per the Bureau of Labor Statistics (BLS) website, the CPI is the most widely used measure of inflation. Inflation tends to fall during time of economic hardship due to the fact that there are fewer injections of money into a struggling economy, and less money means less inflation. According to the BLS, for the 12 month period ending December 2008, the CPI rose .1%, the smallest calendar increase since a .7% decrease in 1954, indicating that money is not being loaned and “created.” When money is not being loaned or changing hands, an economy is struggling. The unemployment rate is also an indicator of our...
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