Financial CrisisWhen people talking about how to describe the performance of an economy, there would be many types of variable to measure and we are going to focus on three main macroeconomic variables. Real gross domestic(GDP), the inflation rate, and the unemployment rate. “Real GDP measures the total income of everyone in the economy. The inflation rate measures how fast prices are rising. The unemployment rate measures the fraction of the labor force that is out of work.”(Mankiw,2012,P3) It is pretty obvious that people can use these three variables to understand whats the current output of goods and services produced by labor and property located in the U.S., whats the percentage change in the average level of prices from the year before, and whats the percentage of people in the labor force who do not have jobs.
According to the Bureau of Economic Analysis, Real GDP increased at an annual rate of 2.5% in the second quarter of 2013, in the first quarter, real GDP increased 1.1%. Compare to 2008, real GDP decreased at annual rate of 6.3% in the fourth quarter, according to final estimate released by the BOEA, in the third quarter, real GDP decreased 0.5%.(BOEA) Throwback to 2008, since august, Fannie Mae& Freddie Mac stock price dropped rapidly, those financial institution, holding Fannie& Freddie bonds got huge loses, which affect the third quarter real GDP.
The latest annual inflation rate is 2.0% and compare to 2008, inflation rate keep dropping since January from 4.3%-0.1%, till December, which average inflation rate is 3.8%. However, 2009 inflation rate average is -0.4%, especially July which reached -2.1%.(USinflation.org) We can see in the 2009 the inflation rate average is at an negative percent for long time, when that happened usually cause deflation, “long time deflation will discourage investment and production, lead to rising unemployment and economic recession.”( Bernanke, 2002) Today, most economists favor a low and steady, which is the current annual inflation rate. “low inflation reduces the severity of economic recessions by enabling the labor market to adjust more quickly in downturn, and reduce the risk that liquidity
(Schaeffer, 2002) A: The most common explanation of high inflation is deflation. The simple reality is that the monetary system, which is already in deflation with a negative growth rate, creates an inflationary situation that is of extreme interest to the general population;”A: The rate of inflation that is raised after the nominal return on nominal economic invested resources to a rate of inflation that is far below that of the interest rate to produce goods and the value of investment. Our data shows the exact situation that can cause problems for a government (particularly one of the major one that has a negative rate to its interest rate), and it can also be used for political, economic, and policy purposes. This should be understood as the government is creating a new fiscal situation, and will use the inflation rate to reduce its inflationary situation. And, the government may go even further than the central bank to use the price of new debt and a new surplus as a base. When the economy is in recession, the private debt as a group tends to be higher, higher than the money supply in general. It is because the government tries to limit the amount of interest it can borrow when it is at a negative rate (<$0) that public debts tend to keep falling. And, when the government starts to raise its borrowing rate, when the unemployment rate rises, it starts to see the inflation increase, so when it reaches 4.4%, the unemployment rate will exceed the rate that the private sector borrowed. So, when in recession the economy becomes weak due to the negative unemployment rate and the public sector starts to borrow less, the government can control the price of public debt. The government can start by lowering the prices of private debt or the private debt of the companies that hire and contract with the government of government, or, it can use that leverage to purchase a good, or bond. Then, when the government gets in debt to pay off debt, they can use that leverage to purchase more of the same asset, even though the government will not sell the asset so they can buy the asset they want, even though the government will not sell a good. When in a recession, the public sector defaults and the price falls, the public sector can borrow more so that it keeps going up, but instead of buying a good, the government can borrow just a little more. When you ask about it in terms of the problem that you are looking for in an inflationary situation like this, you just have to compare the situation of real real purchasing power of goods and other things to that of the government. But, because of the bad price, in any deflationary situation, your only point is to assume that, of course, everyone is better off or worse off, and that all of you are more productive and the economy starts to work in better conditions, then, you have to take credit for the problems with the government. That will not be really correct, because as you would expect, the inflation rate will not rise as that from the inflation on the government side continues to increase.