Economic Trends since 1994 in United States and United Kingdom

1. Economic Trends since 1994 for the 2 countries of your choice. You can use data

from the OECD website that you have been gathering in your macroeconomic

seminars. Choose the variables you deem most appropriate to describe the

economic conditions of the countries you’ve selected over the past two decades.

In the United States there are various economic indicators that differentiate it from the United Kingdom. The population of the United States almost doubles the population of the United Kingdom. Its stands at 316.1 million people. This is according to OECD’s survey as of November 2014. The site also mentions of the growth rate of the United States standing at a positive rate too with a 0.7% average. The U.K stands at -1.8%. What does this have to do with the economy you may ask? Well the number of people present in a country is the first step to people being able to produce products that have economic value in the country. The labour force is measured by the number of population in the country partly due to the fact that these people tend to provide a basis to start work on. However, it is not always the case as a large number of the population may be made up of old people who have retired or children who cannot yet fend for themselves. The second step worth noting, however. is how many of the people in the total population have jobs and businesses? With that we are able to narrow down to the number of people who can determine the economic power of a country. The number of employed people or people in the United States with a job are 120.2 million as of October 2014. This is on a full time basis meaning the people were always in their job places.

The other point to be paid attention to the unemployed number of people who make up the total population. In the United States the population of unemployed people are 7.4% while the number of unemployed people in the United Kingdom according to OECD’S survey is 7.5%. This number of people also determine the way a country’s economy is. The more the number of jobless people the less work is done which amounts to little economic growth being made in the country.

2. Economic policies (fiscal, monetary or other government policies) which may have

Impacted or currently impact economic conditions in those economies during the

Specified time period.

Economic policies greatly affect the way a country’s economic conditions of the country. These policies are made by the government in form of taxes and other enforcements made. In the United States the recent economic policies enforced by President Barrack Obama have ensured that there is an improvement in the country’s economy. With an increase in the tax from the wealthy as well as an investment in a number of public services such as in the health sector and infrastructure among others the move is aimed to stem crony capitalism and stabilize the economy. What is crony capitalism you might ask? This is a term describing an economy that depends on close relationships between the government officials and business owners in order to make it a successful economy. This however is seen as a sort of plunder in which the consumer is unable to defend him or herself when the issue of the cost of living becomes an issue thanks to the understandings of the two parties without having the consumer in mind.

In the United Kingdom the issue of tax is divided into a number of sections in which serve the country’s benefit. The division is in levels of county government and central government. The local government or the central government gets its income from council tax, government funds from the central government business rates as well as from fees and charges such as parking fees. The central government on the other hand gets its income from income tax, fuel duty, corporation tax, value added tax and national insurance contributions. We however want to relate the United States economic policies with the United Kingdom’s recent policies on the economy. According to Economy Watch in 2010 the United Kingdom was being faced with a financial crunch that would lead to economic changes in the government’s policies. How did the government deal with this issue?

By slashing government expenditure by 19% over the next four years. This was among the first moves made to solve this crunch. The second move was to ensure 490,000 jobs in the public sector were eliminated. While this is a dangerous move in any economy this had its long-term goals. The number of people losing their jobs would damage the economy but there was a method to this madness. Another move was by increasing the tax. The increase in the tax as well as in spending cuts, the national deficit was to be reduced. Housing subsidies for the middle class were to be cut. Defense expenditures were to be cut by 8 % while teaching and education spending would be also reduced to ensure this crunch was solved. This form of cutting is similar to what Obama is doing however his is of a different method in which an increase in the tax to the wealthy will enable the country to get more money for its use. This cuts down on issues involving capitalism and low revenue for the country.

These two situations may have been set in different situations but the end result is they are currently being practiced in both countries and this brings in a difference in both economies regardless of the end result they seek to get.

3. The future outlook of the economy (i.e. economic prospects).

a. Your arguments should be based on your findings from parts (1) and (2).

The economy of the United States in relation to the economy of the United Kingdom is different however simply enforced. The economy of the United Kingdom has in it policies that are aimed at seeing their fruition in the year 2015 according to the Becker-Posner blog. The policies set in the both countries however seek to make a brighter future in both countries. However in the United Kingdom the move to slash 490000 jobs in the public sector has a detrimental effect. The number of unemployed will increase and the job market might not have a way to absorb them. How does this translate to the economy? A dangerous downward flow if not corrected. In the United States the action of increasing tax on the wealthy is a good move since more of the money is returned into the economy. Cutting of jobs as a solution to solving an economic crisis is not a good solution.

Whilst, for each country you should also:

b. Explore the relationship (correlation) between real GDP and the variables

Specified (i-iii).

In the United States the GDP or the Gross Domestic Product is 46,930 US dollars per capita meaning the total value of goods and services produced by each and every person in the country totals to this. What is the relation of this to?

1. Household saving rates. The higher the GDP the higher the households are able to save simply because the products are able to fetch higher returns and as such there is enough to spend and enough to save too.

II. Infrastructure

investment: Airports. With higher GDP rates there is the possibility of the country being able to invest in the infrastructure of the country thus making it possible for the building of an airport or the renovation of an airport be possible.

III. Total expenditure on health per capita. The expenditure of health per capita is bound to increase. While the solution to human mortality is by being able to seek medical attention so is the increase in total expenditure on health per capita with increase in GDP.

c. Examine the extent to which real GDP can be predicted using the variables

(I-iii) in both economies.

I. Household saving rates; with low GDP there is the possibility of the savings being low and as such one is able to tell if the savings are low in relation to low GDP

ii. Infrastructure investment: airports. Low investment of infrastructure can be a direct result of low GDP. Low returns and thus ends up making it impossible to have funds for infrastructure investment.

iii. Total expenditure on health per capita. With lack of a good GDP to lean on the country is bound to find low expenditure on its people’s health due to the problem of low income availability.

Technically with poor GDP everything is bound to go south.

References

BIBLIOGRAPHY Posner, R. (2010, October 31). The United Kingdom’s Dramatic Response to the Economic Crisis—Posner. Retrieved from http://www.becker-posner-blog.com: http://www.becker-posner-blog.com/2010/10/the-united-kingdoms-dramatic-response-to-the-economic-crisisposner.html

United Kingdom. (2014). Retrieved from Organisation for Economic Co-operation and Development: http://data.oecd.org/united-kingdom.htm

United States. (2014). Retrieved from Organisation for Economic Co-operation and Development: http://data.oecd.org/united-states.htm

Watch, E. (2010, December 13). UK economic Policy. Retrieved from Economy Watch: http://www.economywatch.com/economic-policy/uk.html