FREE ESSAY ON ECONOMIC GROWTH IN US

ECONOMIC GROWTH IN US

The United States Department of Commerce has issued a statement proclaiming that personal
income grew faster in September than in any other month since August 1999. This growth is
largely due to the increase in federal farm subsidies which boosted personal income by
$61 billion. 
Private wage and salary disbursements also increased by over $25 billion in September,
adding to the total personal income bump up. The Department of Commerce said that the net
personal income increased by 1.1% in September while the disposable personal income
(adjusted for taxes and inflation) increased by 0.7%. 
The advance gross domestic product also indicates that consumer spending is still on the
rise. It is growing at an annual rate of 4.5%. In recent years, consumer spending has
been boosted by the initial increase in personal income, better quality of products, and
higher expectations for future wealth. In the last quarter, there has been a dramatic
increase in the purchases of durable goods, especially automobiles. The automobile market
experiences alternating on and off periods of demand depending on the durability of new
cars and the attraction of new technological advances. 
Investment has also increased in the past quarter. Business investments in equipment and
software increased at an annual rate of 8.5 percent. This increase is partially due to
the high expectations for future returns in the technology markets. The increase in
investment has produced a greater economic capacity, higher productivity and weaker
inflationary pressures in the national markets. 
However, the drastically increasing consumer spending has in the past year out grown the
personal income. This means that personal savings has become negative. If placed on an
aggregate expenditures vs. aggregate output chart, the consumer spending + investments
curve will fall underneath the 45-degree line. The public is spending more than it is
earning, effectively dipping into savings and inventory. In August, personal savings was
-$28.4 billion! Because personal income has increased in the past month, September's
personal savings was buoyed back up to -$7.8 billion. 
Although this negative savings rate may suggest a decrease in gross domestic product, the
truth is actually in the contrary. This is because the personal savings rate the US
Department of Commerce calculates, is purely the difference between personal income and
consumer spending + investments. Factors such as net exports, capital gains and the
wealth related to property are not included in the equations. This causes the
underestimation of income growth and hence the impression that people aren't saving.
All things considered, the national is still growing. This is the longest period of
economic growth in America's history and it has yet to show signs of slowing. Much of
this growth is a direct effect of extensive investment spending and government spending.
Fortunately, even though the current employment rate has exceeded the theoretical full
employment rate, there is minimal inflation. This economic prosperity follows Keynesian
equilibrium models perfectly. 
Works Cited
Barrett, Jennifer. "Economic Growth Continues." New York Times 29 Oct. 2000. 
Callen, Jane. "Statement by Robert J. Shapiro." US Department of Commerce. (Oct. 27
2000): Online. Internet. 29 Oct. 2000.Available
http://osecnt13.osec.doc.gov/public.nsf/docs.