unning head: THE UNITED S ECONOMY The United s Economy Introduction Macro economic factors such as Gross domestic Product, trade deficits, exchange rates and interest rates strongly impact a nation’s overall economy as well as the bottom line of private organizations through the costs and availability of finance, products and services. All these macro economic factors involve the economy as a whole. This paper discusses the major current macro economic events that have occurred in the US in recent times and then explains how they relate to economic theories.
Starting from the end of 2007, the US economy began to soften and was gripped with inflationary pressures that threatened to inflate prices at levels that have not been experienced in the country during the last few decades. It is thus important to analyze the macroeconomic causes and implications of price increase of commodities, collapse of the housing market and the ensuing financial turmoil. Main Body The global economy is currently in the grip of the maximum macroeconomic uncertainty in the last 25 years because prices of major commodities such as corn, coal, natural gas and oil have been consistently increasing in being triggered partly by the rapid increase in demand in developing countries such as China and India.
However the prices in the housing sector, especially in the US have been declining. Housing prices in the US have fallen by almost 25 percent in relation to the 2006 peak period. The consequent financial turbulence that overwhelmed the world economy after September 2007 continues to retain its intensity in adversely impacting several sectors in the US economy.
Although a number of economic forces have worked in creating this adverse macroeconomic situation, the two main causes have been the increase in the prices of basic commodities and the quick weakening of the housing market. In fact, the financial turmoil beginning at the end of 2007 has its origin in the subprime mortgage crisis (Tanous and Cox, 2011). Although oil prices were stable for almost two decades preceding 2008, they rose to levels never observed before; from $20 a barrel in 2003 they increased to over $140 a barrel in 2008.
This increase by about 700 percent obviously had its impact on prices of other items such as rice, wheat, corn, steel, coal and natural gas. Prices rose sharply because of many reasons but primarily due to the increasing demand for oil in many developing countries, even while prices of other commodities were rising.
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