Economic Analysis

Economy is the activities related to the production and distribution of good and services in a particular region that occurs over a period of time. For discussion purposes, the particular region is the US. The US has one of the largest and most technologically powerful economies in the world. This is why it is the world’s largest national economy. Investors use the current state of the economy or financial markets to make intellectual decisions. They analyze the economic factors that affect stock prices such as interest rates, taxes, GDP, inflations and unemployment. Investors are concerned with these factors because they indicate business cycles of a country.

The economies of the United States and many other countries have grown tremendously. Yet, even in prosperous times, economic expansion has been periodically interrupted by episodes of declining production, income, and rising unemployment. From 2001 until 2007 the US experienced modest growth after a mild recession in 2001. Soaring oil prices in 2005 and 2006 threatened inflation and unemployment. Yet, the economy continued to grow until mid 2006, and the growth came to a halt at the beginning of the financial crisis in December of 2007.

In 2006 the housing market was the primary fuel pushing the economy, but it began to weaken in 2007. In 2007 the housing prices were headed downward, with individuals borrowing against home equity. The result was a down trend in consumption spending that lead to the beginning of the recession. There was an increase in default rates, as many homeowners were unable to meet mortgage payments. As the housing market collapsed families began to suffer from evictions and foreclosures. The rise in defaults put a severe strain on the portions of the financial industry that held large amounts of mortgage debt.

The strain put on the financial markets caused the financial crisis of 2007. The Financial crisis was the collapse of large financial institutions that in turn needed bailout...