The Future of the Us Gross Domestic Product

1. Assess contemporary macroeconomic events, placing them in a historical context by reviewing how current economic performance compares to historical economic performance levels since 1979.

“Forecasts for the U.S. economy in 1979 were quite optimistic” according to the publication, “The U.S. Economy in 1980: Shockwaves in 1979 (Miller et.al., 1980)

Federal Reserve Bank of Minneapolis. The Gross Domestic product was 2.54 trillion dollars (compared to 14.2 trillion dollars by the end of 2009) and the unemployment rate was 5.8%. But by the end of 1979, the “oil price shock” brought the CPI to 12.6%, 5.1 points higher than the projected 7.5% (Miller et.al,, 1980).

Perhaps these events, from the beginning of 1979 to the start of the decade of the 80’ were what inspired Ronald Reagan to comment that “An economist is someone who sees something that works in practice and wonders if it would work in theory”. The early 80’s saw several more shocks with unemployment reaching 10.8 % in 1982 and the prime rate reaching 21.5% by December 1980. (WSJ.com, 2010).

It may be useful for this discussion to take a look at the leading economic indicators of GDP, CPI, and the unemployment rate (UR) from 1979 by decade to 2010, as shown in the table below:

1979 1990 2000 2010

GDP 2.5 trillion 5.8 trillion 9.9 trillion 14.6 trillion

CPI* 72.57 130.70 172.2 214.54

UR 5.8 5.6 4.0 9.3

The base CPI year is 1982-1984 (Bureau of Labor Statistics 1997)

Source: measuringworth.org (2010)

Interestingly enough, if the 2.5 trillion dollar GDP in 1979 is adjusted for inflation today, the amount would be 7.4 trillion dollars, compared to the 1463 trillion dollar GDP projected in 2010.(Chantrill, 2010). From this perspective, true GDP nearly doubled in 31 years, and interesting statistic to note in the context of all of the economic doom and gloom today.

The United States faces a government spending level of 44% of the GDP in 2010, compared to 34% in 1979. For further perspective,...