The unemployment rate is down to 8.3 percent, the lowest it has been since February 2009. This is great news for the U.S. economy. So what does this mean to people that don’t understand how the economy works?
Everything the United States economy produces is measured by the Gross Domestic Product (GDP). When GDP turns negative, the economy enters a recession, like the one that began in 2007. When the recession continues for years, it’s called a depression. Supply and demand drive the economy. Supply includes employment and natural resources, such as oil. Demand and personal consumption make up 70 percent of the economy. So when people stop buying, the economy suffers.
Fiscal policy refers to the $3.5 trillion federal budget. Ultimately, the revenue for the budget comes from taxes. Fiscal policy can stimulate the economy, but only business can create economic growth. Monetary policy is controlled by the Federal Reserve (The Fed), which is guided by the Fed Chairman. The Fed’s three key economic controls are the Federal funds rate, the money supply and use of credit. The main objective of monetary policy is to control inflation. Its second objective is to stimulate the economy. It is also in charge of the smooth functioning of the banking system. The Federal Reserve Chairman, Ben S. Bernanke, is often called the most powerful person on the planet.
In 2007, a collapse in the financial market threw the economy into the worst recession since the Great Depression. It all began with derivatives that were supposed to insure against defaults on sub-prime mortgages. Then insurers defaulted themselves.
According to the February edition of The Huffington Post, U.S. employers added 243,000 jobs last month. With new jobs being created, more people can be hired and the unemployment rate will go down. Earlier this year, when the unemployment rate was at 9.1 percent, many job-hunting seniors from Elizabethtown College might have been hard pressed to find a job, but now things are looking brighter for them.
Economists at leading Wall Street firms continue to believe that the Federal Reserve will undertake another massive stimulus program, meaning that the government is going to take out money and spend it to help boost the economy and get people to start spending money again. Omair Sharif, U.S. economist with RBS Securities in Stamford, Conn., said, “Despite the fall in the unemployment rate, we do not believe the outlook for Fed policy has been altered significantly.”
“I believe the economy will go up slightly but the change between last month and this month is not drastic enough to pull us out of the recession,” Dr. Dmitriy Krichevskiy, professor of economics, said.
“I’m happy to hear about the drop [in unemployment]. I’m not so nervous about finding a job anymore, or what might happen to me once I graduate,” said Etown sophomore Kohei Ando-Mizano.
With the news of the upturn in the unemployment rate, are we out of the woods yet? Not by a long shot, but this is a step in the right direction.