Milestone 2 for macroeconomics power point decade 1980-1989
Ten-Year U.S Economic Analysis (1980-1989)
Ryan Green
ECO 202
Professor Lauterborn
ECO 202
Welcome to my presentation. I will be discussing the economic changes in the U.S economy for the ten years ending 1989. It is my hope you will learn new ideas and concept from this presentation.
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Historical Overview of the U.S. Economy 1980-1989
The decade began with deep recession in 1980
Annual GDP growth rate in 1980 averaged -0.2%
GDP growth rate was lowest at -1.9% in1982
Highest unemployment and inflation rate between 1980 and 1982
The economy finally recovered in 1982 to record positive growth for the rest of the decade
In 1989, Real GDP stood at $9,257 billion from $6688.9 billion in 1980
Low agricultural exports in early years of the decade contributed to negative growth
ECO 202
The ten years ending 1989 were characterized by volatile economic changes. During the first three years to 1983, the economy suffered negative growth save for 1981 where the growth remained stagnant (U.S Department of State, 2017). The most affected years were 1980 when the economy went into recession recording -0.2% growth and -1.9% in 1982. This period was also marked by high rates of unemployment and inflation. The interest rates were equally high at 13% but eased slowly as the economy rebounded to 7% in 1989. Positive growth began in 1982 through to 1989. The recession during this period was mainly attributed to declining agricultural products and low crop prices. It was further compounded by rising interest rates that increased the cost of credit and slowed consumption (U.S Department of State, 2017). The consequences of the volatile economy was reflected in the federal budget of $ 221, 000 million in the year 1986. Government deficit remained a common element throughout the period under review although the economy later rebounded against the backdrop of fiscal and monetary policies aimed at increasing demand and consumption.
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GDP
GDP growth fluctuated throughout the period of review
GDP was highest in 1989 and lowest in 1980
1984 recorded the highest growth at 7.3%
1982 recorded the lowest growth at -1.9%
GDP in 1980 was $6688.9 billion while in 1989 was $9,257 billion
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The period under review recorded one of the most volatile economic growth in the United States. In 1980, the agricultural exports which had previously contributed immensely to foreign exchange earnings declined exerting pressure of the domestic economy. The price of crops also fell reducing the purchasing power of farmers. The overall level of demand dropped as the purchasing power of consumers weakened compounded by increasing interest rates and rising inflation (U.S. Bureau of Labor Statistics (2017). Although the economic growth rate was lowest in 1982 at -1.9%, it rebounded the following year to record positive growth due to government fiscal and monetary interventions. By 1984, the economy had posted what turned out to be the highest economic growth at 7.3% . In 1989, the economy added $9,257 underlining strong economic prospects for the years that followed.
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Graphical Representation of GDP Growth (1980-1989)
Significant Factors for GDP
The 1980 Recession
Black Monday 1987
Reagan Tax Cut in 1981
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The 1980 recession and the subsequent high inflation and low unemployment rates greatly influenced economic growth for the period under review. The level of economic output remained relatively low prompting the government to begin tax cuts to increase consumers disposable income. The strategy was aimed at increasing the level of demand and by extension consumption. President Reagan adopted tax cuts in 1981 when the economy was beginning to show signs of growth. However, the effects of the tax interventions did not bear fruit immediately as the economy slipped back into recession in 1982. Real growth began in 1983 as the level of employment grew in the economy.
Black Monday refers to the unexpected and sudden crash of market stocks on October 19, 1987 (Amadeo, 2016). Corporate earnings declined and weakened the employment capacity leading to slowed GDP growth.
Explanation
Graphical Representation
Unemployment and Inflation
Unemployment was high in early 1980s topping at the end of 1982
1988 reported the lowest unemployment rate
Unemployment was highest during recession 1980 and 1982
ECO 202
There is a direct relationship between GDP growth and unemployment rates. The year 1980 recorded 7.8% unemployment at the height of recession although it declined the following year as the GDP grew and the economy moved from recession. However, the rate of unemployment rose sharply to record the highest rate during the year under review in 1982 at 11.2%. The high unemployment rate reflect the market behavior at the time as companies laid off workers to streamline operational costs (Amadeo, 2017). With many workers being off, the economic output further dropped creating a cyclical problem. However, as the economy rebounded through government interventions, mainly through tax cuts, unemployment rates also dropped. Unemployment rate is calculated by dividing the number of people unemployed in the economy against those who are currently employed at the time of evaluation.
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Inflation
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The above figure shows the direct relationship between unemployment and inflation. During the early years of the period under review, unemployment was high. The same is also true for inflation which was highest in 1980 when it stood at 13.5%. 1986 recorded the lowest inflation rates at 1.86%. The high inflation witnessed in 1980 was a result of the low production or output in the economy that made products and services in the economy to be scarce (Amadeo, 2017). Consumers began scrambling for the limited goods and services as demand exceeded supply. Inflation is measured by dividing the price of goods at the end of the period under review against the prices at the beginning of the respective period.
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Interest rates in 1980
Graphical Representation
Interest Rates
Interest rates highest in 1980 at 13%
Lowest interest rate recorded in 1986 at 5.8%
Interest rates increased as the GDP increased between 1986 and 1989
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Inflation rate and interest rates showed direct relationship. When one was rising, the other rose too. In 1980, the interest rates were high at 13% and was lowest in 1986 as the post-recession era showed high levels of output. However, in post-1986 years, interest rates increased as the GDP increased. Several reasons could explain the scenario. When the economy boomed, more organizations invested their earnings into the economy. This behavior increased demand for credit leading to banks increasing the interest rates (Amadeo, 2017). Another possible reason could have been that inflation also rose forcing lenders to increase their rates to accommodate the rise in inflation.
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References
Amadeo, K. (2016). What Is Black Monday? In 1987,1929, and 2015. retrieved at: https://www.thebalance.com/what-is-black-monday-in-1987-1929-and-2015-3305818
Amadeo, K. (2017). U.S. GDP by Year Compared to Recessions and Events. retrieved at: https://www.thebalance.com/us-gdp-by-year-3305543
U.S Department of State, (2017). The American Economy During the 1980s. Retrieved at: https://www.thoughtco.com/us-economy-in-the-1980s-1148148
Interest Rates, Discount Rate for United States. Retrieved at: https://fred.stlouisfed.org/series/INTDSRUSM193N
U.S. Bureau of Labor Statistics (2017). Monthly ‘Current Population Survey (Household Survey). FRED, Federal Reserve Bank of St. Louis; Retrieved from https://fred.stlouisfed.org/series/LNS14000001
ECO 202
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0.002.004.006.008.0010.0012.0014.0016.001981-02-011981-09-011982-04-011982-11-011983-06-011984-01-011984-08-011985-03-011985-10-011986-05-011986-12-011987-07-011988-02-011988-09-011989-04-011989-11-01Series1
