U.S. Economy 2004 - 2005

Topics: Monetary policy, Inflation, Central bank Pages: 4 (1321 words) Published: June 23, 2013
U.S. Economy 2004-2005

The U.S. economy has seen its share of glory and uncertainty over the last century. Going from a leading economic giant to the assumed financial capital of the world, each year brings new challenges for the economy. This paper will examine and highlight growth, price level, interest rates and monetary policy during 2004 and 2005.

Gross domestic product (GDP) is the market value for all goods and services produced, also known as economic output, within the U.S. during a specific time period (Mishkin, 2010). The total economic output is typically measured by GDP. The U.S. economy saw robust growth in 2004 and 2005 despite many issues including federal budget deficits, Hurricanes Katrina and Rita, Social Security reform, high oil prices, the looming housing bubble, and the Chinese exchange rate policy. The United States economy grew at an annual rate of 4.4% in 2004 and productivity growth is the key reason for the strong performance (Coughlin, 2005), see Attachment A. Growth in 2005 continued to exceed even the most optimistic projections reaching 4.3% in the fourth quarter.

The inflation rate is significant because it describes how prices are changing over a period of time. Inflation is a positive number when prices are going up and negative when prices drop (which is rare). Mishkin maintains that “inflation, a continued increase in price level, affects individuals, businesses, and the government; and is generally regarded as an important problem to be solved and is typically at the top of political and policy making agendas (Mishkin, 2010)”. The government uses the Consumer Price Index to calculate the rate of inflation and it is one of the most significant measures of economic progress. Inflation in 2004 moved higher during the first six months of the year than it had over the previous 4 years. Over the first half of the year, energy prices and consumer prices soared. Consumer prices rose faster than most...

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Coughlin, C. C. (2005). U.S. Economic growth, Relatively Speaking. St. Louis: Federal Reserve Bank of St. Louis.
Federal Reserve . (n.d.). Federal Reserve Education. Retrieved May 1, 2013, from Monetary Policy Basics: http://www.federalreserveeducation.org/about-the-fed/structure-and-functions/monetary-policy/
Federal Reserve. (2004). 2004 Monetary Policy Report to the Congress.
Federal Reserve Release. (2005, December 13). Press Release December 13, 2005. Retrieved April 1, 2013, from Monetary Policy releases: http://www.federalreserve.gov/boarddocs/press/monetary/2005/20051213/default.htm
Fullwiler. (n.d.). Setting Interest Rates in the Modern Money Era. Wartburg College and the Center for Full Employment and Price Stability.
Mishkin, F. S. (2010). The Economics of Money, Banking & Financial Markets 9E. Boston: Pearson Education, Inc.
The Federal Open Market Commitee. (2004, May 4). Press Release May, 4 2004. Retrieved May 1, 2013, from http://www.federalreserve.gov/boarddocs/press/monetary/2004/20040504/default.htm
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