According to N. Gregory Mankiw’s textbook, Macroeconomics is the study of economy-wide phenomena, including inflation, unemployment, and economic growth (Mankiw, 2007). In the billions of Macroeconomics classes across the world, we study these god-like wonders and how they affect our economies. With graphs more fun than fifteen roller coasters combined, data sought after more than the meaning of life, and articles from real economists, I’ve come up with some conclusions about the state of the U.S. economy. The growth rate of GDP is slightly above average, and the inflation and unemployment rates are both slightly below average. To the untrained eye, one might think we’re doing poorly with the second two areas being below average, but in this case it is actually a good thing to be an underachiever. All three areas of Macroeconomic phenomenon are slightly better than the average of the past twenty years. In my analysis of GDP, inflation, and unemployment, I can confidently say that the American economy is running slightly well.

Gross Domestic Product is about the value of goods and services of each year. A more exact definition of GDP is the market value of all final goods and services produced within a country in a given period of time (Mankiw, 2007). What that means is GDP is the nation’s total income for that year or quarter. “GDP measures the value of all goods and services produced within the United States and is considered the best barometer of the country’s economic fitness” (Business Week). This is because a higher income in a country will give its citizens a higher standard of living. Since we always want what is best for others, an increase in economic growth is important, so GDP therefore has to go up each year.

Over the past 20 years, Americans have enjoyed a steady level of economic growth and the past year is no different. Thanks to the help of the Bureau of Economic Analysis’s website, I found that GDP has increased at an average rate of 2.98% over the past 20 years (BEA, 2007). The current average increase in GDP from 2006 to the first three quarters of 2007 is 0.2 percentage points higher at a grand total of 3.1%, the previous increase of 2006 being 2.9% (BEA, 2007). That 3.1% change is very good compared to the past twenty years. As shown by the graph below, the highest increase in GDP was 4.5% in 1999 and the lowest was -0.17% in 1991, so a 3.1% increase is actually pretty good (BEA, 2007). We are closer to the highest increase than the lowest increase. As shown by the graph below, there have been many different increases and decreases in GDP from 1987 to 2006 (BEA, 2007). For example, 2001 was the year that the Terrorists attacked the World Trade Center. Big things like that tend to affect GDP in different ways.

2007 has so far had some good actions taking place to increase GDP. An older article from July 22nd, 2007 on the New York Times webpage, entitled “Two Sides of Economic Growth” gives the credit for the economic growth of 2007 to businesses buying new inventory and increased consumer spending (NY Times). The businesses purchasing new inventory according to the article was because they were replacing the items they didn’t replace from higher earlier sales this year (NY Times). Real personal consumption, which takes into consideration the negative effects of inflation, also increased during 2007 by an excellent rate of 4.2% according to the article (NY Times). My example in the previous paragraph of how 9/11 affected the economic growth of GDP in 2001 is from an economic standpoint similar to how the increased consumption and investment spending helped out 2007’s growth in the article. People buying, replacing, and investing more isn’t going to affect the U.S. economy’s growth positively as much as a terrorist attack will affect it negatively, but due to the economic law of diminishing returns, the amount that Americans helped GDP is actually quite good. We aren’t in a time of economic prosperity, but even the slightest above average GDP growth is a very good thing for any economy.

While above average GDP growth is a good thing, it’s actually a bad thing to have a highly above average inflation rate. According to Mankiw’s (2007) textbook, inflation is defined as an increase in the overall level of prices in the economy and the inflation rate is the percentage change in the price index from the preceding period (Mankiw, 2007). What that means is the amount of purchasing power goes down quicker when the inflation rate is rising more quickly every year. A controlled inflation rate is ok and actually good sometimes, but when it rises too quickly, like with a Hyperinflation rate of 20 to 30%, the economy can suffer because people can barely purchase as much as they want to with their savings or wages (Investopedia, 2007). And with the opposite happening, stagflation, going in the economy, it is most likely experiencing a time of no economic growth.

The inflation rate might be lower than average, but Business Week did have this to say, “Federal Reserve policymakers say the biggest danger to the economy is if inflation doesn’t recede as they currently predict” (Business Week, 2007). The Fed watches inflation and changes interest rates around to get the highest amount of employment, stable prices, and a healthy amount of economic growth (Investopedia, 2007). Those interest rates help the government control the money supply. The U.S. Government has done very good with watching inflation over the past 20 years.

Over the past 20 years, Americans have had a steady inflation rate of about 3.1% (BLS, 2007). Our current inflation rate of the first ten months of 2007 being 2.5% is a good thing as it is 0.6 percentage points below the average (BLS, 2007). The lowest inflation rate we have had over the past twenty years was 1.6% in the years of 1998 and 2002 (BLS, 2007). The highest inflation rate we have had was 5.4% in 1990 (BLS, 2007). So our inflation rate of 2007 being closer to the lowest inflation rate in the past twenty years of inflation history shows America is taking the right steps to prevent inflation. The data collected above can be viewed in the following graph.

As I mentioned earlier, interest rates help the government control the money supply. Unfortunately, The Fed’s recent cut of three quarters of a percentage point in September hasn’t done much to the banking system (Wall Street). According to James Bianco, president of Bianco Research, “Even though the Fed has eased three-quarters of a percentage point since September, the market has only gotten 0.25% and 0.50% of that easing” (Wall Street). The article later goes to tell us that the rates on loans haven’t dropped, credit card interest rates have dropped a good amount, and homeowners are getting some benefits if they have mortgages with less years on them (Wall Street)). While inflation might be less than average, it isn’t a good sign to see that interest rates aren’t dropping as fast as the Fed would like them to. If investment spenders are affected in a negative way to these defiant interest rates, economic growth could slow down dramatically and the unemployment rate would increase along with it.

The final topic of Macroeconomics is the unemployment rate. According the Mankiw’s (2007) textbook of Macroeconomics, unemployment includes those who were not employed, were available for work, and had tried to find employment within the last four months (Mankiw, 2007). This does not include discouraged workers, but simply those who want to work, are looking for a job, and or are waiting to be recalled back to a previous employer after being laid off (Mankiw, 2007). Some unemployment is good, but any unemployment has long-term effects on the economy. America is currently not in a state of massive unemployment and in fact the economic data of the United States of unemployment for 2007 show that, similarly to GDP and inflation, we are running at a slightly higher rate than average.

Similar to the data for GDP and inflation, the data for unemployment shows that America’s economy is just a little bit above average. The current rate of unemployment of the average of the past ten months of 2007 is 4.56% (BLS, 2007). The average rate of unemployment is 5.5% over the past twenty years (BLS, 2007). Therefore, the current rate of unemployment is below the average of the past 20 years by 1.18 percentage points (BLS, 2007). The lowest unemployment rate of the past twenty years was 4% in 2000 and the highest unemployment rate was 7.5% in 1992 (BLS, 2007). So we are actually much closer to the lowest unemployment rate than the highest. As shown with the graph below, unemployment goes up and down as time changes and different events affect the economy.

I currently believe that the American economy is doing slightly well. My old band teacher used to say, “To be average, scares the hell out of me”. Well, we’re not average. We just aren’t in the greatest time in history for rapid economic prosperity. Many economists think that the only reason we aren’t in a recession right now is because the unemployment rate is so low (Economist, 2007). They’re saying that with not many people building houses right now and the fact that defense spending has gone down, we should in fact be in a recession right now (Economist, 2007). I have come to the conclusion that these people are crazy and 2007 is going to be a good year for the economy. All three parts of Macroeconomic data show that we are just barely above average. “In both 1990 and 2001, Wall Street’s seers were predicting modest growth when the economy, it turned out, was already contracting” (Economist, 2007). 2001 and 1990 were our two worst years of the past twenty for the economy as shown by the graphs above and they were the result of bigger events. 1990’s poor economy was the result of the Gulf War, high interest rates, and poor economic planning by the government and 2001 was the result of the 9/11 terrorist attacks. Unless something awful happens within the next month, like Ben Bernanke being captured by Al-Qaida, I don’t think 2007’s economy could turn out badly.

To summarize, the current American economy of 2007 is running well. I believe that with all areas of Macroeconomics above average, we are doing well, and there is no reason for concern. While studying economics is always as fun as fifteen roller coasters combined, I am depressed to say that the economy is not doing anything particularly out of the ordinary. Everything is stable, but in economics that’s usually a good thing. We’re more likely to have something bad happen than to have a time of unpredicted economic prosperity. Everything is as it should be.