Chapter Six Economics Blog

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Summary
The U.S. Labour Department released a report at the beginning of March showing that a total of 651,000 jobs were lost in February, alone, across the United States. The significant job loses cause the unemployment rate to rise to 8.1 per cent from 7.6 per cent, which is at the highest level since 1983. The report also showed figures of job loses in January and December, which reported over 600,000 jobs lost in each month. With three consecutive months posting over 600,000 jobs lost, the current pace of unemployment figures have never reached its levels since 1945, right after World War II. There are now 12.5 million Americans out of work, with 5 million of them losing their jobs in the past year. The steady growing unemployment rate is contributing to the shrinking GDP, which contracted 3.9 per cent last quarter. With the U.S. already in a midst of a recession, the report confirmed that the American economy and unemployment numbers continue to worsen.

Determination of National Income
GDP (gross domestic products) is used to determine the national income of a country based on the goods and services it has produced in a year and is thoroughly explained in chapter 6. An economy that has high unemployment numbers usually mean its GDP is contracting because less people are needed to produce less goods and services. When more people go out of work, households’ incomes are decreased because without a job there would be minimal income for the households. With lesser income, people will spend less because they can no longer afford the luxury items. Therefore the amount of money in the circular flow and the country's GDP will decrease, which affects the businesses as sales will go down and less people are willing to invest. People who do have jobs are also afraid that they will lose their jobs later on, so they tend to save more money in case they are unemployed in the future. When people are generally saving more, it also means they are spending less, which further reduces the amount of money flowing in the economy. As companies are struggling to maintain profits with decreasing revenues, they cut even more jobs. As a result, more people are unemployed, less money is being circulated, and the GDP continues to fall, partly due because the amount of savings are greater than the amount of investing, creating an endless pattern.

Reflection
In a time where thousands of people are losing their jobs each day, the U.S. government need to take action and promote spending in the economy. The government should lower their interest rate borrowed to the financial institutions, so they can pass the lower interest rates to businesses and private customers. If the interest rates are low, people and businesses will tend to spend because paying back for it later on will cost less than it did before. With more business investment, businesses will be looking to expand by upgrading or expanding their factories and buildings and buying newer machinery and technological equipment. The lower interest rates also create more household investments as more people will likely be buying houses and cars. The lower interest rates not only can promote more spending in the economy and keep money circulating in the economy, but it can also prevent companies from laying off workers because more business investment requires more workers to operate the business and with more money flowing in the economy the companies will not have to layoff workers to keep the company from making profits. The U.S. government should also give tax credits to the businesses and industries, like reducing the businesses’ income tax, to generate more exports, which means the country’s income would increase and so will the country’s GDP. Setting lower interest rates and giving tax breaks can get more businesses and most importantly the people to start spending again to get the country out of a recession.