The speed-up in the growth rate of the U.S. economy since 1995 - Essay Example

Short Essay #2 Since 1995, there has been a speed-up in the growth rate of the United s economy. Reasons for this growth include what is known as a “soft landing,” the Federal Reserve not being as involved as it used to be, as well as them cutting rates down considerably, the increase of productivity, and the methods that can be used to keep the rate of the economy either at a stable level, or at a level of improvement. Soft landing is the term used when referring to the slowing down of an overheating economy on the verge of driving up inflation which, in turn, becomes an economy growing near its full-employment growth rate with low inflation (Gillette).

This is opposed to a hard landing, which involves the slowing down of the economy without also causing a recession. Soft landings give economies the chance to improve themselves. It allows for moderate growth, but for low inflation. Hand-in-hand with the soft landing, the growth rate of the United States sped up due to business inventories rising relatively compared to sales. As well as the former, the costs of exporting goods and supplies to other countries have dropped considerably. In 1995, the Federal Reserve was not as active as it had been in previous years.

At the beginning of 1995, it did raise interest rates, which pushed up the federal funds by half of a percentage, moving the rates to six percent. The interest rates dropped remarkably. The cut of the federal rates allowed them to decline, though they also leveled-off, rose a bit, but then declined once again. “Growth is no longer concentrated in consumption.” (Taylor) Investment in equipment grew, assisted by the expensing provisions of legislation, while orders and shipments data are signaling further gains.

Interest rates have been the lowest since the 1960s, sparking a record pace of new home sales and allowing automakers to boost sales by offering generous financing and discounts. The productivity growth for 1995 was well ahead of the average it held between 1973 and 1995. A strong platform for expansion was set up by flexible labor, low inflation, goods and capitol markets, and the growth in productivity. The goal in this, to keep the growth rate increasing, involves adopting the right economic policies (Taylor).

There are certain methods to be taken in to account when it comes to controlling something as growth rates of an economy, any economy. The amount of tax cuts and the decrease of unemployment has aided the growth rate of the United States economy. Prior to 1995, rates were unstable - unemployment had reached an all-time low, and taxes and interest rates kept increasing and decreasing, but never staying at a stable level (Kane). However, in recent years, due to a decrease in unemployment and in the costs of shipping goods to other countries, the United States economy is continuing to grow and strengthen.

And the way to strengthen something that is already strong is to keep it going on the methods that have proven to already work.Works CitedGillette, J. Robert. “US Economy Experiences.” 1995. Online. Available http://gatton.uky.edu/cber/Downloads/usecon96.htm. November 11, 2007.Taylor, John B. “The United States Economy: Current Situation and Prospects.” October 23, 2003.Kane, Tim. “Past, Present, Future. Economic Growth in America.” October 29, 2004. Online. Available http://www.heritage.

org/research/economy/wm601.cfm. November 11, 2007.