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After the federal government shutdown in October 2013, all government employees, institutions, and contracts came to a halt. The government is the largest consumer both of industrial commodities and consumer goods. As a result, the market experienced reduced sales. Together with the recovering economy after the 2008 financial crisis and government shutdown, economic growth experienced during the first quarter of 2013 reduced by 0.6%. The gains from short term treasury bonds rose, and this increased the US budget deficit indicating that global investors lost confidence in the economic situation of the USA.
Economic shock causes unpredictable changes in the aggregate demand and short run aggregate supply. Therefore, the uncertainty created by an economic shock creates a fluctuating rate in economic growth, which requires fiscal policies to address the situation. Given a decline in demand and supply after the 2008 financial crisis, the federal government developed economic policies to control the situation. As a result, the economys unconventional assets increased in 2012-2013. However, output growth is slow, with real GDP staggering at 2.1%. In relation to per capita, real GDP is still 1.6% lower than it was before the economic crisis (Lim, 2013). Additionally, monetary policies try to mitigate adverse effects of uncertainty periods by lowering the nominal short-term interest rates. This led to the inflation experienced after the economic crisis (Romer & Romer, 2013).
On the other hand, there is a slow progress in the job market. However, the economy has showed positive results since 2012. This is because there are more than 5 million jobs created in 2013 compared to the low points experienced three years ago. With the slow rate of job growth and the effect of the government shutdown, the unemployment rate has been reducing at more than 50% point over the past half of the year. For example, for the past 5 months the unemployment rate stagnated at 7.9% (Aguiar, Hurst, & Karabarbounis, 2013).
The above trends will influence the future economy in a number of ways. First, the economy is still recovering from the housing bubble, and bust. On the other hand, with its effects on the depression in house constructions, the housing consumer spending is lessening. Home owners with inadequate equity are unable to finance their mortgages. This causes reduction in aggregate expenditure in the economy. Therefore, economic households are unable to access loans for business or personal reasons. Consequently, households have to cut cost. Consumers do this by reducing their daily spending. This reduces demand for consumer goods. In response, firms cut down on their production process. Therefore, they claim some of their employees redundant. This creates the high unemployment rate experienced in the current economy (Fisher, Johnson, & Smeeding, 2013).
The Consumer Price Index remains the same since November 2013. Over the last 12 months, all item index increased by 1.2% before seasonal adjustments. In November 2013, the energy index declined offsetting increases in other sectors. For example, all item index rose by 1.2%, and all items except food rose by 1.7% in November; however, a significant drop in the energy index by 2.4% balanced the results. CPI reflects the current state of the weighted average of consumer goods and services. The U.S. Consumer Price Index stagnates over the last 12 months. This shows that the economy experiences no inflation or deflation (Lim, 2013).
Real GDP increased by 4.1% in the third quarter of 2013, compared to 2.5% increase in the second quarter. The third quarter estimate incorporated complete data sources unlike the second one. For example, in the second estimate the increase in real GDP was 3.6%. However, in the third estimate, increases in non-residential fixed investments and personal consumption expenditure were wider than in the previous estimates. The increase in GDP estimates reflects an improvement in the private inventory investments, decrease in imports, and increase in government spending. GDP represent the total dollar value of all the goods and services produced. There was an increased in real GDP over the last 9 months. This shows improvement in the economy. Additionally, it reflects a decrease in the unemployment rate, increase in GDP per capita, and progress in the stock market (Lim, 2013).
The private sector responded to the rising uncertainty caused by the 2008 financial crisis by cutting back spending, which led to a rise in unemployment and reduction in both output and inflation. Uncertainty caused the unemployment rate to drop by 1% in the last 3 year period. The reason behind this is the recent recession and recovery. With this in mind, high unemployment rates reduced economic activities and inflation. As a result, the federal government used this to reduce the aggregate demand. Additionally, investors use the current state of unemployment to assess areas of interest. For example, after the economy recovery from the 2008 financial crisis, more than 71, 000 jobs were created as a result of investors confidence (Fisher et al., 2013).
In conclusion, the 2008 financial crisis and the 2013 government shutdown influenced the economy significantly. The government developed monetary policies to curb the adverse effects of the crisis, and this led to positive results in the economy. This includes a rise in real GDP and a decrease in unemployment rates. However, after government shutdown the economy slightly declined, but the effect is not significant. For example, there was a decline in energy price index, which did not impact on the whole consumer price index resulting to no inflation, a GDP increase, and a decrease in unemployment rates.