How Does the U.S. Economy Work
By Kimberly Amadeo, About.com Guide
Everything the U.S. economy produces is measured by GDP, or Gross Domestic Product. When GDP turns negative, the economy enters a recession. When this goes on for years, its called a depression. Find out the components of GDP, what is health growth, and what causes a recession. Learn the difference between recession and depression.
- What Is GDP?
- What Are the Most Important Parts of the Economy?
- How Is the GDP Growth Rate Measured?
- Current GDP Statistics
- The U.S. Is No Longer the World's Largest Economy
- What Is a Recession?
- What Causes Recessions?
- History of Recessions in the U.S.
- The Great Depression of 1929
Supply and Demand
How supply and demand are the forces that drive the U.S. economy. Supply includes employment and natural resources such as oil. Demand, or personal consumption, drives 70% of the economy. A lot of this occurs during the holiday shopping season, which starts on Black Friday.
- Supply and How It Works
- What Makes the U.S. Economy So Powerful?
- Oil Prices Aren't Driven by Supply and Demand
- How Oil Prices Affect Gas Prices
- How Employment Is Defined
- Income Inequality
- 1/3 of Americans Are Poor or Near Poor
- How Unemployment Is Defined
- Demand and How It Works
- How Black Friday Predicts Holiday Demand
Inflation and Deflation
Inflation is what happens when demand is greater than supply, and prices go up. It is very difficult to stamp out, once people begin to expect ever higher prices. That's because they will buy now before prices go up, increasing demand even more. Deflation is the opposite, and occurs when prices fall. This also happens to assets, such as housing prices and stock portfolios.
- What Causes Inflation?
- Why Is Core Inflation Important?
- Definition of Asset Inflation
- How Does Inflation Impact My Life?
- How the Money Supply Affects Inflation
- What Is the CPI?
- Current Inflation Rates
- Could Stagflation Reoccur?
- What Is Deflation?
- Can You Have Inflation and Deflation at the Same Time?
Fiscal policy is the controversial $3.5 trillion Federal budget. All the revenue ultimately comes from taxes on your income, so it is important for you to know how it is spent. Fiscal policy can stimulate, guide or depress the economy, but only business can create economic growth. Learn about the budgeting process, including the role of the President, Congress, and the Budget Office (OMB). Find out about Federal tax policy. Understand the budget deficit, and how ongoing deficits led to the $13 trillion national debt.
- U.S. Federal Budget Primer
- How Is the Budget Created?
- Taxes and Income - $2.4 Trillion
- Government Spending - $3.5 Trillion
- Budget Deficit - $1.1 Trillion
- The U.S. Debt - $13 Trillion
- Obama Economic Stimulus Package
- Bush Tax Rebates
- Does Supply-Side Economics Work?
- Could the Fair Tax Replace the Income Tax?
Monetary policy is controlled by the Federal Reserve, which is guided by the Fed Chairman, Ben Bernanke. The Fed's three key economic controls are the Fed funds rate, the money supply and the use of credit. The primary objective of monetary policy is to control inflation. It's secondary objective is to stimulate the economy. It is also charged with the smooth functioning of the banking system. For this reason, the Federal Reserve Chairman is often called the most powerful man on the planet.
- The Federal Reserve System
- How the Fed Funds Rate Works
- What Is the Current Fed Funds Rate?
- The Fed and the 2008 Banking Meltdown
- Why Ben Bernanke Was Time's 2009 Man of the Year
- Other Federal Reserve Tools and How They Work
- Historical Fed Funds Rates
- How Interest Rates Affect the Economy
- Why the Fed Should Not Be Audited
- Should the U.S. Return to the Gold Standard?
Trade policy affects the cost of imports and exports by regulating trade agreements with other countries. Learn how exchange rates affect trade, the value of the dollar and why the dollar is losing value. Understand trade regulation, including farm subsidies and tariffs, affect inflation. Find out the facts about NAFTA and other trade agreements. Learn about the importance of the World Trade Organization, the Doha round of agreements, and trade disputes.
- The U.S. Trade Deficit
- Trade Deficit With China
- NAFTA Pros and Cons
- How Exchange Rates Work
- Why the Dollar Is Declining But Won't Collapse
- Why the Dollar Is the World's Global Currency
- Regional Trade Agreements
- Value of the U.S. Dollar
- World Trade Organization
- What Is the Doha Round of Trade Talks?
An implosion in the financial markets has thrown the economy into the worst recession since the Great Depression. How did this happen? It began with derivatives that were supposed to insure against defaults on sub-prime mortgages. When insurers like AIG defaulted themselves, panic gripped Wall Street, spreading throughout the world. To understand the global financial meltdown, you must learn the basics of the stock market: stocks, bonds, and mutual funds. Then you can comprehend the more exotic hedge funds, commodity trading and credit default swaps.
- An Introduction to the Financial Markets
- How Stock Investing Works
- Why Mutual Funds Are Safer than Stocks
- Understanding Bonds
- The Role of Treasury Bonds
- How Do Hedge Funds Work?
- How to Invest in Commodities
- How Did Derivatives Create the Credit Crisis?
- Understanding the AIG Bailout
- Why We Need More Regulations on Wall Street
Here are some easy-to-understand definitions of terms most commonly used in discussing the U.S. economy.
- Business Cycle
- Asset-backed Commercial Paper
- Capital Markets
- Contractionary Monetary Policy
- Credit Default Swaps
- Discount Window
- Diversified Investment
- Expansionary Monetary Policy
- LIBOR Rate