THE UNITED STATES: HOW OUR ECONOMIC SYSTEM AND GOVERNMENT

COMBINE TO ENHANCE AND STABILIZE OUR MARKETS AND INFLUENCE THE

WORLD AROUND US
Ulmer 1

The United States: How our Economic System and Government Combine to Enhance and

Stabilize our Markets and Influence the World around Us

Bailey Ulmer

University of Charleston
THE UNITED STATES: HOW OUR ECONOMIC SYSTEM AND GOVERNMENT
COMBINE TO ENHANCE AND STABILIZE OUR MARKETS AND INFLUENCE THE
WORLD AROUND US
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I. Introduction

Throughout the history of the United States, the economic system put in place by the

government affects everything from an individual saving and spending money to the Great

Recession of 2007-2009. Economics, according to McConnell, Brue, and Flynn, is the social

science concerned with how individuals, institution, and society make optimal choices under

conditions of scarcity, (McConnell, Brue, & Flynn, 2015). However, the American Economic

Association (AEA) sees the topic as much more. To the AEA, economics can also be seen as a

discipline that aids in making future predictions, understanding differed historical trends that

have occurred, as well as headlines in todays society (Association, 2017). Economics contains

subcategories known as microeconomics and macroeconomics. While microeconomics focuses

on the choices and decision of individual people, macroeconomics focuses on the business cycle,

central banking, the government, and industries (Association, 2017). Therefore, macroeconomics

influences the relationship that social institutions have on society and societal problems as well

as the historical evolution of social institutions and social institutions in global context.

II. Macroeconomics and the Relationship Between Social Institutions and a Society

The basis of social institutions, as well as society, in the United States depends greatly on

the many aspects of economics, or more specifically the many aspects that are associated with

macroeconomics. Gross domestic product (GDP), inflation, and unemployment are all aspects

that can be associated with macroeconomics. These three aspects help to maintain the health and

well-being of the economy of the U.S. as well as continue to aid the social institutions that are a

part of the country. However, in order to understand the effect that macroeconomics has on

society, one must first understand what is meant by the term society. When talking about society,

the three major parts that are associated with it are the consumers, the businesses, and the
THE UNITED STATES: HOW OUR ECONOMIC SYSTEM AND GOVERNMENT
COMBINE TO ENHANCE AND STABILIZE OUR MARKETS AND INFLUENCE THE
WORLD AROUND US
Ulmer 3
government. All three of these parts of a society not only aid in the health and well-being of the

economy, but they also are each impacted by this health and well-being. Consumers, businesses

and the government all play a role in increasing and decreasing the national GDP. For example,

when businesses produce goods and services, the GDP changes based on the value of the goods

and services produced. On the other hand, inflation is one aspect of macroeconomics that has a

greater influence on society than society had on it. Inflation is when the price of goods and

services increases as a whole ( (McConnell, Brue, & Flynn, 2015). Inflation determines not only

the amount of goods and services that consumers and businesses buy, but it also influenced how

businesses price their products and the profit or loss that they will make. An example of this can

be seen when the economy has a high rate of inflation. In a rate of high inflation, the amount of

goods and services is higher than normal, or than expected. When this happens, people are not

able to buy as much of a good or service as they may be expected to; meaning that they will not

have as much money left over for other spending. As a result, businesses may not sell as many

goods and services as they would if inflation was not at a high rate. In turn, these businesses

could make less money because they are selling less product. Businesses may also be affected by

a high inflation rate because it will cost more to make the product, reducing the profit that they

could make. Based on the situation presented, one can see just how much of an impact

macroeconomics has on a society.

III. Macroeconomics and the Relationship Between of Social Institutions to Societal

Problems

According to Odland, one societal problem that the United States faces is unemployment

(Odland, 2012). In relation to unemployment, a main aspect of macroeconomics is the

unemployment rate and the effect that it has on not only the economy, but also society as a
THE UNITED STATES: HOW OUR ECONOMIC SYSTEM AND GOVERNMENT
COMBINE TO ENHANCE AND STABILIZE OUR MARKETS AND INFLUENCE THE
WORLD AROUND US
Ulmer 4
whole. The unemployment rate is the number of unemployed divided by the labor force, or

people above the age of sixteen who are not a part of an institution, unemployed and looking for

a job, or employed, times one hundred (McConnell, Brue, & Flynn, 2015). This rate is constantly

changing and has been decreasing over the past year; however, full employment has not been

reached since before the Great Recession of 2007-2009 (Odland, 2012). There are three different

types of unemployment that feed into how people become unemployed: frictional, structural, and

cyclical. Frictional unemployment is known as unemployment brought on by person quitting or

getting laid off. This type of unemployment includes those who are in between jobs and who are

currently looking for a job (McConnell, Brue, & Flynn, 2015). Structural unemployment is

unemployment that is due to not having the necessary skills needed for a job or that are not

needed due to an increase in the use of technology. The last type of unemployment is cyclical

unemployment which is caused by spending insufficiently. When there is no cyclical

unemployment in a society, it is said to have full employment (McConnell, Brue, & Flynn,

2015). Therefore, in 2007, before the Great Recession, the United States had no cyclical

unemployment. However, the Great Recession caused the unemployment rate to skyrocket and

the U.S. has yet to reach full employment again since. According to Steve Odland, we need to

create about 200,000 jobs per month for nearly three straight years to get the employment level

up to the 2007 level, (Odland, 2012). With the unemployment rate still relatively high, the

economy of the United States is suffering from the GDP gap, or the difference between potential

GDP and real GDP. Potential GDP is the amount of profit that is not being obtained because

there are not enough jobs to accommodate all of the people who are unemployed and willing to

work (McConnell, Brue, & Flynn, 2015). Therefore, unemployment causes the United States to

lose money and has a negative effect on the economy.

THE UNITED STATES: HOW OUR ECONOMIC SYSTEM AND GOVERNMENT
COMBINE TO ENHANCE AND STABILIZE OUR MARKETS AND INFLUENCE THE
WORLD AROUND US
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IV. Macroeconomics and the Historical Evolution of Social Institutions

The growth of the U.S. economy first began in 1859 with the birth of the modern oil

industry (Timeline: United States History , n.d.). With this new founded industry came an

increase in the amount of money found in the economy and started the economic growth during

this time as well as aided in the development of transportation via the steam engine. The

economy grew dramatically in the 1920s due to the nation being a consumer society for the

first time in history. However, the growth of the economy came to a halt in 1929 when the Great

Depression hit. The Great Depression was sparked by the stock market crash of October 24, 1929

(Staff, 2009). Thirteen million shares were traded on that day, which is now known as Black

Thursday. Sixteen million more shares were then traded on October 29, 1929, or Black

Tuesday, causing millions of shared to become worthless (Staff, 2009). This stock market crash

impacted businesses by causing a decrease in production and as well as an increase in firing

workers. The power of money became less valuable and wages of the employed were in turn

decreased. The unemployment rate continued to rise and by 1931 six million Americans were

unemployed (Staff, 2009). In 1932, the unemployment rate continued to rise when hundreds of

Americans left the mid-west and travelled to the west coast due to the Dust Bowl. The increase

in population on the west coast caused the number of jobs available to decrease; therefore,

increasing the number of unemployed. By 1932, 15 million people were unemployed in the

United States. Although President Herbert Hoover did not believe that the government should be

involved in the economic issues, President Franklin D. Roosevelt had other plans (Staff, 2009).

During Roosevelts first 100 days in office, his administration passed legislation that aimed to

stabilize industrial and agricultural production, create jobs and stimulate recovery, (Staff, 2009).

In order to prevent another stock market crash as the one in 1929, the Securities and Exchange
THE UNITED STATES: HOW OUR ECONOMIC SYSTEM AND GOVERNMENT
COMBINE TO ENHANCE AND STABILIZE OUR MARKETS AND INFLUENCE THE
WORLD AROUND US
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Commission (SEC) was created (Staff, 2009). Roosevelt continued to put acts in place to further

aid the economy and the economy began to start growing. In addition to the government and

President Roosevelt, the military and World War II also took part in rebuilding the U.S. economy.

WWII not only brought new jobs for the unemployed in fighting for the U.S., but also new jobs

in industries such as weapon and ammunition production as well as other industrial jobs. By

1942, the unemployment rate was below what it was before the Great Depression (Staff, 2009).

Overall, this economic re-boost would not have been possible without the help of the social

institution such as the government and the military.

Although the economy continued to growth throughout the rest of the twentieth century,

there was a global stock market crash that caused the economic growth in the U.S. to once again

halt. This crash occurred on October 19, 1987, or Black Monday, when Dow Jones Industrial

Average stock fell 22.6 percent (Bernhardt & Eckblad, 2013). However, unlike before, this crash

did not result in a recession in the United States. The Federal Reserve dealt with the crash in a

calm manner which resulted in the economy and the stock market bouncing back from this event

in a relatively quick manner (Bernhardt & Eckblad, 2013). After this event, the economy

plateaued until the mid-1990s when there was a big economic boost. This economic boost was

caused by an increase in the production and manufacturing of new technology such as

computers, telecommunications components, and software (Harris, 2017). The prices of this new

technology was decrease and the amount of consumer purchases increased, causing the economy

to rise and invest in the products. The Presidency of Bill Clinton is another factor that caused

economic growth due to an implementation of high tax rates. The economy continued to go

through small recessions and boosts until the Great Recession of 2007-2009.
THE UNITED STATES: HOW OUR ECONOMIC SYSTEM AND GOVERNMENT
COMBINE TO ENHANCE AND STABILIZE OUR MARKETS AND INFLUENCE THE
WORLD AROUND US
Ulmer 7
In a time of economic boost in early 2007, the Great Recession of 2007-2009 was caused

by a housing crisis which triggered a collapse in business investments. The housing crisis was

brought on my mortgage defaults. These defaults were mainly on subprime mortgage loans

which offered high-mortgage loans to those who had a higher than average credit risk.

Controversially, these were they types of loans that the government was encouraging the banks

to lend in order to increase home ownership among Americans (McConnell, Brue, & Flynn,

2015). Mortgages then started to go bad, which in turn led to people not being able to pay back

the banks for their loans. This then led to banks limiting the amount of loans that they could give,

risking the economy due to the importance of loans to consumers and businesses (McConnell,

Brue, & Flynn, 2015). The government also took part in encouraging people to purchase homes.

However, it can also be argued that too loose of a monetary policy led to the housing boom in the

United States, and ultimately the Great Recession (Malinen, 2016). This recession led to the

highest employment contraction, 6.1% in two years, since the Great Depression (The Great

Recession , 2017). In response to this recession, the Troubled Asset Relief Program (TARP) in

2008 which allowed the U.S. Treasury to allocate $700 billion to make emergency loans to

critical financial institutions and other U.S. firms ( (McConnell, Brue, & Flynn, 2015). Many

other lender-of-last-resort loans provided by the Federal Reserve also aided in ending the Great

Recession. The Economy then began to grow; however, the unemployment rate has yet to reach

what it was before the recession.

V. Macroeconomics and Social Institutions in a Global Context

The economy of the United States is a great factor in the global economy. According to

Des and Saint-Guilhem, The U.S. economy is very often seen as the engine of the world
THE UNITED STATES: HOW OUR ECONOMIC SYSTEM AND GOVERNMENT
COMBINE TO ENHANCE AND STABILIZE OUR MARKETS AND INFLUENCE THE
WORLD AROUND US
Ulmer 8
economy, (Saint-Guilhem & Des, 2009, p. 6). This basically means that the world relies on the

economy of the United States. ..U.S. recession usually coincide with significant reductions in

global growth, (Saint-Guilhem & Des, 2009). However, in recent years, the world has become

less dependent on the economy of the United States with the economy of other countries rising

up. For example, the economy of China has grown due to the increase of export manufacturing

that is has experienced. Therefore, the United States influence on global economic growth has

begun to slow down (Saint-Guilhem & Des, 2009). However, when it comes to trade and global

economy, the United States has an enormous impact on the subject. The United States has a free-

market trading system with many other large countries around the world. This not only helps to

increase the amount of exports that the U.S. has, but by importing goods, the United States aids

other countries in their export levels. Overall, the United States is an important part of economic

growth in the global context.

VI. Conclusion

In conclusion, macroeconomics plays an important role in society as well as in social

institutions and the world. On the other hand, social institutions also play an important role in

economic growth and macroeconomics. For example, the government and military were a big

part of pulling the United States out of the Great Depression. Without the help of these two social

institutions, the U.S. economy may not have bounced back from the depression. In the economic

boom of the 1990s, the social institution of technology played a major role in the providing the

market for the growth. Overall, without social institutions, economic growth would not be

possible. On the other hand, however, social institutions can also be seen as causing economic

downfalls and chaos. This can be seen when the government encouraged buying homes and
THE UNITED STATES: HOW OUR ECONOMIC SYSTEM AND GOVERNMENT
COMBINE TO ENHANCE AND STABILIZE OUR MARKETS AND INFLUENCE THE
WORLD AROUND US
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taking out mortgages, which led to the Great Recession of 2007-2009. Overall, there is a strong

relationship between social institutions and macroeconomics.

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THE UNITED STATES: HOW OUR ECONOMIC SYSTEM AND GOVERNMENT
COMBINE TO ENHANCE AND STABILIZE OUR MARKETS AND INFLUENCE THE
WORLD AROUND US
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