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Policies for Increasing Economic Growth and Employment in the Short Term: Congressional Testimony
Policies for Increasing Economic Growth and Employ

Our Price: $15.00
By Douglas W. Elmendorf (au)
Year: 2010
Pages: 24
Binding Paperback

Product Code: 143792977X

Statement of Douglas W. Elmendorf, Dir., Congressional Budget Office (CBO), prepared for and provided to the Joint Economic Committee, U.S. Congress, for a hearing that was postponed. The U.S. has just suffered through the most severe recession since the 1930s. The economy’s output is currently about 6 percent below CBO’s estimate of potential gross domestic product (GDP) — the output the economy would produce if its resources were fully employed. At 9.7%, the unemployment rate is about twice what it was in Dec. 2007. Since that time, employers shed about 8.4 million jobs. Moreover, if employment had grown during that period at the same rate at which it grew from 1990 to 2007, millions of additional jobs would have been added to the economy. All told, the recession has lowered employment by about 11 million jobs relative to what it would otherwise be. The good news is that the economy appears to be starting to recover. Real (inflation-adjusted) GDP grew during the second half of 2009, after having fallen 3.7% since the recession began in the fourth quarter of 2007. Severe economic downturns often sow the seeds of robust recoveries. During a slump in economic activity, consumers defer purchases, especially for housing and durable goods, and businesses postpone capital spending and try to cut inventories. Once demand in the economy picks up, the disparity between the desired and actual stocks of capital assets and consumer durable goods widens quickly, and spending by consumers and businesses can accelerate rapidly. Although CBO expects that the current recovery will be spurred by that dynamic, in all likelihood the recovery will also be dampened by a number of factors, including the continuing fragility of some financial markets and institutions; declining support from fiscal and monetary policy; and limited increases in households’ spending because of slow income growth, lost wealth, and a large number of vacant houses. Therefore, CBO anticipates, as do most private forecasters, that the pace of the economic recovery will be slow. CBO projects that, under current law, real GDP will increase by 2.1% between the fourth quarter of 2009 and the fourth quarter of 2010 and by 2.4 percent in 2011. Growth of real GDP will accelerate after 2011, spurred by stronger business investment and residential construction. For 2012 through 2014, CBO projects that real GDP will increase by an average of 4.4 percent per year, which would close the gap between actual output and potential output completely by the end of 2014. Figures.

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