Sam's Economics Blog

US economic growth revised down

The US economy grew at a pace of 2.2% in the last three months of 2006, down from a previous estimate of 3.5% and below analysts' forecasts. The contraction came as firms cut their inventories and consumers spent less. Separate data showed new home sales fell nearly 17% in January from December, the biggest drop since 1994. Talking about the budget to Congress, Federal Reserve head Ben Bernanke reiterated recent comments that the US had to tackle its deficit urgently.

Read the full story at: http://news.bbc.co.uk/2/hi/business/6404561.stm

Consumption expenditure (C) and investment (I) constitute two of the main components of aggregate demand (AE) in the economy. A fall in these two elements will consequently lead to slower economic growth in the country's GDP. In addition, as the US administration is currently running relatively large budget and trade deficits (partly as the result of the Iraq war, but also due to escalating welfare and social security costs), these twin deficits are expected to lead to rapid growth in debt and interest payments in the future, which will be harmful for economic growth.

The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. Chapters 4 and 9 (at principles and intermediate level, respectively) describe the various components of aggregate demand and illustrate the determination of national income. Chapter 8 also discusses the implications of fiscal policy for economic growth. Find out how to get LiveEcon at http://www.liveecon.com/. Download this blog as a Blogcast via the website.