South-Western College Publishing - Economics  
It's the Economy - Maybe!
Subject Economic Policy
Topic

Employment

Unemployment

Inflation

Key Words Economic Growth, Inflation, Unemployment
News Story

During the 1992 presidential campaign between George Bush and Bill Clinton, the economy surfaced as a leading issue. So far during the primaries in this presidential election year, the economy has barely been mentioned and when it has it is only to discuss the disposition of the forecasted surplus in government revenues. The lack of interest on the part of the presidential candidates is the result of eight years of economic expansion in which the unemployment rate has plummeted, the stock markets have risen to record levels, and consumer confidence levels have risen to all time highs. However, with months to go before the election, some wrinkles are developing which may cause the economy to emerge as an important issue.

The first potential problem is the price of oil. Oil has doubled in price within the past year and is up nearly 25 percent in the first two months of 2000. So far the higher price for gasoline has not caused price increases in products made from petroleum - like plastics, nor has it had the widespread inflationary effect that it had in the late 1970s.

Another concern is recent changes in the New York and NASDAQ stock markets. Most stocks are down considerably from their highs in 1998 and 1999. For example, 26 of the 30 stocks that make up the Dow index are down at least 20 percent. While indexes such as the Wilshire 5000 have been relatively flat since 1999, this is only because a small group of stocks-primarily technology shares-have risen to record levels. The fear is that a collapse of confidence in these technology shares will send the stock markets reeling and the loss of market wealth will bring the economy down with it.

The candidates have so far been taking the credit for the economy's success - Gore claiming Clinton-era policies as the reason for the economy's success and Bush crediting Reagan-era policies for today's economic performance. The economy has shrugged off other crises and everyone is hoping that these concerns will not develop into problems.

 

(Updated April 1, 2000)

Questions
1. How is inflation measured?
2. The Federal Reserve is concerned about inflation. What impact does inflation have on the economy?
3. The Federal Reserve is attempting to slow the economy with a series of interest rate hikes. How do increases in the interest rate slow the economy?
4. What policies or options would a president have to control inflation?
Source Glenn Kessler, "It's the Economy - Again?" The Washington Post, March 10, 2000.

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