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ECONOMIC REPORT OF THE PRESIDENT

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Table 1-1 Increase in

Table 1-1 Increase in Income Share Accounted for by Inequality Within Labor Income Top 10% Top 1% Top 0.1% Income Excluding Capital Gains 1970-2010 (Piketty-Saez) 83% 68% 53% 1980-2010 (Piketty-Saez) 71% 54% 59% 1990-2010 (Piketty-Saez) 64% 51% 53% Income Including Capital Gains 1970-2010 (Piketty-Saez) 80% 63% 47% 1980-2010 (Piketty-Saez) 67% 50% 52% 1990-2010 (Piketty-Saez) 61% 45% 44% Note: Values for any given year calculated as a centered three-year moving average. Source: CEA calculations based on Piketty-Saez (2015) and Congressional Budget Office (2013). The higher up the income scale, the less important inequality within labor income is in explaining the overall increase in inequality, and the commensurately more important the degree of inequality within capital income. There is a strong temporal pattern as well, with inequality within capital income becoming increasingly important over time. The relevant CBO data only go back to 1979 and do not show any finer measurements than the top 1 percent, but they tell a similar story both in terms of the overall magnitudes and in terms of within-capital inequality being more important higher up the income scale. Inequality within Labor Income The topic of inequality within labor income has been studied extensively. As a factual matter, those at the very top of the income distribution (top 0.1 percent) are about 40 percent managers in non-financial industries and about 20 percent financial professionals, with the remaining 40 percent spread across law, medicine, real estate, entrepreneurship, arts, media, sports, and other occupations (Bakija, Cole, and Heim 2010). A variety of explanations have been put forward for the overall rise in labor income inequality, including the increased return to skills, especially given technological change, the increased national and global reach of corporations, the slowdown in increases in educational attainment (weakening the skill base and earning power of the lower part of the income distribution), and changes in norms and corporate governance (such that a wider gap between CEO and worker pay is now acceptable). The rising importance of unproductive economic rents is likely also contributing to the broad increase in inequality. Workers and managers at firms earning supernormal Inclusive Growth in the United States | 27

eturn—likely reflecting increased aggregate rents—are paid progressively more than their counterparts at other firms. Moreover, as union membership declines, inequality can rise further as workers at the bottom of the income distribution lose market power. Inequality within Capital Income A second source of increased inequality is the distribution of capital income. As the distribution of wealth becomes increasingly unequal, the returns to that wealth—like interest, dividends, and capital gains—will generate more inequality. In addition, the fact that those at higher wealth levels seem to receive higher returns to capital, when coupled with reductions in tax rates on capital income in recent decades, has increased the contribution of capital income to overall inequality. Further, if some firms earn monopoly profits, owners of those firms may benefit more than others. These issues have been studied much less than labor income inequality, though they clearly merit much more attention given their increasing importance over time. Division of Income between Labor and Capital Wealth is much more unequally distributed than labor income. As a result, the extent to which aggregate income is divided between returns to labor and returns to wealth (capital income) matters for aggregate inequality. When the labor share of income falls, the offsetting increase in capital income (returns to wealth) is distributed especially unequally, increasing overall inequality. In Europe, the share of income going to labor has been falling since about 1970. In contrast, a marked decline in the labor share of income occurred only after 2000 in the United States, though there is some volatility in the data. The relative importance of this factor in the overall increase in inequality is harder to consistently quantify, although the importance of labor and capital income inequality in recent decades suggests that it plays only a supporting role. Wealth Inequality When unequally distributed income is saved, it results in unequally distributed wealth. Growing wealth inequality in the United States reflects many of the trends and many of the same causes as rising income inequality. Wealth inequality is particularly difficult to measure accurately because we do not track wealth in the way we do income and trends in wealth inequality are concentrated among a small number of households. One perspective on wealth inequality comes from the Federal Reserve’s Survey of Consumer Finances (SCF) which, as shown in Figure 1-3, shows that the top 3 percent 28 | Chapter 1

  • Page 1 and 2: ECONOMIC REPORT OF THE PRESIDENT To
  • Page 4: C O N T E N T S ECONOMIC REPORT OF
  • Page 8 and 9: economic report of the president To
  • Page 10 and 11: when a hardworking American loses h
  • Page 12: the annual report of the council of
  • Page 16 and 17: C O N T E N T S CHAPTER 1 INCLUSIVE
  • Page 18 and 19: CHAPTER 5 TECHNOLOGY AND INNOVATION
  • Page 20 and 21: APPENDIXES A. Report to the Preside
  • Page 22 and 23: 3.4. Percent Gap Between Actual and
  • Page 24 and 25: 6.6. Relationship between Output Gr
  • Page 26 and 27: C H A P T E R 1 INCLUSIVE GROWTH IN
  • Page 28 and 29: To promote inclusive growth, both c
  • Page 30 and 31: Percent 20 15 Figure 1-1 Share of I
  • Page 34 and 35: Figure 1-3 Distribution of Househol
  • Page 36 and 37: narrows the pool of human capital t
  • Page 38 and 39: over the past several decades has b
  • Page 40 and 41: Figure 1-6a The "Great Gatsby Curve
  • Page 42 and 43: Figure 1-7 Change in Employment by
  • Page 44 and 45: and sellers—consumer and producer
  • Page 46 and 47: Percent 15 10 Figure 1-9 Corporate
  • Page 48 and 49: Percent 30 Figure 1-11 Share of Wor
  • Page 50 and 51: Figure 1-12 Real Construction Costs
  • Page 52 and 53: promoting equality of opportunity;
  • Page 54 and 55: the division of rents, they can red
  • Page 56 and 57: C H A P T E R 2 THE YEAR IN REVIEW
  • Page 58 and 59: cold weather.1 The economy rebounde
  • Page 60 and 61: Box 2-1: Impact of Oil Price Declin
  • Page 62 and 63: Roughly speaking, the decline in th
  • Page 64 and 65: Percent of GDP 10 Figure 2-3 Federa
  • Page 66 and 67: Figure 2-5 Government Purchases as
  • Page 68 and 69: 13 percent of GDP. Until 1990, Stat
  • Page 70 and 71: of new purchases.2 The increase in
  • Page 72 and 73: Figure 2-8 Actual and Consensus For
  • Page 74 and 75: Figure 2-10 Rates of Part-Time Work
  • Page 76 and 77: less than a tenth of the overall de
  • Page 78 and 79: Business fixed investment grew 3.1
  • Page 80 and 81: Percent 10 Figure 2-14 Personal Sav
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    BEA revises the official statistics

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    Index* 100 Figure 2-16 Real Income

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    Box 2-5: Are Official Estimates of

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    of consumer surplus, which should,

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    Figure 2-19 National House Price In

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    Box 2-6: Constraints on Housing Sup

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    and also was estimated in recent re

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    market. Nevertheless, the construct

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    Figure 2-23 Net Investment as a Sha

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    Percent 80 Figure 2-25 Total Payout

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    Figure 2-28 Foreign Real GDP and U.

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    Figure 2-30 Sources of Productivity

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    Figure 2-32 Nominal Wage Growth Ove

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    Figure 2-35 Long-Term Inflation Exp

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    Percent 18 Figure 2-36 Nominal 10-Y

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    Table 2-1 Selected Interest Rates,

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    are close to those projected by the

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    International Economics (Petri and

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    History Forecast 1953:Q2 to 2015:Q3

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    inflation up to 2007 and then expec

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    Upside and Downside Forecast Risks.

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    earlier forecasts. Figure 3-1 shows

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    Real GDP/WAP Growth 2011-2014 Figur

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    economists would expect capital dee

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    Figure 3-i Actual and Forecasted Wo

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    affected the demographic trajectory

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    over the first three quarters of 20

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    Percentage Points 35 30 Figure 3-7

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    the President for a discussion of t

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    Box 3-2: Market Volatility in the S

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    potential for rapid spillovers betw

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    absorb unexpectedly high losses. In

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    Box 3-3: Commodity Prices and Infla

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    In November 2015, the IMF voted to

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    Billions of U.S. Dollars 250 200 15

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    U.S. exports are 12.5 percent of th

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    Box 3-4: The Importance of the Tran

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    The challenging environment for U.S

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    child’s environment. Despite the

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    and Rossin-Slater 2015).5 These adv

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    Figure 4-2 Official Poverty Rate fo

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    Figure 4-3 Likelihood of Scoring Ve

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    Percent 100 90 80 70 60 50 40 30 20

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    Figure 4-7 Achievement Gap is Large

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    Hours per Week 24 22 20 Figure 4-9

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    Percent 65 Figure 4-11 Preschool En

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    Box 4-1: Gender Differences in Earl

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    Card and Rothstein 2007; Dickerson

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    depend on how parents choose to inv

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    y many factors, which makes it diff

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    Box 4-3: Federal Early Childhood Pr

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    program served over 45 million Amer

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    Reauthorization Act of 2015, signed

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    document that desegregation of hosp

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    to alleviate hunger by supplementin

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    adulthood (Hoynes, Schanzenbach, an

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    of preschoolers support their child

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    program and up to 15 years after co

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    a longer period than is true of mos

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    to be higher today than in the past

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    Figure 4-18 Most Early Childhood Pr

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    the preschool programs in Georgia a

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    test scores by 6 to 9 percent of a

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    Figure 4-20 Increase in Probability

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    increased earnings by 31 percent (F

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    Figure 5-1 Labor Productivity Growt

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    Competition and Dynamism Play a Cri

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    adopts pre-existing technology or k

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    Figure 5-2 Quantity and Volume of V

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    Box 5-2: Occupational Licensing One

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    in consumer welfare as they erode t

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    Finally, some workers may acquire s

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    Box 5-3: Major Research Initiatives

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    Figure 5-5 Federal and Nonfederal R

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    Figure 5-7 Federal Research and Dev

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    Figure 5-10 Percent of Patent Appli

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    percent of all cases in 2009 to ove

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    (Bloom, Sadun, and Van Reenen 2012)

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    Figure 5-12 Estimated Annual Shipme

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    was relatively flat through the 200

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    In contrast, recent papers by Autor

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    services, such as 4G LTE. At the sa

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    Box 5-5: The On-Demand Economy “O

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    vision of services that may not hav

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    Figure 5-17 Household Income and Ho

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    about half since ConnectED was laun

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    C H A P T E R 6 THE ECONOMIC BENEFI

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    enefits to a wide set of consumers

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    Figure 6-1 Composition of Public Sp

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    Age, Years 29 27 Figure 6-3 Average

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    Type CAN FRA DEU ITA JPN GBR USA 20

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    Box 6-1: Clean Energy and Transport

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    Industry Government Investment Dire

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    infrastructure investment is crucia

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    Box 6-2: Elasticity of Output to Pu

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    and output ignore potential inter-t

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    Thus, ideas are exchanged, workers

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    kilometers of road) in 1983 resulte

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    Prospects for Increased Infrastruct

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    Figure 6-6 Relationship between Out

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    there is a clear demand for an infr

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    user fees or shadow tolls.11 Throug

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    to transportation facilities caused

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    Tax-Exempt Bonds Transportation inf

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    Recent Legislation In December 2015

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    enefit freight movements. The Act a

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    C H A P T E R 7 THE 70 TH ANNIVERSA

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    and composition of the labor force,

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    it, “[t]he CEA and its chairman h

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    jected reductions in the deficit. I

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    example, the Environmental Protecti

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    Keyserling and the Council particip

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    Countercyclical Policy in Other Adm

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    In designing the Recovery Act, one

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    incorporating risk and discounting

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    and Freddie had lots of friends in

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    (USEC). USEC was responsible for pr

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    can be reported to him as the perce

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    By contrast, Keyserling had activel

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    goals of the government in their ar

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    Gather, Analyze, and Interpret Info

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    the unemployment insurance system w

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    an informational basis for appropri

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    had experience working in governmen

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    emained. I joined forces with Budge

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    Of course, relying on short-term ac

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    Carson, Ann. 2015. “Prisoners in

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    Kleiner, Morris M. and Alan B. Krue

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    Congressional Budget Office (CBO).

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    Kocin, Paul J. and Louis Uccellini.

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    Fajgelbaum, Pablo and Amit Khandelw

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    World Bank. 2016. “Global Economi

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    Belfield, Clive R., Milagros Nores,

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    Campbell, Jennifer A., Rebekah J. W

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    Council of Economic Advisers. 2014.

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    Eissa, Nada and Jeffrey B. Liebman.

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    Hastings, Justine S. and Ebonya Was

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    Kalil, Ariel, Rebecca Ryan, and Mic

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    Maxfield, Michelle. 2013. “The Ef

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    Olds, David, John Eckenrode, Charle

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    Solon, Gary. 1992. “Intergenerati

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    Wherry, Laura R., Sarah Miller, Rob

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    Bloom, Nicholas, Mark Schankerman,

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    Graham, Stuart JH, Cheryl Grim, Tar

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    Melitz, Marc J. 2003. “The Impact

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    ______. 2015. “Patent Assertions:

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    Congressional Budget Office. 2009.

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    Peshkin, David G., Todd E. Hoerner,

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    ______. 2001. Designing U.S. Econom

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    Krueger, Alan B. 2000. “Honest Br

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    Weidenbaum, Murray L. 1983. “An E

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    letter of transmittal Council of Ec

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    Council Members and Their Dates of

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    The Members of the Council Sandra E

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    In May, the Council issued a report

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    Nirupama S. Rao . . . . . . . . . .

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    Jessica Schumer resigned from her p

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    C O N T E N T S GDP, INCOME, PRICES

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    General Notes Detail in these table

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    Table B-1. Percent changes in real

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    Table B-2. Gross domestic product,

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    Table B-4. Growth rates in real gro

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    Year or quarter Total Table B-6. Co

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    Table B-8. New private housing unit

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    Table B-10. Changes in consumer pri

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    Table B-11. Civilian labor force, 1

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    Year or month Table B-13. Unemploym

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    Table B-14. Employees on nonagricul

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    Year or quarter Table B-16. Product

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    Table B-18. Federal receipts, outla

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    Table B-20. Federal receipts, outla

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    Table B-22. State and local governm

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    End of month Table B-24. Estimated

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    Table B-25. Bond yields and interes

ECONOMIC REPORT OF THE PRESIDENT
Economic Report of the President 1994 - The American Presidency ...
ECONOMIC REPORT OF THE PRESIDENT