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ECONOMIC REPORT OF THE PRESIDENT

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Figure 1-12 Real

Figure 1-12 Real Construction Costs and House Prices, 1980–2013 Index, 1980=100 280 240 200 160 Real House Prices 2013 120 80 40 Real Construction Costs 0 1980 1985 1990 1995 2000 2005 2010 Source: Gyourko and Molloy (2015). generated by anti-competitive rents, then fostering greater competition has the potential to improve both equity and efficiency simultaneously. But even with respect to inequality that stems from competitive markets, the relationship between such inequality and output is unclear. While there are no doubt respects in which such inequality can help motivate additional innovation and growth, a range of new research has also emphasized that there are a number of ways through which inequality may in fact constrain economic growth. This literature starts from the observation that the traditional emphasis on the quantity of capital, even if true, is dwarfed by the importance of the quality of capital, technology, and entrepreneurship. In particular, this approach emphasizes a number of ways by which inequality could harm growth: (1) by reducing access to the education necessary for the full population to reach its full potential; (2) by reducing entrepreneurship and risk-taking; (3) by undermining the trust necessary for a decentralized market economy and by increasing monitoring costs; and (4) by leading to increased political instability, growth-reducing policies, and uncertainty (Ostry, Berg, and Tsangarides 2014). In keeping with this, much recent microeconomic evidence finds important exceptions to the “leaky bucket.” For example, as discussed in Chapter 4, a number of anti-poverty programs focused on children have Inclusive Growth in the United States | 45

een shown to increase incomes in later life, illustrating the importance of the educational channel between inequality and growth. It is impossible to have the same degree of confidence about causation at the macroeconomic level as at the microeconomic level. There are no comparable natural experiments and the causality between inequality and growth clearly runs in both directions. Nevertheless, the fact that several recent papers have found that inequality is harmful to growth suggests—at a minimum—that it is unlikely that there is a substantial tradeoff between equality and growth. For example, cross-country analysis from Jonathan Ostry, Andrew Berg and Charalambos Tsangarides at the International Monetary Fund (IMF) provides better evidence of the harm done by inequality and the lack of harm done by progressive policies. The IMF study finds that inequality decreases both the magnitude and sustainability of growth and that progressive redistributive policies alone are neutral for the magnitude and sustainability of growth (with a small caveat that very large amounts of redistribution—those policies that redistribute above the 75 th percentile of income—could have a small negative effect on growth). The Organisation for Economic Co-operation and Development (OECD) also found associations between higher inequality and reduced growth across OECD member countries (Cingano 2014). The OECD focused on inequality of opportunity, particularly disparities in education, as the chief transmission mechanism of inequality’s restraint on growth. Ultimately, the link between growth and inequality at an aggregate level is ambiguous, not admitting a single direction for all countries at all times and all types of inequality. Rather, the most important question is the one that policymakers face when they have the opportunity to address these trends on the margins: What are the policies that address inequality in a relatively efficient manner? Policies to Promote Inclusive Growth As economists’ understanding of the relationship between growth and inequality evolves, it is critical to choose economic policies that can unleash growth in an inclusive manner along with those policies that can reduce inequality in an efficient manner. Analysis of the various forms and sources of inequality in the United States can help to elucidate the mechanisms by which certain pro-growth policies can reduce inequality through either the competitive channel or the rents channel. Policies that promote inclusive growth can be grouped in four categories: those that strengthen aggregate demand in general; those that make the competitive channel work better by 46 | 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 32 and 33: Table 1-1 Increase in Income Share
  • 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 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
  • Page 82 and 83: BEA revises the official statistics
  • Page 84 and 85: Index* 100 Figure 2-16 Real Income
  • Page 86 and 87: Box 2-5: Are Official Estimates of
  • Page 88 and 89: of consumer surplus, which should,
  • Page 90 and 91: Figure 2-19 National House Price In
  • Page 92 and 93: Box 2-6: Constraints on Housing Sup
  • Page 94 and 95: and also was estimated in recent re
  • Page 96 and 97: market. Nevertheless, the construct
  • Page 98 and 99: 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