Macroeconomics
“How might a country go about lowering its NAIRU? What are the welfare implications of so doing?”
In tackling this question, we will adopt a theoretical approach in the sense that we will focus on an economy and explain the determinants of NAIRU as well as the policy options. But it seems logical to first introduce the concept of NAIRU, or the non-accelerating inflation rate of unemployment, which will be interchangeably used with the “equilibrium rate of unemployment”.
According to Carlin and Soskice , the central concept of equilibrium unemployment can be defined as “the rate of unemployment at which the expected real wage that results from wage-setting decisions is equal to the real wage implied by price-setting decisions”.
Stiglitz argues that the NAIRU is used as a theory to understand the causes of inflation (predicting the changes in inflation rates) and is important because it enlightens the relation between unemployment and increasing inflation. The NAIRU corresponds to the rate of unemployment which is consistent with an unchanging inflation rate, and further reflects how the economy behaves out of equilibrium. Unless employment is at equilibrium level, inflation will increase or decrease until it reaches the NAIRU, the level of output and employment at which inflation is constant. In fact, Stiglitz explains that when unemployment is below the NAIRU, real wages demands are greater than the amount firms are willing to pay. At equilibrium, the behavior of wage-setters is compatible with that of the price-setters. His point is indeed that “if NAIRU exists, it must be changing over time” . What is more, Stiglitz identifies four phenomena that can change the NAIRU, namely changing demographics of the labor force, the productivity growth becoming more in line with worker expectations, an increase in the competitiveness of the labor and product market (through greater openness and trade), and finally hysterisis, which says that a higher NAIRU will generate an even higher one. He also discards the theory according to which productivity rate affects the equilibrium rate: productivity only has a temporary influence through the “wage-aspiration” effect.
According to Altig and Gomme , the NAIRU is thought to represent a “speed limit” for economic activity: “it measures a nation’s sustainable production capability”. If the economy grows faster than its resources can support over the long-run, that is when the unemployment rate falls below the NAIRU, then price pressure builds and inflation rate accelerates.
This study investigates the short-term relationship between the UK stock market index (FTSE 100) and six macroeconomic variables during the period 2000-2013 using a multivariate vector autoregression and Granger causality tests. Variance decomposition and impulse response functions are used to measure the shocks of a variable from the other variables and the Granger causality test is used to investigate the lead-lag relationships among these variables. Introduction The purpose
INTRODUCTION: Macroeconomic stability means that’s all the macroeconomic variables such as (unemployment, inflation, economic growth GDP, investment, saving etc) are in that condition that they makes economy healthy and stable. KEY PRIORITY ISSUES: Unemployment Policies for macroeconomic stability Keep IMF program on track. Role of government as a development agent. Industrial restructuring. Control of inflation Policies for macroeconomic stability: If the situation of the economy will be
Introduction Macroeconomics is worried about the economy as a whole, such as output and growth that measures the total income of the economy in goods and services and inflation which the percentage increases yearly in the price of goods and services. Employment is also included which is all about the changes in the labour market. The objective of the UK’s government is to achieve stability of growth and employment. This is for the UK to build a strong economic future. The government aims to raise
Macroeconomics and microeconomics is a branch of social science that signify the two sub-domains of economics, and the role that it plays in the success of an organization. Buyers, sellers and business owners, also known as individual actors impact the supply and demand of goods and services. Additionally, the utilization of scarce resources, and the availability, and the distribution of those resources have ramifications. Moreover, microeconomics is the at the nucleus of these ramifications. Nevertheless
above statement that macroeconomic stability as well as building long-term growth have been critical in the success of these countries. What is macroeconomics stability Macroeconomics stability refers to sustainable economic growth, low and stable inflation, low and stable unemployment and a sustainable balance of payments (BOP) position. These are the four goals that are important for any country to maintain macroeconomic stability. These are measured by key macroeconomic indicators such as GDP
The trends in unemployment affect three important macroeconomics variables: 1) gross domestic product (GDP), 2) unemployment rate, and 3) the inflation rate. The basic definition of unemployment is without work. In macroeconomics, unemployment has a very precise definition and different types of unemployment. Unemployment is defined as the total number of adults (aged 16 years or older) who are willing and able to work and who are actively looking for work but have not found a job. (Miller 140).
Macroeconomic Equilibrium Introduction Macroeconomic equilibrium for an economy in the short run is established when aggregate demand intersects with short-run aggregate supply. At the price level Pe, the aggregate demand for goods and services is equal to the aggregate supply of output. The output and the general price level in the economy will tend to adjust towards this equilibrium position. If the price level is too high, there will be an excess supply of output. If the price
supply. Macroeconomics Macroeconomics is concerned with how the overall economy works. It is more difficult to understand as it describes relationships among aggregates. The field is divided into the study of national economic growth in the long run and the analysis of short run departures from equilibrium. Its aim is to stabilise the national economy to minimise fluctuations in growth and prices by formulating policies. It is true that the answers on many ‘big picture’ macroeconomic questions
benefits every citizen and reduces the overall burden to it. We consider the recent comprehensive review on spending. Many countries in the world have been suffering a recession in their economies and UK has not been an exception. A recession is a macroeconomic term describing one of the two business cycles that economies go through. The business cycles is characterized by either a boom where there are more business activities carried with a rapid economic growth and points of recession where there is
because the French government started to modernize the economy. They developed new methods of production and trade through a series of national plans. Although, they still have macroeconomic problems just like every other country. Macroeconomics are economic concepts and theories that apply to the economy as a whole. Macroeconomic problems are issues such as inflation, balance of payments disequilibrium, fluctuations in exchange rates, depreciation in currency, and the decision as to whether a country
Macroeconomic Forecasting Abstract Annual data was gathered on the United States' Gross Domestic Product and the economic indicators of unemployment, employment growth, inflation, and interest rates. Using 2004 as the base year, forecasts for the next two years were taken from three different forecasting organizations and compared to historical figures. Differences in projected data were addressed as well as relationships between forecasts and among the targeted indicators. The results
exchanged between consumer & the business. There are two main branches of economics. • Microeconomics • Macroeconomics Microeconomics Microeconomics is a branch of Economics which study how individuals or business firms allocate or manage scarce resources. Supply, demand, elasticity of price, quantity of demand & quantity of supply are some concepts of Microeconomics. Macroeconomics Macroeconomics flows on a wide area rather than microeconomics. It describes about the structure & the behavior of whole
of living is determined by a country’s ability to produce goods and services. Analyzing macroeconomics is important in understanding the economic system. An example of this would be in the way that we study patterns in numerous variables that control economies. The second lesson would be to understand the formulation of economic policies and the role they play in the economy. For example, macroeconomics analyzes correlations between factors that affect economies. Therefor economic policies
maintain and achieve macroeconomics objectives. At this time, there are “conflicts between government macroeconomic objectives”, which is this extended essay main theme. This essay will look at the government macroeconomic objectives, the conflicts between macroeconomics objectives, the best policy or mixture of policies to minimize the conflicts between macroeconomics objectives and recommendations, which are classified as main objectives and additional objectives. Macroeconomics is the study of the
INTRODUCTION The study of economics defines two broad parts of this science : Macroeconomics and Microeconomics. As a starting point explanation of differences and relationships between this two parts will be provided. Microeconomics could be explained as general conception of individuals and business decisions. On other hand there is conception of government decisions and international trading processes called Macroeconomics. This pair of concepts and their integration in each other became a great discussion