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Macroeconomic chapter of unemployment
Negative effects of inflation
Effects of macroeconomics
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According to the BBC, unemployment rates are at their lowest since the beginning of the recession in 2008.However how would such feat influence the economy in the long run and what other issues it may have caused, as far as the other three macroeconomic policies are concerned, is the real question. In order to answer such question with as much detail as it is required for one to understand how the economy is affected, it is required to elaborate on what each macroeconomic policy contains and how it is related to the other three macroeconomic policies. The four objectives of the macroeconomic policy are high and stable economic growth, low unemployment, low inflation and the avoidance of balance of payments deficits and excessive exchange rates …show more content…
In order to accomplish this, it is crucial for a stable growth to be maintained, which therefore does not encourage short-term economic growth that cannot be sustained. As far as unemployment is concerned, its reduction is another major macroeconomic objective, as the unemployment benefits are draining the government revenues, but also represents a waste of human resources. (Sloman, Wride, 2009: 388) Another issue that affects the macro economy is inflation. This term signifies the rise in prices throughout the economy. The inflation rate is the measure of the annualized percentage change in a general price index, over time.( Mankiw 2002: 22–32) A high inflation rate will influence negatively the process of economic decision making and will result in businesses being more hesitant when it comes to investment decisions and wage/price rates. Last but not least, is the balance of payments and the exchange rate and the primary goal of the government is to avoid
The Federal Reserve and Macroeconomic Factors Introduction The Federal Reserve controls the economy of the United States through a variety of tools. They use these tools to shape the monetary policy of the United States in order to promote economic growth and reduce the rate of inflation and the unemployment rate. By adjusting these tools, the Fed is able to control the amount of money in the supply. By controlling the amount of money, the Fed can affect the macro-economic indicators and steer the economy away from runaway inflation or a recession.
In conclusion, the current macroeconomic situation in the United States is characterized by moderate growth because of better economic conditions that were brought by the events of 2013. The country has experienced moderate economic growth since the 2008 global recession but has shown real signs of momentum. While the country is not concerned about recession or inflation, the rate of unemployment is still a major challenge despite improved consumer and business confidence. As a result, the Federal Open Market Committee or Federal Reserve System needs to adopt fiscal and monetary policy initiatives that help address the unemployment issue and promote high economic growth.
Economic indicators often affect and influence the value of a country's currency. The Trade Deficit, the Gross National Product (GNP), Industrial Production, the Unemployment Rate, and Business Inventories are examples of economic indicators. We will be dealing with four specific indicators: interest rate, inflation, unemployment, and employment growth, as well as Real Gross Domestic Product (GDP). Real GDP is so called because the effects of inflation and depreciation are accounted for in the figures. The state of the economy is important both on a micro and macroeconomic level.
The trends in unemployment affect three important macroeconomics variables: 1) gross domestic product (GDP), 2) unemployment rate, and 3) the inflation rate.
Every few years, countries experience an economic decline which is commonly referred to as a recession. In recent years the U.S. has been faced with overcoming the most devastating global economic hardships since the Great Depression. This period “a period of declining GDP, accompanied by lower real income and higher unemployment” has been referred to as the Great Recession (McConnell, 2012 p.G-30). This paper will cover the issues which led to the recession, discuss the strategies taken by the Government and Federal Reserve to alleviate the crisis, and look at the future outlook of the U.S. economy. By examining the nation’s economic struggles during this time period (2007-2009), it will conclude that the current macroeconomic situation deals with unemployment, which is a direct result of the recession.
A theme that dominates modern discussions of macro policy is the importance of expectations, and economists have devoted a great deal of thought to expectations and the economy. Change in expectations can shift the aggregate demand (AD) curve; expectations of inflation can cause inflation. For this reason expectations are central to all policy discussions, and what people believe policy will be significantly influences the effectiveness of the policy.
Unstable economy – Economy changes constantly. Changes in interest rates, inflation and unemployment rates affect the demand of the product;
Monetary and fiscal policy and their applications to the third world countries with a huge informal sector
Government policy environment – a desire to reduce unemployment and make the economy attractive to inward investment as a source of employment and long-term growth
Difficulties in Formulating Macroeconomic Policy Policy makers try to influence the behaviour of broad economic aggregates in order to improve the performance of the economy. The main macroeconomic objectives of policy are: a high and relatively stable level of employment; a stable general price level; a growing level of real income (economic growth); balance of payments equilibrium, and certain distributional aims. This essay will go through what these difficulties are and examine how these difficulties affect the policy maker when they attempt to formulate macroeconomic policy. It is difficult to provide a single decisive factor for policy evaluation as a change in political and/or economic circumstances may result in declared objectives being changed or reversed. Economists can give advice on the feasibility and desirability of policies designed to attain the ultimate targets, however, the ultimate responsibility lies with the policy maker.
=== A study of economics in terms of whole systems especially with reference to general levels of output and income and to the interrelations among sectors of the economy is called macroeconomics. Macroeconomics is concerned with the behavior of the economy as a whole—with booms and recessions, the economy’s total output of goods and services and the growth of output, the rates of inflation and unemployment, the balance of payments, and exchange rates. Macroeconomics deals with the increase in output and employment over long period of time—that is economic growth—and with the short-run fluctuations that constitutes the business cycle. Macroeconomics focuses on the economic behavior and policies that effect consumption and investment, trade balance, the determinants of changes in wages and prices, monetary and fiscal policies, the money stock, the federal budget, interest rates, and national debt. In brief, macroeconomics deals with the major economic issues and problems of the day.
As a result of this economic growth families will begin to feel more confident and will begin to spend more of their money instead of saving it because they believe that will receive a pay raise or will find a better job. (Amadeo, 2016) Borrowing also increases when economic activity is high people begin to borrow from banks and other places because they feel that the government has been doing a great job managing the economy. (Amadeo, 2016) As we have seen in 2008 people should never get to confident in the economy because our economic bubbles are used to crashing when they are doing very well and it’s never really the people’s fault it’s the governments. Although inflation begins to rise when the economy is doing great one of the things that is known to bring prices down is competition among businesses. Competition is great because one company will attempt to sell a product for a cheaper price than another company which results in lower prices the same as you see with cell phones and automobiles. Higher prices can also be caused by technological innovations when people are expecting a new product the producer can sell it for a higher price because they know that consumers will spend almost any amont of money to obtain that product. (Amadeo, 2016) Higher demand for new products will increase employment to meet those demands and inflation will rise which will benefit the economy tremendously. Whenever the price level increases, spending must also increase to be able to buy the same amount of goods and
It is difficult for government to achieve all the macroeconomics objectives at the same time. Conflicts between macroeconomics objectives means a policy irritating aggregate demand may reduce unemployment in the short term but launch a period of higher inflation and exacerbate the current account of the balance of payments which can also dividend into main objectives and additional objectives (N. T. Macdonald,
According to Collier & Dollar, (2001) economic growth is normally dependent on the nature and quality of economic policies that a country implements. In South Africa, soon after apartheid the government have tried to wrestle with the multiple objectives which are namely to reduce poverty, increase employment, increase international trade as well as increasing the rate of economic growth. According to Mohr et al, (2015) the macroeconomic objectives are used to assess the performance of the economy. The five macroeconomic objectives that will be discussed in this assignment are firstly the economic growth, full employment, price stability, balance of payments and equitable distribution of income. The assignment will then evaluate each of the objectives of macroeconomic growth and asses where South Africa as a country is performing on each of these respective points.
Inflation is one of the most important economic issues in the world. It can be defined as the price of goods and services rising over monthly or yearly. Inflation leads to a decline in the value of money, it means that we cannot buy something at a price that same as before. This situation will increase our cost of living.