Macroeconomics Explain the Difference Between

Macroeconomics

Explain the difference between a change in demand and a change in quantity demanded. What causes each of these to occur?

The law of demand states that if all elements are constant, the amount demanded will fall with a rise in price. Conversely, the amount demanded will rise with a fall in price. Hence, there are two factors to consider; First is price and the second is other factors that do not include price. When looking at the demand for a product or service, it depends on several factors like price, income, taste, consumers' preferences, and the price of other related products or services. It is also important to note that future expectations of the price rising or falling as well as target population must also be considered. With that being said, changes in demand to know two things: 1) change in quantity demanded or 2) change in demand.

A change in quantity demanded refers to the change in the amount of a product or service because of change in the price of their product or service. Therefore, prices a determining factor when assessing the shift in quantity demanded, so the amount demanded rises or falls according to an increase or decrease in price. In this case, other factors influencing demand are held constant. By the illustration below, the demand function or the demand curve never really changes. Notice how the change only occurs in the same demand curve. Interestingly, the demand curve contains the changes in a different combination of price and quantity. Therefore, the quantity demanded only shifts along the listing demand curve.

However, a change in demand denotes a change and other factors that do not include price, such as income, taste and preference, target population, future expectation, and other pricing for related products or services. As illustrated below, price remains the same, but a change in demand for their product or service has occurred. The increase or decrease is attributed to a change in a demand function itself, which does not involve price. In this instance, the entire demand schedule and curve will shift. An increase in the demand curve shifts upward and a decrease in the demand curve shifts downward, whereby different demand curves are created.

2) Assume the country is in a recession. What fiscal measures would you propose to help stabilize the economy? Explain how these policies are expected to work.

To determine the appropriate fiscal measures, one must understand the definition of a recession. Surprisingly, the recession is part of a normal economic cycle especially in business. This cycle denotes a decline in economic activity that usually lasts a few months. The slowdown is visible in various industries, such as employment, production, investments, and retail arenas. Recession indicators typically require at least two consecutive quarters of negative economic growth as measured by the gross domestic product (Investopedia 2012). With that being said, certain fiscal measures or policies are use to stimulate economic growth. Not only will it stimulate, but also the intent is to impart stabilization and sustainability. Some fiscal measures include tax cuts, increased government spending, and unemployment insurance, which is considered an automatic fiscal policy (Harris 2012).

With respect to the United States, fiscal policies are initiated by the President and Congress. Recently, the most common fiscal measure use is distributing unemployment benefits for certain period of time to eligible workers who have lost their jobs at no fault of their own. In order to provide unemployment benefits, employers must pay unemployment insurance in the event their employees become laid off or terminated for whatever reason. Unemployment payments are intended to provide temporary financial relief, whereby eligible recipients are able to sustain until their situation improves. It is important to note that each state has a separate unemployment insurance program that must be within guidelines established by the federal law.

Typically, a person is eligible if they have worked during a certain time frame known as a base, which is usually the first 4 of the last 5 completed calendar quarters prior to the time that he or she files a claim (U.S. Dept of Labor 2004). Essentially, a person must have worked at least a year before eligible for benefits. Once eligibility is determined, here she may file a claim with the state unemployment agency as soon as becoming unemployed. Filing may be done either by Internet or by phone depending on state requirements. A response typically is received to 3 weeks after claim has been filed. Once approved, the recipient receives the certain percentage dollar amount based on reported earnings over a recent 52-week period. Benefits are usually paid for maximum of 26 weeks in most states (U.S. Dept of Labor 2004). With the Obama administration, unemployment benefits may be extended for additional 20 weeks provided the individual meets certain criteria. Regardless of the amount received, all benefits are subject to federal income tax and therefore must be noted on ones federal income tax return.

An individual receiving benefits must be actively looking for employment. Many are required to register with state employment services in finding employment. If for some reason they are not required to register, they must find employment on their own and show diligent effort extended in finding employment, such as so many resumes being submitted, a set number of applications being file, and a certain amount of interviews. Therefore, the program is designed to help those to help themselves, not a freeloading time for opportunists. Has the program been successful? Sure, many people truly need the assistance to help sustain themselves or their families. If one cannot satisfy his or her basic physiological needs, such as food and shelter, here she will not be productive in seeking ways to improve his or her conditions. Such premise aligns with Maslow's hierarchy of needs.