Government borrowing is too high and interest rates are too low in many countries; fiscal stimulus does not work and cheap money leads only to inflation. Explain and discuss the various caveats of this macroeconomic problem and what policy measures will you suggest and Why if you are hired as a Junior Policy Advisor in an Advisory Board of Economists in one such country including Canada? Use economic theory, policy, and data to illustrate and validate your answer.
Government borrowing is the money or debt under the jurisdiction of the country. Government borrowing represents the money belonging to the public owed by the central bank of the country's economy. The main source of government funds is tax from the citizens of the country. This makes government debt or borrowing to be an indirect debt of the citizens. In some economic terms, government borrowing refers to public or national debt.…… [Read More]
This is problematic, because it allows government waste and inefficiency to increase, which this makes it more difficult to: fire or layoff non-essential employees. As a result, there has been a concentrated effort to eliminate this power, in order to improve the state's ability to adapt to shifts in the economy. (Weitzman)
However, many of the public employee unions and liberal Democrats have been fighting this law. The reason why, is because they believe that under the basic Constitutional principles: the Governor and the Legislature simply cannot pass a law to strip employees of this power. This has led to a campaign of resistance among Democrats opposed to the law, who were refusing to vote on it. (Weitzman)
After this political strategy failed and the law was passed, is when the focus was changed to challenging its legality in court. As the public employee unions would claim that they are…… [Read More]
The AD-AS model explains how full employment can be reached from a situation of deep recession, assuming no fiscal policy stimulus. The underlying assumption of this theory is that when the economy improves, that this will have an impact on employment. The model therefore assumes a pre-globalization world where increases in aggregate supply on the part of companies in the U.S. will actually be made by U.S. workers. The thesis statement for this paper is that technological innovation is the most likely means by which the economy can return to full employment under the circumstances described.
In this situation, without fiscal stimulus, the economy is not going to see any increase in aggregate demand because of persistent high unemployment and likely fears about the state of the economy. Businesses are likely to begin this recession with excess capacity, keeping them from making investments as well. However, the economy will…… [Read More]
The Classical Model (1776-1935)
The classical model largely follows the conclusions reached in Microeconomics. The fundamental equilibrium is in the supply and demand for labor. The Demand for Labor and Labor Supply, Income Taxes, and Transfer Payments are the major microeconomic references in the Classic Economic Models (Hicks and Keynes, 1937).
Keynesian Models (1936-1969)
The simple keynesian model, a greatly oversimplified view of the economy, constructs an equilibrium without referring to the labor market. This shows that the economy can be in an equilibrium that is far from full employment (Gordon, 1990).
The keynesian IS/LM model shifts from the Classical Model's focus on the wage rate to a focus on long-term and short-term interest rates. These interest rates are taken to be equal. Income and the interest rate are the variables that adjust to achieve equilibrium. The model is presented in two versions, one with fixed prices and…… [Read More]
Why is economics considered as a social science? What role does economics play in your personal and professional lives?
Economics is considered as a social science because it deals with human behavior as to how individuals try to satisfy unlimited wants with the limited or scarce resources. (Sowell, 2010)
Economics has a very important role in our lives, we may not realize it but any decision we take, anything we do, economics is involved. Looking at it at a personal level, deciding whether to study or sleep highlights the concept of opportunity cost. In our professional lives, the economy guides us as to how the company is supposed to run and the strategies and decisions that are to be made.
What is the difference between real and nominal GDP? Does GDP accurately reflect the nation's welfare? Why or why not? How can a country's GDP be manipulated? In your…… [Read More]
In this case, there are a number of monetary policy prescriptions that apply, all of them expansionary. In terms of open market operations, the Fed should buy Treasuries. This will pump money into the banking system, providing greater means for investment. This will provide the groundwork for economic growth, in particular it will signal that the Federal Reserve is committed to restoring economic growth and halting the growth in unemployment. This policy should improve national income. As investors are not investing, however, this strategy is unlikely to succeed on its own. The Federal Reserve should lower interest rates as well. Investors may be convinced to invest is the risks associated with investment are reduced, and this means reducing the cost of money. This strategy will not inject more money into the banking system, but will encourage investors and consumers to spend more money, increasing liquidity in the system. The…… [Read More]
Investopedia provides a list of major macroeconomic indicators, of which several are relevant to FedEx. FedEx is considered to be a bellwether organization in that its client base spans a broad swath of business. Thus, the GDP is the most important macroeconomic indicator. The amount of business being conducted in the economy will reflect in how many customers use FedEx's service. In addition, because FedEx is a premium service, businesses often reduce the degree to which they rely on FedEx in situations where they are facing cost reductions. By 2010, FedEx had restored operations to roughly pre-recession levels (Risher, 2010) and the company predicts slow economic growth going forward (Malone, 2011).
A second indicator that can provide insight into FedEx's operations is the Consumer Confidence Index. This report from the Conference Board (Barnes, 2012) has three headline figures relating to how people see the health of the U.S. economy.…… [Read More]
The Federal eserve System has been the central bank of the United States since 1913 and since its formation; the bank provides flexible, safer, stable financial and monetary system. Presently, the major duties of the Federal eserve is to influence the monetary and credit conditions in the economy to pursue stable price, maximum employment, and moderate long-term interest rates. Open market operations, the reserve requirements and the discount rate are the monetary tools that the Federal eserve uses to implement monetary policy. Federal eserve uses these three tools to influence the supply and demand of balances in depository institutions and thereby alter the interest rates. However, changes in the federal funds rate could trigger a chain of events and affect economic variables such as:
short-term interest rates
Foreign exchange rates
Long-term interest rates
Amount of credit and money in the system,
Inflation (Increase in prices of goods…… [Read More]
Macroeconomics -- Review of Age-Old Economic Concepts through the Eyes of Current Events in the Newspapers of Today
It has been a unique privilege to embark upon the study of economics during this period in our nation's economic history. One might be tempted to say this is a strange statement, at first. Would it not be better to begin to study economics during a boom period, such as the nation enjoyed during the 1990's? But one must disagree. The most interesting things about today's economy are the many contradictory aspects of its current, halting and painful economic recovery from a recent recession.
The Federal Reserve System and Recent Fiscal Policy
When the economy first began to sour, one of the first things the Federal Reserve chairman, Allan Greenspan, did was to lower interest rates. Lowering interest rates means that it is not in the consumer's interest to save money, because…… [Read More]
In regard to education, it can also be noted that the same also has a significant impact on productivity. Where education helps individuals to be more specialized in firms, productivity is more likely to increase. This is in line with Taylor's (2006) assertion that "specialization of workers at a firm adds to productivity." Further, the author is of the opinion that to enhance the productivity of workers, many companies choose to provide their employees with on-the-job training. In a way, the skills such workers develop while undergoing training or furthering their education is what ends up impacting positively on their productivity. Hence for a nation with a highly educated workforce, productivity levels are bound to increase.
When it comes to &D, it can be noted that an increase in research and development spending tends to increase or enhance productivity. This phenomenon can be looked at from several points-of-view. For instance,…… [Read More]
For instance, it is possible to determine the increase or decrease in the general price levels by looking at the national income figures. National economies can use national income figures to determine how much income individuals are spending on consumption goods and hence their levels of saving. With such information, national governments can come up with ways of keeping inflation and deflation in check based on investment, saving and consumption figures.
Third, national economies can determine the economic positions of their countries through a comparison of their GDPs with those of other nations. If a nation's GDP is significantly lower in comparison to that of other nations, it becomes clear to policy makers that the standards of living of individuals in such an economy could be low. Further, GDP figures in this case can be used to determine the purchasing power of individuals. If the GDP results in this case…… [Read More]
" Some types of government expenditures, for example, stretch the definition of economic activity. e know that an order for new office chairs at city hall is economic activity, but what about transfers to government agencies to run prisons? Or loans made by government to bail out banks or automakers. Those were expenditures. Something like the AIG bailout was an investment. But even investments are not necessary part of the GDP. Commissions paid on investments are, but are the investments themselves? Sorting out what is and what is not included in the GDP is another challenge for calculating national income.
Also, EconPort (2006) note that welfare is not measured. Again, this is a disbursement that is not taken into consideration in the accounting, until it is spent at a later point in time. It is worth noting that this particular disbursement is a transfer of wealth not unlike spending, and…… [Read More]
An adverse supply shock would be the opposite. The above Toyota example is a temporary supply shock, one from which the company has probably recovered at this point. But an adverse supply shock is more permanent in nature. Aggregate supply decreases permanently, and this increased scarcity is reflected in higher prices. For the shock to be permanent, there must be barriers to firms increasing production. If the firms in the industry were able to increase production in order to meet the new high price the good would simply return to a state of equilibrium. Instead, something must constrain the ability of firms in the industry to respond in that way. If a key input becomes scarce, that would be an example of an adverse supply shock. Often, this involves the depletion of a key natural resource.
Over time the market may adjust to the adverse supply shock in any number…… [Read More]
Burgen, Meyer and Tasci (2012) argue, however, that Okun's Law has not been broken, and that the pace of growth in the GDP is consistent with the decline in the unemployment rate. The nature of the ratio in Okun's Law is at issue in these different views about what the recent economic numbers mean for Okun's Law. The authors note that the most recent quarters' worth of performance fall on the trendline created by comparing the two figures.
Even if Okun's Law is broken, there are potential reasons for this. For example, a decline in the GDP growth rate could coincide with more people removing themselves from the workforce. The unemployment rate would not be improved by people finding work, but rather by people giving up. Another potential explanation, given that the unemployment improvements in the past couple of months have not been strong, is that GDP growth is falling…… [Read More]
It can also be negative which is known as deficit. The most vital point to consider is that going by the definition the aggregate of every sector's financial surplus/deficit must be equal to zero. This is due to the fact that borrowings by deficit sectors must be matched by an equal lending by sectors which are surplus. (National Income Accounting -the Overall Systems of Accounts)
GDP is the market value of all the final goods and services which is produced in the nation during a particular year. It does not include production overseas by U.S. companies but includes the production facilities in U.S. By overseas companies operating in U.S. like for example Toyota Motors. On the other hand GNP is the market values of all goods and services produced by domestically owned factors some of which might be situated overseas. It is estimated from GDP by adding on net property…… [Read More]
Just like many macroeconomic indicators directly affect a firm's potential profitability, similarly for Hayes which is an automotive wheel firm, these indicators produce a similar effect. Most common of these indicators are the Gross Domestic Product, Inflation and Unemployment. With the effect of these conditions, organizations of any type need to work and plan accordingly to keep up their sales and profits. They are competing with various organizations of the same type from around the world and it's important for them to analyze different factors so as to ensure their existence.
Gross Domestic Product (GDP) is the total value of services or completed goods that are produced within a country. The most common way to calculate GDP is to add the consumption, investment and exports and from it subtract the imports. That would give the GDP of any nation. Higher consumption levels would increase the GDP thus…… [Read More]
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 weeks after claim has been…… [Read More]
The current state of the U.S. macroeconomy is one of delicate recovery from a major economic shock several years ago. The economy is growing, albeit slowly, and there remain a number of linger issues that should be addressed. This paper will outline the state of the U.S. economy and develop some policy prescriptions for addressing any issues that may exist.
The gross domestic product grew at an annual rate of 0.4% in the fourth quarter of 2012, which was down significantly from the 3.1% annualized growth that was recorded in the third quarter. The Bureau of Economic Analysis reports that gains in the fourth quarter came from increases in personal consumption spending, nonresidential fixed investment and residential fixed investment. These gains were partly offset by negative contribution from private inventory investment, federal government spending, exports and local government spending (BEA, 2013). Real GDP increased by 2.2% in 2012 for…… [Read More]
If anything, the United Sates economic situation is confusing. There are many sources of information all claiming a certain exclusive insight to what lies behind the workings of the economy. Local, state and federal fiscal policies are varying in effectiveness while often contradicting their own goals and methods. The purpose of this essay is to examine the U.S. economy in terms of its current status and make recommendations towards appropriate actions to those who can influence such policies.
In a recent editorial published by the Financial Times dated December 7, 2012, the writing pointed out many interesting ideas in its generalization about the state of the nation's economic health. Although the trend to negatively approach this topic is very popular, this arguments sated through our failures something positive has arisen in mess that has been created. American optimism in the midst of failure is starting to influence recent trends,…… [Read More]
The marginal propensity to consume refers to "the proportion of an aggregate raise in pay that is spent on the consumption of goods and services" (Investopedia, 2011). That is, if there is more money in the economy, it must either be spent or saved. The MPC is the amount that is going to be saved. The marginal propensity to save is the reverse of this -- it refers to how much of the new aggregate raise in pay will be saved instead of spent. The two have a complementary relationship, with all of an aggregate increase in pay going towards one or the other.
As per the accounting identity of GDP = C + I + G + X -- M, an increase in aggregate pay is going to affect the GDP. The degree to which an increase in aggregate pay affects the GDP is going to relate to…… [Read More]
The legal power of the government to intervene in the economy is limited only by the Constitution, the willingness of Congress to pass laws, and the willingness of the executive branch to enforce them.
National defense, the criminal justice system, the public schools, the interstate highway system, air traffic control, and the national parks are all examples of goods or service that are directly provided by governments in the United States. Public provision is the remedy for market failure to provide collective consumption goods, but it is also often used in the interest of redistribution and other social goals.
Redistribution and Social Insurance Programs
Taxes and spending often are used to provide a distribution of income that is different from that generated by the private market. The redistribution is accomplished through the dispersal of collected tax and other moneys from economic or social group to another. These…… [Read More]
Country a has a debt of $10 trillion. Country B. has a debt of $5 trillion.
Country A is in a better position than Country B.
Country B. is in a better position than Country A.
One cannot say what relative position the countries are in.
Countries A and B. are in equal positions.
A budget deficit is:
desirable if it helps to stabilize output at potential output.
desirable if it helps to increase current consumption.
The Social Security trust fund:
creates a lockbox that will prevent the Social Security system from failing in the future.
coverts an unfunded pension system into a fully funded pension system.
may help to reduce the problems facing the Social Security system but is not likely to eliminate them entirely.
d. creates the illusion of a lockbox but in fact does nothing to alleviate the crisis facing the Social…… [Read More]
First, all efforts should be made toward reducing our reliance on fossil fuels instead of encouraging continued reliance on automobiles in the future. Therefore, the available funds should be used to develop alternate transportation methods such as modernized rail systems and even traditional public transportation systems that damage the environment and consume gasoline less than private automobiles on a per-passenger basis.
Second, we should be striving to reduce the trend of working in urban areas and living in suburban areas that developed throughout the 20th century in the United States. That is one of the reasons we became so dependent on automobiles as a nation in the first place. Therefore, the money should be spent on developing better, cleaner, and more efficient public transportation systems and on maintaining existing infrastructure such as bridges and tunnels that are in tremendous states of disrepair across the nation. Conversely, developing new highways is…… [Read More]
According to this theory, the spending of the government has a positive macroeconomic effect on employment and national income due to its multiplier effect. As per this theory, given the resources, the employment and output level of an economy is measured by the aggregate demand. Lack of aggregate demand causes unemployment and demand deficiency causes economic fluctuations. This demand deficiency can be eliminated by way of compensatory government spending. The Keynesian theories, however, could not provide solutions to the economic problems of developed nations. These problems included low growth, and high unemployment levels accompanied by high rates of inflation or stagflation. (Froyen, 2008)
Consequently, new schools of macroeconomic thought emerged which included monetarism, new classical monetarism, supply-side economics and new Keynesianism. According to the monetarists, the supply of money is the key factor that influences employment and output in the short run and level of prices in the long-term. According…… [Read More]
Abbott Labs and Macroeconomics
It is a fact that the recent economic downturn affected every individual and company in some way, but companies that had solid business plans prior to the start of the crisis were better able to weather the financial storm. For example, a company that had a diverse range of business that included both products that depended the level of a consumer's disposable income and another group of products that are indispensable would probably be able to meet its financial goals despite global economic issues. Such a company is Abbott Laboratories. Because the primary business of Abbott is producing medical devices, pharmaceuticals and tests that are widely considered standards in the medical community (Abbott Laboratories, 2012), the company has been able to maintain its profitability throughout the economic crisis. However, macroeconomic indicators do have an effect on the continued economic viability of the company and they…… [Read More]
With a decreasing demand, the economy could no longer produce to the same levels, pressured by price deflation as well, so the spiral continued to tail the economy downwards.
The New Deal measures produced the exact reverse effects. In this sense, stimulating the economy with new governmental programs and increased governmental spending meant that new jobs were created and that the economy gradually resumed its growth.
1. Causes of the Great Depression. 2001-2006. On the Internet at http://www.learninghaven.com/articles/causes_of_the_great_depression.html.Last retrieved on October 13, 2006
2. en S. ernanke. August 1994. The Macroeconomics of the Great Depression: a Comparative Approach. Working Paper No. 4814. National ureau of Economic Research. Page 23.
3. Rothbard, Murray N. 1969. Economic Depressions: Their Cause and Cure. The Austrian Theory of the Trade Cycle compiled by Richard M. Ebeling. On the Internet at http://www.mises.org/tradcycl/econdepr.asp.Last retrieved on October 13, 2006
4. Keynesian Model. 2000-2006. On the Internet…… [Read More]
With operations in more than 200 countries and having a significant share of the market locally, the Coca-Cola Company today remains one of the most reputable beverage and soft drink makers in the world. Mainly, the company offers for sale a wide range of still and sparkling beverages with its most popular products being Coca-Cola, Sprite, Fanta and Diet Coke. Currently, the company has a global workforce of about 139, 600.
The Coca-Cola Company: Application of Economic Ideas
In my own opinion, the company would make an interesting case for economic analysis based on a number of things. To begin with, the performance of the company is largely dependent on a number of macroeconomic factors including fiscal as well as monetary policy. For instance, such policies could have profound effects on inflation and based on the nature of the products the company offers for sale i.e. consumer goods, the…… [Read More]
Macroeconomics Question Set
a.) The increase in expenditures necessarily causes government spending levels to rise, and this means that the aggregate demand curve moves to the right. When the presence of a multiplier effect or an investment accelerator is accounted for, aggregate demand shifts are more pronounced. Conversely, when crowding-out occurs, aggregate demand moves less.
) In this scenario, the multiplier is 1/(1 -- MPC) = 1/(1 -- .8) = 1/.2 = 5. When government expenditures are increased by $150 billion results in a shift of $750 billion in aggregate demand, because ($150 billion x 5) = $750 billion. By increasing taxes by $150 billion income levels decrease the same amount, and this initially decreases consumption by $120 billion, because ($150 billion x MPC) = ($150 billion x .8) = $120 billion. The subsequent change in consumption creates a multiplier effect of $600 billion, because ($120 billion x 5) =…… [Read More]
The concentration ratio refers to the size of the firms in an industry relative to its size (Investopedia, 2011). The concentration ratio is expressed as a market share. So in this situation, the choice is between two industries -- one has twenty firms with a 30% concentration ratio and the other has twenty firms with an 80% concentration ratio. This means that in the first industry, the top twenty firms have a combined 30% market share while in the second industry the top twenty firms have a combined 80% market share.
Industry A is the one with the 30% concentration ratio. This industry is unconcentrated. In this type of industry, monopolistic competition applies. Firms in the industry compete on the basis of individual strengths, and not all competitors will operate on price competition. If increased demand for the product pushed up the price of goods, in the long run…… [Read More]
My energy use varied depending on the day. In general, heating oil is used, so this will increase on days that are cooler or wetter. Electrical reflects appliance usage for the most part. There is a baseline of electrical usage for things like lights, coffee maker and other daily essentials. Electricity usage spikes on laundry day in particular. There is a small solar component to the heating, providing heat for a couple of rooms. Auto gas reflects car usage, which fluctuates. There is a commuting baseline for five out of seven days, and so non-commuting days can see lower gasoline usage.
The local energy company uses primarily coal as its power source, but also makes use of a small percentage of nuclear power as well. The utility posts this information on its website. The different power sources are all outlined, so consumers can effectively understand the source of the…… [Read More]
One set of macroeconomic projections comes from the Congressional Budget Office (CBO). The CBO forecasts two years out specifically and uses projected annual averages for the subsequent four and five-year periods. The CBO is projecting real GDP growth of 3.1% in 2011, 2.8% in 2012, an average of 3.4% in 2013-16 and an average of 2.4% from 2017-21. The CBO's projection for the ten-year Treasury note is 3.4% in 2011, 3.8% in 2012, 4.7% in 2013-16 and 5.4% in 2017-21.
Another set of macroeconomic projections comes from the bi-annual Livingston survey, which is conducted by the Federal Reserve Bank of Philadelphia with contributions from a number of economists. According to the December 2010 Livingston Survey, the projected GDP growth for the six months between 2010 Q4 and 2011 Q2 is 2.5% and for the six months between 2011 Q2 and 2011 Q4 is 2.9%. There are also projections for…… [Read More]
Since their introduction in the early 2000s, the tax cuts have diminished the nation's tax bill by hundreds of billions every year. Over the next ten years, they are expected to add $3.6 trillion to the debt. Without these cuts, our medium-term budget (say, over the next decade) would be sustainable. As long as new revenues are off-limits, attacking the deficit is equivalent to attacking the functions of government. That gives the anti-deficit argument strong ideological support from small-government advocates. But there are others who are not motivated by anti-government ideology but are misguided nevertheless. The ecovery Act, with a price tag of about $800 billion, was a historically large stimulus, and it was wholly paid for by borrowing. But by 2012 it will add less than 0.5% to the deficit-to-GDP ratio, and nothing to the growth in the debt (it does add to the level of debt, of course;…… [Read More]
Bernstein also makes the point that government debt is not the same as household or business debt, and that is a valid point to make. There are a few differences of note. The first is borrowing -- government has much better ability to borrow than either business or households, the United States in particular. The size and diversity of the economy is one factor, the difficulty of putting a government into default is another, but also the U.S. has control over the value of its currency. It can devalue its way out of debt if need be, like Iceland did. Households and businesses do not have this luxury -- they are usually on very short leashes with their creditors, with grace periods measured in weeks and months, rather than decades.
Ultimately, the only logical choice in the face of a recession is to increase government spending in order to offset…… [Read More]
In addition to core studies, optional programs are available throughout Alberta, including art, drama, music, career and technology studies, Aboriginal studies, and 16 different languages. Provincial tests tell authorities how well students have progressed in relation to achievement targets. Overall, the tests tell Albertans how well students are learning the Alberta curriculum and which areas of the curriculum need improvement. Provincial tests are designed as one indicator of how well Alberta students are meeting provincial, grade-level standards. They complement the teacher's assessments.
This country has some definite problems with our educational system. One aspect of the Alberta system is measurement and accountability. Students should be required to meet objective standards in order to progress from one grade to another. Teachers should be required to pass standardized test in order to receive a teaching certificate. Continuing education should be mandatory. y holding people accountable for results, the results will improve.
ibliography…… [Read More]
Macroeconomics -- Inflation
Domestic and national news are constantly talking about the rapid changes and increases in prices of basic commodities today. Prime commodities for a specific economy or country are discussed with the same intensity as changes in the global market prices for important, universal necessities such as oil. Prices of basic commodities are not the only ones susceptible to increasing in value. Services, too, particularly wages, are subjected to increases ultimately driven by union power or collective bargaining agreements between manufacturing companies and corporations and its workforce. Changes in the supply of raw materials used to produce products and commodities and services required to mass produce these products or to provide services on a large scale are the drivers that serve as catalysts to price increases. This increase in prices and costs of products and services over time, respectively, is called inflation (Maunder et al., 2000, p. 147).…… [Read More]
Guyana -- Inflation ate
Inflation rate is an important concern to assess the economic condition of any country. This report focuses on the inflation rate of the South American country, Guyana.
The economy of Guyana mainly depends upon the production of rice, sugar, shrimp, fresh fruits, vegetables and fish. The important industries of Guyana include mining of diamond, gold and bauxite, manufacturing of pharmaceuticals, footwear, clothing, beverage and foodstuff processing.
In Guyana, inflation rate is measured through consumer price index. It is normally used by the Government, international organizations and public members and trade unions to assess the ratio of increase in prices or inflation. Data is collected monthly however it is published quarterly.
Since consumer price index measures the changes in prices of the consumer goods and services i.e. fixed basket of goods but not include capital goods. There are 9 main categories of fixed basket of goods…… [Read More]
Macroeconomics and Microeconomics in Organizational Success
XYZ Company is aware that macroeconomics and microeconomics play a general role in its organization's success. The significance of macroeconomics and microeconomics in organizational success is attributable to the fact businesses makes decisions through complex processes. The multifaceted nature of business decision making process is brought by the complexity of consumer decision-making. Moreover, business organizations utilize macroeconomic and microeconomic data to make critical decisions that determine their success or failure. Therefore, it's important for XYZ Company to understand the role of macroeconomics and microeconomics in order for the management to make appropriate decisions that contribute to success. Some of the most important concepts in this process include supply and demand, consumer choice, aggregate supply and aggregate demand, and elasticity.
Overview of Macroeconomics and Microeconomics
Macroeconomics and microeconomics are two components that relate to economic activity and processes. Microeconomics is a concept that relates to…… [Read More]
The new products are highly priced and, through competition, are reduced quickly. This rising of new and falling of old prices is the closest thing to stable average prices possible in an ever-expanding market such as exists now. Democratic politics have always balked at manipulation of the economy through controls over it, but it appears to be necessary in order to keep the value of the dollar even. However, it has never been attempted to allow the dollar free rein to inflate and deflate on its own. hen this occurred in the early part of the twentieth century, it came to a crashing halt. It is this fear that makes the democratic voter tremble and step aside as the President appoints a Federal Chief who, with his Board Member cohorts would be able to control and decide the future of the American economy (the Economist, M).
To summarize, the government…… [Read More]
In the short run, Wal-Mart is likely to see benefit from the weak economy. The Fed is currently providing ample monetary policy stimulus, but for the most part the economy is either treading water or making only minor improvements. The expected short-term impact for each of these firms is expected to be the same, and minimal. The reason why the economic impact is minimal is because the general state of the economy has changed little in several months. Thus, fast-moving companies like Amazon and Wal-mart will have made adjustments to match the prevailing demand conditions. Thus, both of these companies should be in a state of equilibrium with respect to aggregate supply and aggregate demand at this point. When the recession first broke a few years ago, both of the companies would have likely found themselves with excess inventory, so that AS is above AD on the graph. Over time,…… [Read More]
Discuss within your Learning Team how and why the U.S.'s deficit, surplus and debt have an effect on the following: The United States' financial reputation on an international level
The United States' fiscal position will have an impact on confidence. This is because the underlying levels of the trade deficit, surplus and the debt will affect consumers and businesses perceptions of the future. When this happens, there will be changes in the overall amounts of economic activity that are occurring. (Masters, 2012)
For example, after the end of World War II, America's debt levels were at 122% of GDP spending. The tremendous amounts of exports overseas (between: 1946 to 1976) set the stage for the country to realize massive trade surpluses. This caused the national debt to decrease from 122% to 40%. During this time, the U.S. became the most dominant economic power in the world. (Masters, 2012)
Evidence…… [Read More]
Concepts of Macroeconomics
The aspect of macroeconomic is widely studied in close relation to the microeconomics since these are factors that relate closely and often affect each other in the economic sense of it. Macroeconomics can be described as the branch of economics that deals with structure, performance and behavior of a regional or national economy in totality. It is mostly concerned with the aggregate indicators like the unemployment rates, price indices and GDP in order to grasp the function of the whole economy of the region. It also develops models that help in the explanation of the relationships between economic factors like the consumption, national income, unemployment, output, inflation, investment, saving, international finance and international trade.
There are basic indicators of macroeconomics which can be used to the macroeconomic levels of a given region. These will help in the explanation of the stagflations whenever they happen and can…… [Read More]
The Basic Methodology of Economic Analysis
Economics analyzes activities in the, on the whole economy, for example inclination in unemployment, output, prices, as well as foreign trade. Once such inclination is that economic analysis assists build up the policies by which governments can develop the functioning of the economy.
Concepts and Techniques of Economic Graphing
Values of X are calculated by the length of the horizontal axis and are positive, as well as escalating as we shift to the right of the origin2 (middle) and are negative, as well as declining as we shift to the left. Values of Y are calculated the length of the vertical axis and positive and escalating as we shift up from the origin and negative and declining as we shift downward from the starting point. At the center mutually X and Y are equivalent to zero. One does not have to utilize X…… [Read More]
Macroeconomics in the News
In her recent article The 'Go Fast' and 'Go Big' Fiscal Challenges, economics professor Laura D'Andrea Tyson uses a combination of straightforward language and complex terminology to explain the intricacies of our nation's current budgetary crisis. ith the January 1st deadline for the so-called "fiscal cliff," a $600 billion package of mandatory spending cuts and tax hikes, fast approaching, Tyson proposes that America's economic plight is actually twofold when the impending debt ceiling debate is also considered. Through a comprehensive analysis of the various factors affecting the debate, including stagnant unemployment rates, entitlement reforms to Medicare, Medicaid and Social Security, and the eventual impact of the Affordable Care Act, the author presents her case for a macroeconomic-based approach to balancing the budget, reducing the national debt, and leveling the playing field in terms of taxation.
Analysis: These esoteric concepts may sound like mere abstractions, but the…… [Read More]
Romer explicitly and directly ties the changes that have been made to the model to the historical shifts in the world's (and the United State's) economy; by noting that inflation was simply not a major issue for the first decades of the models' use and existence, the model's efficiency and accuracy during that period are easily explained. Just so are the inefficiencies of the model in a world where inflation is a major factor in the global economy (as well as in the economies of many independent nations), which the inclusion of aggregate supply (AS) into most contemporary uses of the model addresses. This also creates complications in the model that are not necessarily warranted by the increased accuracies that they provide, and it is for this reason that Romer advocates another major change to the model before it is put to further use.
It is at his juncture that…… [Read More]
Thus it was confidence ebbed that had ebbed actual income. The Hiscox Wealth eview of 2009 found: "The recession has left its mark on the psyche of the Working Wealthy with a lack of confidence impacting their perceptions of wealth and appetite for risk. Whilst two in five (41%) say the recession has not had an impact on the amount of money they have to spend, almost an equal number (44%) say they are fearful of the future" (PN Newswire, 2009). But, observed Vanity Fair reporter tartly: "Most 60-year-old ex-Lehman Brothers bankers likely squirreled away enough to at least scrape by on a couple of million a year" (Shnayerson 2009, p.3). If they did cut back, it was in relatively minor ways: "Why should I pay $250,000 for a private plane," said one man to the magazine "when I can pay $20,000 to fly commercial first class" (Shnayerson 2009, p.1).…… [Read More]
individuals are knowledgeable about macroeconomics. It is a huge and potentially difficult subject to understand, and yet its constructs intimately affect each and every aspect of our lives. To show that this is so, I plan to explain some of the factors of the current state of the U.. macro economy so that we can gain a better understanding of their implications. I will address this topic by posing four of the most popular questions and answering them by connecting them to our situation.
What happens when there is a surplus of imports brought into the U.. Cite a specific example of a product with an import surplus, and the impact that has on the U.. businesses and consumers involved.
When imports are greater than exports, the United tates is said to have a balance of trade deficit. An example may be of the surplus of ony electronics that are…… [Read More]
This model is much more conservative, and thus tends to try to avoid government interaction within the system. Here, the research suggests that it "stresses the connectedness of the monetary flows" (Hannes, 2012, p 4).As such, it keeps its leakages from separating and floating out of the system, as well as providing for more inside injections that do not rely so much on outside systems, as in the case with an open model system. The model is most concerned with savings and investment in order to keep leakages from spilling out of the model system, as in the case with the open system. In this system, borrowers take credit and invest it back into the system, therefore adding elements of credit into the system as an injection. In this regard, savings is seen as an injection, not a leakage like in the open systems model. Thus, "the closed model stresses…… [Read More]
Dark Age of Macroeconomics (wonkish) -- Paul Krugman
Paul Krugman's column in The New York Times zeros in on the good and the bad that goes with government debt financing. He references economists Brand DeLong, Eugene Fama, and John Cochrane, all of whom claim that debt-financed government spending "…necessarily crowds out an equal amount of private spending" (Krugman, 2001). The economists that Krugman references believe that private spending is being blocked not based on some empirical model, but on simple accounting. In other words, because so much money is financed through debt dynamics, those with capital are being pushed out of the opportunity to invest. But Krugman begs to differ, and that is the sum and substance of this article in the Times.
Meantime while other economists try to read more into Cochrane and Fama than is actually contained within their narrative, Krugman asserts that it's not that complicated. Krugman…… [Read More]
Since 1970, the economic growth in U.S. had increased in real terms at a rate of 3.16% per annum, up to 2001, when the American economy registered a slow down period and the economic growth amounted 1.7%. Since 2003, the growth rate averaged 4.62% per annum. Currently, the economic growth is heavily influenced by fiscal relaxation policy that led to increased investments and economic growth level. The average return rate on investment was of 14.6%, especially in the computer software and telecommunication sector.
The U.S. Labour Statistics office gives the data on the employment situation of the American society. This is important due to the fact that a high level of unemployment depicts the situation of a possible recession, while a low level of unemployment indicates that a certain nation cannot provide staff for the interested companies, and the labour force is insufficient for the demand on the market.…… [Read More]
S. The societal system practiced in France serves as a model towards which the U.S. aspire.
President Barack Obama's healthcare reform plan is considered by many as being a socialist experiment that will significantly hurt the economy (CBS, 2009). In opposition, the President has stated that he does not intend to implement a healthcare system that depends on the government. Instead, he would prefer a system in which the government competes with private insurance companies for selling coverage.
The Invisible Hand Principle
The invisible hand principle was developed as an opposition to the protectionist system. This principle is actually a metaphor describing the self-regulating characteristic of the market. In other words, such a system can be implemented due to a combination of factors, like self-interest, competition, supply and demand. Adam Smith, who developed this theory, considered that the action of these forces and their effects are able to allocate resources…… [Read More]
An acre of corn will yield roughly 5,500 dry pounds of stover, enough to produce about 180 gallons of ethanol" (Baker & Zanier 2006). But once again, such intensive farming methods could result in depletion of the soil and ultimately hamper the fertility of the soil, given that corn stover is usually left on fields to minimize erosion. Ideally, the creation of new technology would improve productivity without hampering long-term soil quality.
At present, to make ethanol production more profitable, by-products are used as livestock feed (Baker & Zanier 2006). If new technology rendered corn farming more efficient, theoretically the price of ethanol and fuel would drop dramatically, given that supply would increase, and farmers could price the product more cheaply while still make a profit, and also profit more off of by-product sales. But given that corn is a subsidized crop within the U.S., this means that prices cannot…… [Read More]
It also consists of "the transfer of ownership on fixed assets (assets such as equipment used in the production process to generate income), the transfer of funds received to the sale or acquisition of fixed assets, gift and inheritance taxes, death levies, and, finally, uninsured damage to fixed assets" (Heakal 2009).
The final component of the BOP is the financial account, which is comprised of international monetary flows, such as "business, real estate, bonds and stocks" and "government-owned assets such as foreign reserves, gold, special drawing rights (SDs) held with the International Monetary Fund" (Heakal 2009). Direct foreign investment is included in the financial account, as are private and public assets owned by foreigners, and private assets held abroad (Heakal 2009).
Double-entry bookkeeping is used to compute the BOP. When deploying this method, "the balance-of-payments accounts are commonly grouped into three major categories: (1) accounts dealing with goods, services, and…… [Read More]
Countries that are just getting started often use tariffs, quota, and embargos to protect their industries until they can compete without government help. The difficulty with this infant industry argument in support of trade restrictions is that it is not always possible to foresee which industries will do well. For this reason protection frequently lasts long after the industry has matured (Trade estrictions and Their Effects, n.d.).
Governments are enthusiastic to protect what are called strategic industries. These have included in the past industries, such as steel, cars and chemicals. Today, they are more often the high tech, high wage industries like commercial aircraft production. One way of assuring that they remain strong is to protect them from foreign competition. Agriculture is another area that a lot of governments try to protect. Tariffs help make sure that domestic farmers can earn enough profits to continue farming. The decision to use…… [Read More]
Economics in the United States
Macroeconomics in the United States
Macroeconomics deals with the general economic systems, which have a larger scope compared to individuals and markets. Essentially, microeconomics is mainly used in the determination and forecast of a country's national income. This is done by analyzing the factors of the economy that represent trends and patterns and in most cases influence each other. Economic factors affecting macroeconomics include the rates of employment and unemployment, positions of balance of payments, trends in Gross Domestic Product (GDP) and inflation. Macroeconomics is controlled by the monetary and fiscal policies, which are implemented to control economic factors. Levels of investment and consumption of products and services is also determined by fiscal and monetary policies.
Microeconomic situation in the United States
Figure 1.1: Trends (in percentage) of Unemployment in the U.S. -- 2012
Changes from April to May
Total for…… [Read More]
is the price. The supply schedule can be represented by the equation Qs = 1400-700P, where Qs is the quantity supplied. Calculate the equilibrium price and quantity in the market for chocolate bars.
Ch5, #20 - For each of the following pairs of goods, which good would you expect to have more elastic demand and why?
a. required textbooks of mystery novels
Because the textbooks are required, there will be more elasticity for mystery novels. That is because elasticity is a measure of responsiveness and indicates how much one thing changes if something else that affects it is changed. In other words, the required text book is needed whether the price changes or if the number of students changes.
b. Beethoven recordings or classical music recordings in general
In this case, the elasticity of demand would show that the classical recordings in general would fluctuate as new artists or prices…… [Read More]
.....gas station owners have no control over the price that they pay for petroleum, and only limited control over what they will end up charging the customer. The base price for crude oil is set on the basis of global supply and demand. Local prices reflect a variety of factor -- the crude price, cost of refining, cost of transportation, oil company markups and taxes (EIA, 2016). The price that consumers pay therefore reflects a variety of factors, almost none of which either the consumer nor the gas station owner has control over. This paper will discuss these factors in further detail, in order to clarify the dynamics of the oil market to better prepare to make a decision on buying four gas stations.
GDP Growth Rate
There are two dynamics at play here. First, the GDP of the area in which the stations are located influences gasoline consumption, by…… [Read More]
remedy for the U.S. economy as the country has started to recover from the shock of September 11. Though the tragedy of September has drastically effected the economic growth of the country but the forces of recovery will soon lift the economy out of the recession. However, this turnaround is going to go a long way. The general opinion about the economy of the United States is that the recession will end around the first quarter of the year 2002 and the growth in real gross domestic product for the year 2002 is expected to be about 2.5% which will be definitely a huge achievement. However, this growth is expected to be slow but with a constant pace. According to the economic analysts the real GDP growth will pick up by the second half of the year 2002 and therefore most of the investors are expecting a reduction in the…… [Read More]
Comparative advantage is when someone is better at something than someone else. In the context of economics, it is typically applied to trade. For example, if two countries are trading, they should each produce the good at which they have comparative advantage. The overall production of two countries producing to their respective comparative advantage will be higher than if they both produced to their domestic demand. Key to understanding comparative advantage is the idea of opportunity cost. Where resources are scarce, any use of resources for one purpose means that another purpose must be forgone. But if parties produce that in which they have comparative advantage, not only does overall production increase, but opportunity cost decreases (Landsburg, 2007).
The product life cycle theory is an entirely different theory, reflecting an entirely different subject. The product life cycle theory is focused on the idea that products start with an introductory…… [Read More]
For most of the time since the subject of economics was first studied, the idea of resource constraints has been irrelevant. The world was simply not viewed as a finite place. The concept of resource constraints was limited, more or less, to the consideration of constraints on an individual economy. Adam Smith recognized that all economies would face resource constraints of one type or another. As Snowdon (2003) points out, "to Smith, it was obvious that all economies were faced with resource constraints and that free trade was a policy that would allow any nation to achieve the most efficient allocation of its scarce resources." This notion was built into the Ricardian trade theory and classical economics. It has not been until recent times, however, that the concept of worldwide scarcity has become relevant. The idea of peak oil and a world with seven billion people (or more) has…… [Read More]
Macroeconomic News Analysis: Unemployment
According to recent figures reported in the New York Times article "Consumers push economy to a gain of 2%," the U.S. economy expanded 2% in the third quarter, a slightly swifter pace than had been anticipated. Consumer confidence is on the rise thanks to the fact that the "market has stabilized, households have been buoyed by lower energy prices, until recently a rising stock market and a slight improvement in employment. After years of shedding debt, there are also signs that consumers are starting to borrow" again (Schwartz 2012:1). According to the Keynesian theories of the business cycle, consumers during a recession will hold onto their money and it is necessary for the government to infuse cash into the economy, to bring it to a state of health once again. Only when people feel more secure about their jobs will they spend money again. The federal…… [Read More]