Research Paper on "Macroeconomic Analysis"

Research Paper 10 pages (3058 words) Sources: 10

[EXCERPT] . . . .

In addition, with an increase in aggregate demand and high economic growth rate, the firms will barely go broke or become insolvent and this implies that there will be less job losses. Expansionary fiscal policy is deemed to be fitting for this scenario for the reason that this is has been an extended recession that has gone on since 2008 and therefore the government ought to intervene and generate supplementary demand in order to instigate a decrease in unemployment. The following will make an attempt to show the effect that the increase in aggregate demand will have on the economy:

Source: www.economicshelp.org

Nevertheless, it is imperative to note that the effects mentioned above will not happen automatically. This is for the reason that:

i. It is reliant on other constituents of aggregate demand, for example, if assurance is minimal, reduction of taxes might not bring a rise in consumer spending for the reason that consumers have a preference to saving. Furthermore, consumers might not spend tax cuts if they are bound to be upturned in the short-term.

ii. Another aspect to realize is the fact that these expansionary fiscal policies might not have an immediate effect and therefore it might take a while before the aggregate demand is increased.

iii. If the economy is just about to be full in terms of capacity, increasing the aggregate demand will just bring about inflation. If the government is to undertake such expansionary fiscal policies then it has to know that there will be a decrease in unemployment only if there is an output gap.

iv. Another aspect to consider is borrowing. For this kind of fiscal policy to be effected, the government will be expected to increase its level of borrowing. This might be an issue for the reason that in as much as the debt ceiling was increased, nobody is keen on increased bond yields and debt.

Monetary Policy and Interest Rates

Monetary policy is a public interventionist standard geared at controlling patterns of economic endeavors in order to acquire specific pursuits. Monetary policy can be said to cover all actions by the Fed and the government which influence the quantity, cost and availability of money and credit in the economy. Specifically, monetary policy works on two principal economic variables: the aggregate supply of money in circulation and the level of interest rates. Monetary policy does have an effect on interest rates which in turn has an effect on the level of unemployment (Mankiw, 2014). In this particular case, monetary policy would encompass reducing interest rates. Decreases interest rates would in turn reduce the cost of borrowing and this in turn would stimulate and instigate the consumers to invest and increase their level of spending. This in turn would increase the level of aggregate demand and also aid in increasing the GDP levels and in the end reduce the demand deficient unemployment levels. So what do lower rates imply in this case? It is imperative for the government to decrease any tax expenses that the agency incurs. In turn, the agency will be able to come up with competitive prices which could steer away the consumers from other forms of communication.

Monetary policy is classified or categorized as being expansionary or contractionary. Expansionary policy makes an attempt to speed up economic growth and on the other hand contractionary policy makes an attempt to confine or constrain it. The former is by tradition employed to makes an attempt to battle unemployment at the time of a recession by decreasing interest rates with the optimism that simple credit will induce industries into getting bigger. This is undertaken by amassing the money supply existing in the economy. With regards to expansionary policy, it endeavors to stimulate an increase in aggregate demand. As mentioned before, aggregate demand can be defined as the totality or summation of private consumption, outlay, government spending and importations. Monetary policy places emphasis on the initial two aspects which are consumption and investment. When the amount of money circulating in the market economy increases, this stimulates an increase in consumer spending. In the same manner, an increase in the supply also causes a decline in interest rates which as a result stimulates the level of investment and also lending. The rise in levels of consumption and investment brings about increased aggregate demand (Boundless, 2015).

International Trade

International trade can be classified as the swap of products amid two nations. This exchange between two countries has allowed labor divisions to be lengthened to the global realm. International trade basically arises because of three reasons:

i. The production of different kinds of goods requires different kinds of resources used in different proportions.

ii. The various types of economic resources are unevenly distributed throughout the world.

iii. The international mobility of resources is extremely limited.

New fangled expertise and technologies are restructuring and having a great influence international trade. These modifications bring about both advantages and disadvantages to organizations. Impending economic benefits, for instance the quickening in the rate of novelty helps organizations to contest in more absorbed markets, and augmented global growth and market access consent in fresh and increasing markets. In this particular case, the level of technology has had a negative impact on U.S. Postal service as an organization. The advancement and progression of the internet and information technology has made the postal services to be perceived as obsolete. There are a lot of why's and wherefores trade interdependence has been rising and amassing, and the most current mutual factor in the whole calculation is the internet. The development of the internet as a universal spectacle and sensation implies that the customary factors of production such as capital and labor are not considered anymore to be the key contributing factors of the supremacy of the economy (Bailey and Capozzoli, 2001).

The global economy has not at the moment come to the extent where global borders are immaterial and of no consequence. However, the initiation and arrival of E-Commerce possibly will act as the bus to globalization. E-Commerce is the whole practice of positioning and setting up computer and communications technology to provide a backing for a firm's sales procedure (Capozzoli 2000). In as much as the internet is not able to make aspects such as the shipping of products to become obsolete, more and more modes of communication, advertising and payment continue to render the postal services to be outdated.

Demographics

According to the demographics, it is seen that the construction sector is the one that caters for almost half of the unemployment level being experienced in the nation. The health and leisure activity industry follows and then followed by professional and business services. The general unemployment rate was 9.1%, considerably greater in comparison to the unemployment rate of 4.6% in the month of August 2007. The construction industry and the hospitality and leisure sector were the most adversely affected by the economic recession, with the unemployment rate in each of the sectors being greater than ten percent. The health care and education, mining, financial, and government workers industries are the ones who were impacted the least as their unemployment rates were below the six percent mark

Recommendation

The recommendation made to Cindy is to go ahead with her business plan of solar panels. This is due to a number of reasons based on the macroeconomic analysis that has been elucidated above. To begin with, it can be seen that international trade has been impacted by technology and common organizations continue to experience its adverse effects. In the case of Cindy, solar energy can be considered to be impending technology which is bound to make oil and petroleum to be perceived obsolete. Impending economic benefits, for instance the quickening in the rate of novelty helps organizations to contest in more absorbed markets, and augmented global growth and market access consent in fresh and increasing markets. In this particular case, the level of technology has had a negative impact on U.S. Postal service as an organization. Another aspect that ought to be considered is that the rate of unemployment does not seem to decrease at a fast rate in the near future. This implies that Cindy will in fact be able to have plenty of workers available for her business. In addition, with the advancement in technology, Cindy will be able to retail her solar panels to consumers globally through the emergence and growth of e-commerce. In as much as technology has advanced, this does not preclude the global boundaries when it comes to international trade. Therefore, it can be recommended that it is okay for Cindy to go ahead with her business plans.

References

Bailey, E.J., Capozzoli, E.A. (2001). International Trade and the Internet. State University Ernest A. Troy State University. Retrieved from: http://sbaer.uca.edu/research/acme/2001/12.pdf

Boundless. (2015). The Effect of Expansionary Monetary Policy. Boundless Economics. Boundless, 14 Nov. 2014. Retrieved from: https://www.boundless.com/economics/textbooks/boundless-economics-textbook/monetary-policy-28/impact-of-fed-policies-119/the-effect-of-expansionary-monetary-policy-471-12567/

Capozzoli, E.A., True, S.L., Pritchett, T.K. (2000). Electronic Commerce: A… READ MORE

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