“Another negative factor was a 6.6 percent drop, on an annualized basis, in federal defense spending.” She supports that the decrease in GDP is directly related to the decrease in government spending g which proves how fiscal policy can affect overall economic growth. Monetary policy can be defined as: A central banks changing of the money supply to influence interest rates and assist the economy in achieving price stability, full employment, and economic growth. The article discusses how decline in economic growth can in part be due to uncertainty of interest rates which is directly controlled by the Federal Reserve. The author supports this idea by showing that uncertainty of interest rates has affected business investments and the slowing of the housing
The LFS limits the accuracy of the calculation of the unemployment rate because it results in the issue of “underemployment” or “underutilisation” meaning that people are able and willing to work more hours, however are unable to do so due to the lack of demand from firms for workers to work additional hours. 4) Suppose a firm decides to pay its employees “efficiency wages” that are much higher than in other comparable firms. What may be the reasons for this and
This is the “horizontal portion of the aggregate supply curve in which there is excessive unemployment and unused capacity in the economy” (Miller, 2012, pg. 236). Reference Miller, R. (2012). Economics Today:
Why do Keynesian economists believe market forces do not automatically adjust for unemployment and inflation? What is their solution for stabilizing economic fluctuations? Why do they believe changes in government spending affect the economy differently than changes in income taxes? Keynes theorized that when unemployment raises the amount of goods that are in demand by countries citizens decreases and as these demands decrease the amount of output by the countries manufactures also decreases. As the demand for one product decreases it can cause a chain reaction lowering the demand for products needed to produce the first product.
Nominal gross domestic product is the value of goods and services that the nation produces and sells in one year that has not been adjusted for inflation. The unemployment rate is the percentage of unemployed workers in a total population of workers. The unemployment rate is found by dividing the number of unemployed workers by the total labor population and multiplying by 100. In
However, pensioners will be hit hard because the extra income they earn from saving will have dramatically reduced, making them worse off. On the other hand, savers may leave the pound for better interest rates in other countries (hot money), causing a fall in the demand for the pound. As a result the value of the pound will fall, making exports cheaper and there will be an injection of net exports. In conclusion, the impact of loose monetary policy will be beneficial to the economy because extra consumption and investment will cause AD to increase which will increase economic growth. However, it takes a long time for changes in interest rates to feed through to consumption and investment and by then the economy may have gotten worse.
Consumer price and producer price in 2009 to 2012 continue to drop and raise the price for consumers was not steady. The direction and magnitude of price change in the Producer Price Index for finished goods anticipates a similar change in the Consumer Price Index for all items. When this assumed relationship is contradicted by the actual movements of the two series. The answer is that conceptual and definitional differences between the PPI and CPI—differences which are consistent with the uses of the two measures—contribute to the differences in their price movements. A primary use of the PPI is to deflate revenue streams in order to measure real growth in output.
If other things change, then one cannot directly apply supply/demand analysis. Sometimes supply and demand are interconnected, making it impossible to hold other things constant (Colander, The Limitation of Supply/Demand Analysis, 2010). “In supply/demand analysis, you would look at the effect that fall would have on workers’ decisions to supply labor, and on business’s decision to hire workers. However, there are also other effects (Colander, The Limitation of Supply/Demand Analysis, 2010). “For instance, the fall in the wage lowers people’s income and thereby reduces demand.
Should the Government use Fiscal or Monetary Policy to Eliminate Canada’s Current Contractionary Gap? Introduction An economic recession is a period of slow economic activity; this contractionary phase is characterized by high unemployment and low levels of GDP. On the other hand, government bodies desire economic growth and low unemployment levels in order to attain a stable economy. These goals may be reached through the use of either fiscal policy or monetary policy. This paper will focus on and discuss which policy is more effective in eliminating the current recessionary gap of Canada.
List a few reasons economists speculate could be the cause of the slump in productivity increasing presence in the work force of women and teens (had lower skills, less likely to take full time jobs),declining investment in new machinery, general shift of American economy from manufacturing to services B. Sharply rising oil prices in the 1970s also fed inflation, but its deepest roots lay in government policies of the 1960s—especially Lyndon Johnson’s insistence