Issues in Macroeconomics


Issues in Macroeconomics

Macroeconomics concerns with the way of behaving of the economy in general, with rapid economic growth and downturns, the economy's entire outcome of product and service, the extension of output, the paces of expansion and joblessness, the harmony between payment and trade rates. It manages both long-run economic extension and short-run rise and fall that comprises the trade cycle.

Macroeconomics centers around the financial way of behaving and approaches that influence using up product or service and investment, equilibrium of trade, the determinants of alteration in wages and prices, financial and monetary strategies, cash stock and public spending plan, loan fees and public obligation. In short, Macroeconomics manages the significant issues of the economy. There are whatever macroeconomic issues which are portrayed as given here.

1- Joblessness

Joblessness is a macroeconomic issue that most of the nations on the earth confronting incredibly. Joblessness alludes to that segment of the entire resources including workforce in the economy which wills to work or get employed at on going factor prices or wage rate and looking for a job but not getting an opportunity. Thus, the issue in macroeconomics is to make sense of what causes involuntary joblessness in the economy and how the income level can be expanded to its desired level.

The past history of economics has uncovered that the pace of joblessness goes up with he economic downturns in which GDP as well as the expectation for everyday comforts of individuals decline. It has also been verified by proofs that the financial as well as monetary arrangements sometimes fail to cut down the joblessness to its supposed rate because of the alteration of different interconnected factors like resource availability, financial growth rate, formation of capital, change in size of populace, private investment, government spending, supply of money, technological alteration, aggregate demand deficiency and so forth. These factors acquire vacillations in aggregate demand which frequently causes repeating joblessness.

According to the classical perception on joblessness issue is that it is a self-correcting matter in the long run, however the perception failed to work accordingly at the time of depression in 1930s. In this regard  Keynes' view is that an increase in aggregate demand can address the economic issue of joblessness. Keynes focuses, on diminishing in aggregate demand causes an increase in matter of involuntary joblessness and as a result of alteration in private investment, remaining the aggregate supply as before in short run. He indicates that the alteration of private investment is responsible for recurring joblessness.

If it happens, the question rises why the private investment isn't altered to eliminate the issue of joblessness in the economy. There is a straightforward response that the investment is also impacted directly or indirectly by numerous different factors like income level, growth rate, size of physical and human resources stock, efficiency of factors and many other different factors. The short-run variation in these factors can not be rightly anticipated in order to deal with the issue of joblessness appropriately through the financial policy. Thusly, the issue of joblessness has been a macroeconomic issue for an extensive stretch of time.

2-Economic Growth

One of the macroeconomic issues that policy-makers concentrate is how to attain a sustained increase in real gross national product or per capita income sufficiently over a long period of time. In fact, it is a matter of great concern of achieving and maintaining a high rate of economic growth for both developed and developing countries. This is often seen as a very important target for governments as well. It is because, with an increase in income in the economy, people can afford sufficient goods and services and many have a better quality life.

A sustained increase in real GDP is affected by various determinants like availability of natural resources, technological progress, physical and human capital stocks, productivity of factors, consumption, investment, political environment international trade etc. The short term impact of the determinants on an economy can not be predetermined properly by the policy makers as well as the governments, especially in free market economies. For instance, changing consumption pattern of consumers, technological progress, unfavorable political environment, cultural and religious traditions etc. are the determinants whose magnitude of change can not be well predetermined. These factors usually bring short-run fluctuations in the economy. As a result, the expected rate of economic growth, sometimes can not be achieved even if sound fiscal and monetary policies are formulated and implemented by the policy makes in the economy. Thus, economic growth for a long period of time has been an issue for underdeveloped countries as how to attain high economic growth rate and for developed countries as how to maintain existing rate of growth.

It is not untrue that there are economic growth related theories and models presented by economists that explain the causes of failures for achieving high economic growth rate and present the modality of policies and strategies that accelerate economic growth over time. With these theories and models the policy makers formulate monetary and fiscal policies to achieve the expected rate of economic growth in the economy but the target can not be met fully all the time.

3 - Inflation

Inflation is another macroeconomic issue faced by the counties at different point of time, especially by the fast growing economies. Inflation is defined as a persistent and considerable increase in the price level over a long period of time. A moderate rate of inflation is considered to be desirable for the economy. Inflation, in excess of the moderate rate, is economically and socially undesirable and rather harmful for the economy.

Classical economists thought that it was an increase in quantity of money supply which is responsible for inflation but Keynes did not believe it. He thought that an excessive increase in aggregate demand which causes a rise in the price level and results inflation. In this regard, he has developed a theory of inflation named 'Demand-pull inflation'. There are other theories of inflation developed after Keynes, One of them is 'Cost-push inflation'. Either inflation is caused by demand-pull or cost-push, it creates social and political, economic problems in the economy. Therefore inflation is considered to be a serious macroeconomic issue requiring the formulation of sustainable policy measures and effective implementation of the policy for controlling price-rise and maintaining inflation at a reasonable level.

4- Business cycle

Business cycle refers to the high magnitude of fluctuations in the economy with a higher growth in output and employment in one period followed by a decline in them in the next period. Thus, business cycle is also referred as a period of economic boom and depression. The period of prosperity and boom in the economy lead to an increase in output and employment and on the contrary the period of depression a faster decline in the both. The recurrence of this kind of fluctuations in the economy is called business cycle. 

During recession, many businesses go bust, while profits fall for the survivors. In contrast during a boom aggregate demand goes high, profit margin of firms also rises and most of the business firms find easy to expand. Therefor understanding the business cycle is important for getting succeeded in business. Most importantly, such economic fluctuations are out of the control of individual firms yet the firms do need to understand that the economy moves in cycles. The policy makers claims that their policies would bring stable growth and the end to cycles but business cycles have been around for a long time. This shows that the fluctuations in the economy is also an important macroeconomic issue.

5- Balance of payment and exchange rate

Balance of payment is a systematic record of country's trade in goods, services and financial assets with rest of the world in a specific period of time. The balance of payment records information about all the economic transactions  of a country such as exports, imports, earnings by domestic residents on assets located abroad, earnings of domestic assets owned by foreign residents, international capital flows etc. The general notion is that the economic transactions of a country with foreign countries should be in balance but it is rarely found to be like that in general. There may be deficit or surplus in balance of payment. These two situations create a problem for an economy.

An important thing is to be noted here that the transactions in balance of payment are affected due to an instability in foreign exchange rate or the rate at which a country's currency is exchanged for foreign currencies. The instability in foreign exchange rate very often create imbalances in balance of payments. In fact, it is a serious problem related to the transactions of a country with other countries. Hence, it has been a macroeconomic issue for the policy makers to find out the causes and effect of imbalances in receipts and payments.

6- Stagflation

Stagflation is quite simply the simultaneous occurrence of high rate of inflation and unemployment. Until 1970s, stagflation was unknown to the developed nations of the world. These countries either experienced high inflation and low unemployment or high unemployment and low inflation. Moreover, whenever inflation increased unemployment would normally fall and vice-versa. Economists even thought that stagflation was impossible because inflation and unemployment were mutually exclusive alternatives. Inflation was the result of too much demand while unemployment was the result of too little demand. This trade-off was expressed on the notion of Phillips curve, which depicted unemployment and inflation as being inversely related. As the notion of inverse relationship between unemployment and inflation did not work the term stagflation was coined in 1970s to denote the new economic reality, the conjunction of economic stagnation (leading to high unemployment rate) and high inflation. Thus, stagnation is the result of a fall aggregate supply of goods and service that is due to higher business cost resulted an increase in unemployment. Such a situation of stagflation is also possible to occur in the economy. So it is also taken as a macroeconomic issue.




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