The economy is still recovering from a major recession but the recovery is fragile. Economic policy can be influenced by what is expected to happen with the economy in the near-term (six months) future. What two macroecconomic indicators would you recommend watching to assess the economy's condition over the next six months? Please indicate why you selected them.
One can use the GDP and the rate of unemployment to measure economic recovery in a six-month period. The GPD is the measures of the overall economic production for a particular country the total goods and services the country produces within the period of measured (“Measuring GDP and economic growth,” n.d). I choose this indicator because it gives a broader perspective of the whole economy of the country. It's easy to calculate the value for a particular period such as the six months. Unemployment rate gives the number or qualified and jobless citizens. Fundamentally, when the economy grows, the number of people without jobs reduced significantly. From this point of view, one can use it as an indicator of economic growth. I choose it because it cuts across all economic sectors of a country, and also one can measure it month making it fit for short periods of measurement.
The government can increase GDP in the short run by running a budget deficit. What are some long-term effects of deficit spending?
Deficit spending has adverse effects on the economic in the long-term. First, the government cannot save enough money because a huge part of the national income goes to offsetting private and public debts. The interest rate would increase as the government seeks to borrow more funds (Topolski, 2014). When the country cannot save, it follows that the overall government ability to handle emergencies is compromised (Iron, 2012). The level of economic stimulation from the government initiatives would decline to defeat the original desire of triggering economic growth through deficit spending.
Discuss the following statements:
Without money, everything would become more expensive.
Money gives value to the good and services in a country. It is, therefore, imperative that without a standard measure of value that is reasonable, people would have to seek alternative means of placing values on the goods and services. Such a move would make goods and services expensive especially if the means of exchange do not give the exact value. For instance exchanging a goat for a chicken is an expensive transaction because the values differ significantly.
In countries such as Zimbabwe, which had problems with high inflation, the increased use of another country’s currency (such as the U.S. dollar or South African rand) became common. Why do you suppose this occurred?
The case of Zimbabwe, the country’s currency devaluation was too high to act as an acceptable measure of values. Therefore, the state resulted in using foreign currencies that gave realistic values.
Using some of the concepts you learned from the module, discuss the questions below:
How is the U.S. budget deficit related to the foreign trade deficit?
Although trade deficit and budget deficit are fundamentally different, they tend to respond to the same economic stimuli. A budget deficit entails the government having no enough budget to fund its programs, at times, the trade deficit triggers such as a situation as countries that trade with it hold the currency due to reduced trade among the countries.
Firms hurt by cheap imports typically argue that restricting trade will save U.S. jobs. What’s wrong with this argument? Are there ever any reasons to support such trade restrictions?
First, trade with international companies tends to spur economic growth as new services and goods enter the market. In such a case, there would be job creations as opposed to reduction. Cheap imports make people save more money to invest and, as a result, would hire more people in their investments.
Per capita GDP in many developing countries depends on the fertility of land there. However, many richer economies have little land or land of poor quality. How can a country with little land or unproductive land become rich?
Land management using technological innovation is a critical determinant of the overall productivity of the land. A country can convert the unproductive land into highly productive land through irrigation. Besides, land may be agriculturally unfit but have a large deposit of minerals such as oil that the country can exploit.
As we approach the end of the session, hopefully you have gained some understanding of the important macroeconomic concepts that affect our world. Now, suppose you are an economic advisor to President Obama. Identify an important macroeconomic issue that needs to be addressed and what policy you would recommend to him.
Minimum wages has been a major concern for many in the recent past. Although raising the minimum wage may not significant lead to economic growth, there are enough grounds to raise it. There is a need to increase it because the real value of the minimum wage declined over the years. On that ground, it is the right time to raise the minimum wage and help families meet their daily needs.
References
Measuring GDP and economic growth (n.d). Retrieved don January, 28 2016 from http://facstaff.uww.edu/ahmady/courses/econ202/ps/sg3.pdf
Topolski J. (2014). Growing Deficits Over the Long Term Would Cause Federal Debt to Exceed 100 Percent of GDP by 2039. CBO. Retrieved on January 28, 2016 from https://www.cbo.gov/publication/45555
