Introduction
Economic perspective and economic laws are some of the important ones that associated with different economies of the world accordingly (Casson, 1990). As per the sayings of Alfred Marshall and Adam Smith, the law of economics revolves specifically around the level of economic perspective of consuming and utilizing the money. In fact the core sayings of these individuals are in the favor of effectiveness and shows that economies should utilize their facts and the consumption and savings values in a perfect and organized manner (Casson, 2006).
There are number of authors of economics which has had presented different ideas of economics that found highly effective and interactive for the organizations in different parts of the world (Furubotn and Richter, 2005). It is also found from the discussion of these authors that those economies which are high in terms of consumption are the most effective organizations in all over the world (Furubotn and Richter, 2005).
The entire concepts of economies have been distributed into two important and large segments which are Microeconomics and Macroeconomics (Furubotn and Richter, 2010). Though, the concepts of both microeconomics and macroeconomics principles are different from each other, but they still be used in the economic consequences of the economies in an effective manner (Furubotn and Richter, 2005).
It is an obvious fact that entire field of economics have models and theories associated in it. In fact the core decision making stance of the economies relate with these theories and models specifically. In this assignment, a similar discussion is likely to adopt that will be bifurcated into two different parts. It is required to analyze the macroeconomic fluctuations of a specific model along with analyzing the core theoretical point of view accordingly (Mukherjee, 2014). Both of the sections of the assignment are of highly importance and will be considered accordingly.
Section-A
Economic theory and Macroeconomic Fluctuation
As discussed above regarding two different types of economics known as microeconomics and macroeconomics, are some of the important parts of the economic functions in particular (Mukherjee, 2014). Macroeconomics is a part of economics that usually associated with the economics of the country as a whole. It is an important part of economics that has a direct linkage with the economic position of the country as a whole (Mukherjee, 2014).
Though, prevailing laws and regulations of macroeconomics are somewhat similar than that of the laws and regulations of microeconomics particularly, as both of these things have demand and supply (D&S) concepts, and other important concepts as well. There are number of macroeconomic variables that will be taken into consideration for the analysis purpose to take out the things in the right and effective manner particularly (Mukherjee, 2014). Likewise the theoretical sections which have been applied over different discussions particularly, there are certain aspects that associated with the macroeconomic fluctuation as well.
As per the theory presented by Adam Smith and Alfred Marshal that earning and consuming the money in an appropriate manner is the most important aspect of Economics and its related concept accordingly, and it is equally applied over the concept of Macroeconomics as well (Mukherjee, Mukherjee and Ghose, 2003). The concept of macroeconomics also set on the same level of the core theoretical concept of economics in which different variables of economics would have been taken into consideration accordingly. The macroeconomic variables would change accordingly due to the application and implication of different aspects in particular. The most important concepts that stride under the entire laws and theoretical concepts of Macroeconomics are Monetary Policy and Fiscal Policy. Monetary Policy is the type of policy that usually used by the central banks to maintain the key policy and interest rate of the country in an organized and perfect manner (Mukherjee, Mukherjee and Ghose, 2003). While the policy that usually associated with the taxation based and taxation based authority is known as Fiscal Policy. Both of these policies are important and significant for the economies particularly, and both of these variables have a direct linkage over the financial position of the economy particularly. Both of these policies will lead to enhance the economic consequences of the economies in a perfect manner.
The importance of Monetary and Fiscal Policy would have been analyzed after getting the idea of Financial and Economic crisis, like the recently allocated crisis that hit the economies in the current economic scenarios. Both of these policies cannot be ignored by the economies, because both of these variables are essential for their long term economic prosperity and growth. One of the business cycle models that associated with the macroeconomic fluctuation is “Rational opportunistic political business cycle models”, which will be defining in this particular part to initialize the strategic consequences in a perfect and organized manner particularly (Mukherjee, Mukherjee and Ghose, 2003).
The stance of political stability of a country is extremely essential and effective of a country before physically delivering their economic consequences and prosperity in a perfect and organized manner. The countries or economies which are political stable are more productive and effective as compared to the economies in which the problem of political instability found. Some of the major examples of the countries in which the level of political instability are increasing heavily which are increasing the macroeconomic problems for the economies, like Afghanistan, Pakistan and others (Mukherjee, Mukherjee and Ghose, 2003). The political turmoil in these countries has been increasing heavily from last ten years, and these countries are trying to strengthen their function in the near future with positive attitudes and behaviors. However, it will require time to completely overcome over the external challenges of the country to bring macroeconomic change in the country in an effective and organized manner (Raj et al., 2006).
According to the theory of rational opportunistic political business cycle models, the political turmoil is an important driving force that will influence over the macroeconomic principle and fundamentals in an effective manner. According to this theory and business model, every economy has to cover a sort of economic cycle in a given time period to overcome on all of the challenges in an effective manner (Mukherjee, Mukherjee and Ghose, 2003). Gross Domestic Product (GDP) which is one of the most important and significant elements of the field of macroeconomic which strides that how the economy is doing as far as providing the macroeconomic effectiveness in the market with a positive attitude. GDP is a part of the macroeconomics in which the total amount of good produced by a country will be analyzed in an effective and organized manner (Mukherjee, Mukherjee and Ghose, 2003). High GDP and it growth is an indemnity that there is a political stability lies in the country, and the country has charm and effectiveness from which they can enhance their economic function in an organized manner. Business Cycle Models usually have found different troughs in this particular field which accounts for different aspects particularly. According to the core crux of this business model cycle, there are certain opportunities that will be created by a company while operating in a certain region while maintaining their effectiveness in the market in a positive manner. There are number of authors and theorists who considered this particular economic model in a perfect manner, and found that there is a strong relevance and relationship found among the political stability and economic well being of an entity in an organized and powerful manner (Ross, 2005).
The thing which affected a lot in the macroeconomic function while the political instability are GDP, Foreign Direct Investment (FDI), Tourism sector and the money supply. Number of authors and theories including the theory of John Maynard Keynes (JMK) emphasized on the fact of providing Multiplier Effects within the economies, as this particular effect is the most important one that can lead to high economic efficiency and consequences. A similar situation of low multiplier effective found during the economic crisis of 1930, which often referred as the Great Depression, in which number of people hoarded their money and not in the mood of investment or consuming it accordingly in the country (Ross, 2005).
As per the core theme of this particular model of opportunistic political business cycle, business and economic cycles is a common thing, but the thing that will be considered by the economies to maintain the effectiveness would be essential for them in the market. However, it is also found from the theory that the government of every country should be placed at a perfect level, and should provide benefits to their economy in order to enhance their macroeconomic variables in a perfect place (Ross, 2007). The largest and strongest economy of the world, the United States (US) faced the similar situation of political instability in the year 2001 due to the incident taken place at New York on the World Trade Tower and Pentagon. On the similar day, the stock market of the U.S. crashed by more than 40%, because foreign investors bought their money out from the financial market of the country. The GDP and other important macroeconomic variables affected heavily during that political turmoil in the United States (US). There is a lesson that can be learned from this particular theory, which is that government should place their executive role as far as managing the effectiveness of the country is concerned in a given and specific time period particularly.
Section-B
Economic Paradigm and Macroeconomic Fluctuation
Up till now, it is clear that the macroeconomic variables are essential and effective for the economic prosperity of an economy, and the variables of macroeconomics are very important in this (Ross, 2007). This particular part of the assignment is also related to the aforementioned technique and stance. It is required in this part to select an economic theory and its consequences over the macroeconomic variable fluctuations on the economy in a positive and effective manner accordingly (Ross, Ladyman and Kincaid, 2013).
The Paradigm which is used for the same assignment is “The post-Keynesian paradigm”. John Maynard Keynes (JMK) was the person who presented the Keynesian theory. According to proposed theory and theoretical aspect of JMK, an economy in which the level of exchanging of money among the hands is high would be the most effective economies as compared to those economies which are unable to initiate the same aspect particularly. The theory of JMK introduced during the economic crisis of 1930, which later on regarded as the Great Depression. The main reason behind referring it as a Great Depression is that people started to hoard and hold their money at that time due to which the economic power of the companies were about to finish (Ross, Ladyman and Kincaid, 2013). Obviously, when money is not able to exchange hands, then the level of money supply as well as the multiplier effect would be on a lower level that will certainly creates different problems for the economies in all over the world (Ross, Ladyman and Kincaid, 2013).
JMK introduced the topic of Money supply, and introduced his theory related to the same. JMK found that Wars are good for Economy, because people started to consume more in this scenario, which will be equally beneficial for the economic consequences particularly (Ross, Ladyman and Kincaid, 2013). Most of the people though that the mental capability of JMK was not fit at the time of giving such theory and statement, but the idea was absolutely right because Wars create such situation in which the people would invest and consume higher than the normal or actual level. The concept of money supply was very important at that time period, and it is equally important in the current economic scenario as well. The recent Economic crisis is a major example of hoarding the money and creating inefficiencies for the companies in all over the world (Ross, Ladyman and Kincaid, 2013). The theory of JMK was very important, and many of the economists and policy makers took it for the reference while making and transforming their core strategy for the functionality in particular.
The importance of Keynes Theory specifically at the time of economic collapse cannot be ignored as it will provide economic based effectiveness for them in the market (Mukherjee, Mukherjee and Ghose, 2003). Policy Makers gets an idea about the level of consumption in the economy. The policy of monetary is a clear example of JMK theory, in which the economy would like to enhance the money supply and consumption rate within the economy for the betterment of the economy. Policymakers have an idea that if the prevailing interest rate and inflation rate would be decrease appropriately, then it will certainly increases the monetary stance of the country particularly (Mukherjee, Mukherjee and Ghose, 2003).
Post Keynesian Paradigm, also known as Post Keynesian Economics that usually referred with the stance of the economy after the presentation of the theoretical aspect presented by this Great Economist (Mukherjee, Mukherjee and Ghose, 2003). It is basically referred as the practical implication of Keynesian theory on the macroeconomic economic model of the country. As mentioned above, when Keynes introduced the theory, there were number of authors who were totally against the idea presented by the economist in their mind as far as economic valuation are concerned. The criticism on Keynes have been considered by the Neo-Keynes theory and presented the last theory in a customized and effective way which later on regarded as the neoclassical economical theory and management. According to the Post Keynesian Paradigm, those economies which are effective in terms of enhancing their consumption level are more productive and sound as compared to the economies wherein the stance of consumption would be set forth on a lower level (Mukherjee, Mukherjee and Ghose, 2003). That was the same idea which introduced by JMK, but neoclassical economists have presented it in a different way, in which they emphasized more on Government of the country rather than on the individual players to enhance the level of consumption in an effective manner. Neoclassical economics emphasized on the financial institutions and the central banks to value the things in an effective manner, and introduced that central bank should come up with such strategies and policies from which the people especially the private sector would get added advantage. The thing that can provide the private sector certain economic advantages includes lowering down the interest rate due to which they are unable to enhance their money supply in an appropriate manner. Due to the crowing out effect, the problem of gaining advantage for the private sector will be diminishing heavily in the market, and consequently provide effectiveness to the public sector by giving them large amount of money and loans (Mukherjee, Mukherjee and Ghose, 2003).
The current economic crisis is the most important and widely used example of the problem initiated through the non compliance with the standards of Keynes Theory. There was a serious lacking in the consumption of money predominantly in the United States region (Mukherjee, Mukherjee and Ghose, 2003). Neoclassical economics introduced at that time as well to prevent the US and other economies of the world from yet another severe crisis that may even hurt the economic structure higher than the Great Depression of 1930. Fortunately, number of sound and developed countries of the world had a serious implication over the same stance, and found that minimizing the level of monetary policy or interest rate will certainly give perfection to them in their economic function, thus they decreased the amount of interest to as low as 1 percent to increase the level of borrowings from the market to make it a clear alarming tone for the banks and financial institutions that they should be clear with this strategy, and should help out the country through their core and effective strategic functions.
Conclusion
The concepts of economics revolve around two different types known as Microeconomics and Macroeconomics, and the productivity of each of this section will be considered as an important one for their core productivity. Theoretical aspects and modeling is the beauty of the field of economics and management, and all of these things will be using for motley purposes merely to strengthen the financial and economic structure and well-being of an entity.
Among numerous theories the name of Post Keynesian Paradigm and Product Life Cycle theories are some of them, which also referred as the modeling in which the tendency to deliver the effectiveness would enhance considerably. The core analysis of this subject is revolving around the effectiveness of the theoretical aspect of these things including the modeling aspects accordingly. There are two important sections that have been considered to complete this assignment in which relevant things along with economic theory have been mentioned along with proposed examples.
References
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