The nternational economic forces - Assignment Example

? Macroeconomics Table of Contents: Executive Summary………………………………………………………….3 Background and Introduction………………………………………………..4 International Economic Forces………………………………………………5 International Economic Forces and Economic Growth……………………..7 IMF and Global Economic Growth…………………………………………10 History of Economic Growth of Europe after WWII………………………12 Economic problems of Europe……………………………………………..14 Conclusion and Suggestion…………………………………………………15 References………………………………………………………………….16 Executive Summary: International economic forces are most important aspects in the context of development and growth aspects of countries across the globe. In modern world economic factors and development or growth of these economic factors of any country depend on national as well as international economic factors. In European countries also international economic factors are creating great impacts on the growth rate of these countries. After the World War II economic factors of European countries have changed a lot. New economic models have been introduced in the country for the purpose of accelerating the growth of these countries (Dornbusch et al., 2012, p.149). These economic as well as policy changes have been accelerating the growth of these countries, but at the same time these are also creating come challenges and obstacles for higher growth of these countries. This research is aimed at providing a report on issues like international economic factors and effect of these factors on the level of economic growth of European countries, mainly after the World War II. This paper also provides fiscal as well as monetary policy recommendations which are needed to be applied by these countries at large to augment their growth process. Background and Introduction: In European countries global economic factors and international economic conditions have been creating significant impacts on their various economic conditions. After the World War II economic conditions of these countries have been changing to great extent and these economic conditions are increasingly becoming dependent on international economic as well as financial factors. Governments and economic policymakers of these countries have been trying to implement various economic policies, including both fiscal and monetary policies aimed at reducing the level of intensity of international economic factors in the process of creating negative impacts on economies of these countries (Acs and Szerb, 2012, p.15). These economic problems are associated with various economic factors, such as inflation, unemployment, lower level of income, detrimental effects on growth aspects of these countries, demand side as well as supply side obstacles etc. In these various fiscal as well as monetary policies have been introduced by the governments and policymakers of these countries (Dornbusch et al., 2012, pp.149-151). These policies have been introduced in order to mitigate if the negative effects of global economic and financial crises and also to reduce the level of dependence of these countries on international economic forces. International economic forces: International economic forces are those economic forces which are created mainly in the global or international market by various global or international economic agents, but affect various economic and financial conditions of the national economies. These international economic forces sometimes create positive effects on the national economies; however they also create negative or detrimental effects on economic aspects of national economies as well. One of the most important international economic forces has been the global financial and economic crises of recent times which have not only forced policymakers of these countries to implement new set of fiscal and monetary policies, but also raised a significant question regarding the fact that whether European countries need to depend on these international economic and financial factors (Bindi and Angelescu, 2011, pp.154-155). Another important international economic factor has been rates of growth of countries across the globe. In the face of globalisation and liberalisation of countries and economies across the globe have been forcing European countries to get affected by various national as well as international economic and financial factors. For instance, in the face of the global economic crisis (in 2007 and 2008), economies of most of the European countries, including United Kingdom, Norway, Greece, Finland, have suffered from low income, high level of unemployment and rising level of inflation. These effects are called immediate effects of globalisation of various economic factors (like effects on income, rate of growth of income, level of unemployment rate, level of inflation rate etc.) and also liberalisation of economies of countries across the globe. International economic and financial organisations like International Monetary Fund (IMF) and the World Bank are also creating significant impacts on these economies (Buchanan, 2012, p. 354). International economic factors and economic growth: International economic forces are significant determinant of aspects related to economic growth of countries all over the world. International economic forces have been playing significant role in developing growth aspects of European countries since a long time. In historical times international trade has been one of the most important factors which contributed a lot in developing various positive and negative effects on the economic growth aspect of these countries. European countries have been engaged in international trade since along time. Large proportion of aggregate income of these countries has been dependent on international trade since a long time. Various goods and services are traded by these countries to countries all over the world. Hence, this trade of varieties of goods and services are dependent on economic conditions of international economies as well. In case of better economic conditions of these countries when these countries have greater amount of income to import various goods and services from European countries, European countries get greater amount of income from experts of goods and services which are produced by European countries (Caves et al., 2012, pp.291-292). With the introduction of industrialisation greater mount of goods and services have been produced by European countries with greater application of division of labour and also with greater use of modern advanced techniques of production. Also after World War II, these countries have been trying a lot to replace the lost capital stock by increasing the volume of trade of with the rest of the world. This lost of human capital as well as physical capital has been the most important lost during the World War II for European countries. This lost of both types of capital stocks have been replaces by these countries and hence, these countries have became able to increase the level of income and also the rate of growth of their income after suitable replacements of these capital stocks. Another very important role of this replacement of human capital stock as well as physical capital stock have been that these replacements have also increased the efficiency of these two types of capital stocks in the production processes of these countries. This development in the production process has helped these countries to increase the level of economic activities and hence, the level of income to a great extent by engaging in international trade related activities, such as exports and imports of various goods and services (Caves et al., 2012, pp.293-295). Again the most important aspect related to international economic and financial factor which is affecting the growth aspects of European countries has been global economic and financial crises. The most significant global economic crisis has been the Great Depression of 1930s. This global economic and financial crisis negatively affected the economic growth path of European countries to a great extent. The average rate of growth of per capita income of European countries fell from 8 percent to 4 percent. The lost of capital stock and lack of aggregate demand for various goods and services produced and traded by these countries have augmented those negative effects. Again in 2007 and 2008, advent of the Global Financial Crisis has reduced the rate of economic growth of these countries across the globe. During this time not only the level of aggregate income of these countries fell significantly, but also the level of economic activities conducted by these countries also reduced significantly. All these negatives effects created detrimental effects on the level of employment and inflation rate in these countries (Dornbusch and Fischer, 2012, pp.78-79). The Global Financial Crisis has caused rapid reduction in the value of prices across countries in the Europe and also has reduced the level of income by reducing the volume of economic activities across the globe. These effects have generated further reduced the volume of activities related to international trade in European countries. International economic factors have played significant role in the process of development of these countries. After the onset of industrialisation across all European countries, demand for various goods and services which have been produced by these countries increased across the globe. New markets for these goods and services also opened up all over the world. This increase in the demand for various goods and services and also in the opening up of new markets together has created positive effects on the level of economic growth of these countries. At present with the help of increase in global economic activities these countries are expecting to increase the value of income and also the rate of growth of income of these countries (Musgrave and Musgrave, 2012, pp.197-201). IMF and Global Economic Growth: In the face of the recent Global Financial Crises and also in the face of reduction in rates of economic growth of most of the economically developed countries of the world, such as United States of America, United Kingdom, Australia, Canada, Japan etc., IMF was forced to cut the expectation regarding the rate of growth of world economies. The International Monetary Fund cut its expectation regarding the future rate of European countries by a larger margin. The actual forecast of the IMF on the rate of growth of world economy is 3.3 percent, compared to its previous year’s expectation on rate of economic growth of 3.8 percent. There are various reasons for IMF to reduce its growth rate expectation. The most important reason is the current economic situations of European countries. European countries are now suffering from various crises situation. The most important crisis is the lack of financial asset and capital stock. These reductions in capital stock and financial assets are negative outcomes of global crises. Again the reduction in income level of citizens of these countries is also accelerating these deteriorations in financial and capital stocks (Talley, 2012, p.1). Another important reason for the negative forecast by the IMF is current mounting level of debt crisis of European countries like Greece, Norway, Finland, Portugal and Spain. Governments of these countries are responsible for taking large amounts of public loans from the World Bank and also from the IMF for making greater amounts of public spending in these countries. Large amounts of these debts are still unpaid and these countries are continuously paying large amounts of interest rates on against these public borrowings. Under these crisis situations these countries are suggested by the World Bank and also by the IMF to cut down their amounts of public expectations. But the problem is that under the global crises situations these countries are getting forced by international financial and economic situations to expand their volume of public expectation (mainly in the face of the failure of private sectors to generate higher level income and employment in these countries). During this time the value of loans of these European countries are also reduced by those international monetary organisations. This reduction is causing financial institutions in these to their national and international markets for loans and transactions of assets and the level of asset income of theses countries are also getting reduced in present time. Due to these reasons the IMF declared that the ‘U.S., Japan, the U.K and the euro zone’ is expecting to grow at only 1.5 percent in the 2013 (Talley, 2012, p.1). History of Economic Growth of Europe after WWII: After the World War II European countries are facing several economic challenged and crises situations. After the Great Depression these countries tried a lot to restructure their economic situations and also to augment the path of growth rate. However, the recent economic crises and continuous rise in international price of oil are deteriorating the growth path. Along with the rate of growth of income of these countries the level of employment are also reduced to a very low level during this time phase. These countries are now more dependent on international trade and on the international financial system. The level of public borrowings of these countries is catching the historically highest level. These countries are now facing political instability because of greater amount of reduction in employment rate. In the face of the announcement of the World Bank and the IMF that these financial organisations will provide loans to European countries only if these countries reduce their current level of government expenditure, people of these countries are suffering from getting unemployed (IMF: Global economy 'in danger zone' over euro crisis, 2012, p.1). Economic problems of Europe: European countries are suffering from numerous economic problems at present. Among these problems the most important one is the reduction in the level of income of these countries and reduction in the growth rate of income. Also the rate of increase in prices of goods and services across the world are also reducing the level of real income of citizens of these countries which are further reducing the level of purchasing power and hence, the level of demand for those goods and services (Mankiw, 2011, p.585). These reductions are hampering the volume of production of these goods and services and hence, the level of unemployment is rising continuously in these countries. In other words, these countries are suffering from vicious cycle of crisis at present. The greater and rising amounts of national and international debts are also creating detrimental effects on economies of these countries. The level of investment in these countries is also getting reduced and hence, these countries are suffering from lack of accumulation of capital (Mankiw, 2012, p.185). Under these economic crisis situations various fiscal as well as monetary policies can be applied by these countries. The most important fiscal policy can be to increase the level of government expenditure for the purpose of generation of new employment and hence income within these economies. Another important fiscal policy can be to increase the level of public investment in developing the financial and capital goods sector of these countries. The most monetary policy can be related to the increase the volume of assets of these countries. This goal can be achieved by lowering the rate of interest on loans which will also increase the level of private investment in these economies. Another important monetary policy can be the restructuring of the financial system of these countries by increasing the degree of government intervention into these countries’ financial system. This policy will help these countries to avoid the market outcomes of global financial crisis situations by reducing the level of dependence of these countries on the financial systems of other countries. This policy will also raise the level of confidence of these countries in the field of financial and monetary system within these countries (Padro and Peters, 2012, p.39). Conclusion and Suggestion: International economic forces are creating significant impacts on European countries since a long time. Markets for various goods and services, level of income, growth rate of income, level of prices of these goods and services and the level of employment are getting affected by these international economic forces. European countries are experiencing various economic ups and downs since the World War II. The current situation of these economies is not satisfactory and various fiscal as well as monetary policies are suggested by economists across the globe to restore the high level of economic growth and development in these countries. References 1. Acs, Z. and Szerb, L. (2012), Global Entrepreneurship and Development Index 2012, UK: Edward Elgar Publishing 2. Bindi, F. and Angelescu, I. 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(2012), IMF Cuts Global Growth Estimates, The Wall Street Journal, available at: http://www.imf.org/external/pubs/ft/survey/so/2012/NEW012412A.htm (accessed on February 26, 2012) 13. Williams, F. A. (2012), The economic situation in Europe, UK: The Institute of International Education Read More