Macro Economics - Essay Example

Download file to see previous pages... INFORMATION PRESENTED IN THE ARTICLE: The article summarizes current situation of the economy of United States and comment on the different policies and initiatives taken by the government. Writer, with the help of this article, wants to explain the changing attitude of the consumers in the market of United States. The ongoing decreases in the income level have resulted in generation of feelings against the government of United States. There has been around 9.8 percent decline in the national income, for the period starting from recession till June 2011, which is highest in previous some decades (Pear). Although there have been slight improvement in the unemployment rate, the overall wage rate has been stagnant or decreasing. Different factors have been identified for this by the writer like increasing number of people looking for jobs, people are ready to work at low wages, and the wage rate per hour is not able to cover the increase in the overall cost because of inflation (Pear). Along with this the writer has presented the ideas of different economists and analysts, who are of the view that recession has not yet ended for the economy of United States of America. People are facing serious issues because of the lack of jobs and reduced wage rates. As a result the overall spending has also decreased. EVALULATION AND EXPLANATION OF THE ARTICLE: In the article, Pear has provided different statistics in order to prove the decline in the overall household income and take home wages. Article presents different reasons behind the decline of this wage rates and national income. One main reason is the growing unemployment rate, there are increasing number of people who are looking for jobs out there. Owing to the increase in the unemployment rate, people working in different organizations cannot demand for salary increase. Unemployed people are ready to work at low wage rates, which further put downward pressure on the average wage rates in United States. This change can be explained with the help of the concept of supply and demand in the labor market. It has been known through the concept of the Marginal Productivity, that there is an inverse relationship between the wage rate and the demand of the labor. On the other hand the supply of the labor is directly related with the wage rate. If the supply of the labor is more than the demand of the labor, a situation which results in unemployment, the overall wage rates in the economy decrease considerably (Mankiw, 376-388). The decreased wage rate and increasing unemployment level has direct impact on the consumption and spending of the consumers which in turn influence the total GDP and output of any economy. The total output or GDP consists of different components namely: private consumption, government spending, investments, and net exports i.e. exports minus the imports (Leamer, 44-45). GDP = C + I + X – M Private consumption is related to the level of earnings of the people. The disposal income is the income earned by people after paying the taxes (Arnold, 209). The consumption is equal to disposal income plus savings. C = Yd + S Consumption function describes the direct relationship between private consumption and disposal income. Slope of the consumption function is known as the marginal propensity to consume, which explains the change in consumption because of the change in disposal income (Wessels, 139-141). C = a + bYd Where: a = ...Download file to see next pagesRead More