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Macro & Microeconomics Questions - Assignment Example

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Macro & Micro economics Topic: 1. Over 2011/12, was the output gap a cause for concern? Over the years, economists have made projections of the assumed Gross Domestic Product they expect to get at the end of the year based on certain micro and macro economic indicators and factors…
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Macro & Microeconomics Questions

Download file to see previous pages... In nominal terms, the projected gross domestic product would either be above the projected value or below the value. This where an output gap exists in the difference between projected gross domestic and the actual gross domestic product or actual output. If all calculations and estimations were right, then output gaps that produce positive or negative values should be of great concern to economists and be the basis for decision making. They should also give a source of concern to economists and predict the trend of macro and micro economic growth. On the whole, an inflationary gap, which is a representation of positive output gap measure, is an indication of growing demand over supply and subsequently an indication of inflation (Lipsey and Chrystal, 2007, p. 423). A recessionary gap, which is on the other hand a representation of negative output gap, indicates deflation in the economy (Lipsey and Chrystal, 2007, p. 423). For the year 2011 and 2012 therefore, the output gap cannot be brushed over easily without concern for worry. This is especially because in most jurisdictions of global economic giants such as the United States and United Kingdom, the output gap was said to be negative, indicating a recessionary gap (Thoma, 2012). In fact apart from deflation, there is the concern over unemployment when a recessionary gap is experienced. Unemployment should be a major cause for concern for a number of reasons. In the first place, the recessionary gap is an indication that because a lot of people were not in employable positions, the State could not make good of their input into the economy and so their part of the ratio of input in gross domestic product to balance the output gap was missing. The government is denied fiscal inputs from unemployed citizens because due to their lack of jobs, the government is denied important tax revenue from them. So apart from the fact that unemployment affects the lives of the unemployed by making his living conditions extremely difficult; the government also has a resulting effect. One other cause of concern is for government to be forced to repackage future budgets in such a way that aims at attracting and creating more jobs. What this means is that other government expenditure are always affect by output gap values when they create negations. A major justification in the relationship between recessionary gap and unemployment is given in the Okun’s Law, which states that “It states that for every one percent increase in unemployment above a "natural" level, that GDP will decrease by anywhere from two to four percent from its potential” (Hill, 2012). REFERENCE LIST Hill A, 2012, What is Okun’s Law? Wise Geeks. [Online] http://www.wisegeek.com/what-is-okuns-law.htm [May 17, 2012] Thoma B, 2012 The Zero Lower Bound and Output Gap Uncertainty [Online] http://economistsview.typepad.com/economistsview/2012/05/the-zero-lower-bound-and-output-gap-uncertainty.html [May 18, 2012] Richard G. Lipsey and Alec Chrystal. Economics. Oxford University Press. 11th edition. January 2007. 2. Examine whether the allure of the developing world to multinational enterprises has been affected events over the period 2011/12? In recent times, economic statistics show that there has been a developing situation whereby most developing nations are aligning themselves to international enterprises in terms of economic trade (quote). Generally, when there is such an enterprise, we have the formation of a multinational ent ...Download file to see next pagesRead More
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