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Macro - Essay Example

In the same manner, when a consumer has to decide a major purchase. Any decision the success of which depends on future events is likely to involve uncertainty. In such cases the decision most probably will be postponed with hope that the uncertainty will dissipate as new information becomes available. The more investment, purchasing, hiring and other economic decisions are postponed, the lower the economic activity. The greater the uncertainty, the less forward-oriented economic activity there is likely to be, with adverse effects on investment, employment and consumer spending. Another reason why the economy is lagging is that there is a chain of events that leads to recession. That means a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail. When some adverse events occurs the level of consumer purchase or government purchases or exports may decline. When business investors decide there is no need for any increases in productive capacity investment in plant and equipment goes from some substantial to near zero. Similarly, inventory investment goes from some positive amount to a large negative amount as businesses sell off the inventory and do not replace it. Meaningthat when something happens that discourages the other components of demand the adjustment is marginal, but business investment goes into free fall. Business in plant and equipment

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is a major element of demand for products. Although in most governments it is smaller than consumer demand, it is highly sensitive to actual or proposed changes in taxes and regulations. Purchases investments are dependent on expectation of future economic growth and therefore there is feedback effect. A decrease in private investment purchases results to a decrease in production and the decrease in productions leads to a decline in expectations of growth in production. A decrease in production leads to labor layoffs and lower consumer incomes. The lower consumer incomes lead to lower consumer purchases and less tax revenues for governments leading to reduction in government purchases. The net result is declines in private investment purchases being the cause of recessions. Great recessions are accompanied with decline in the level of private investment. The loss of this source of demand for goods and services is attributed to drastic increase in the unemployment rate and all of the other adverse consequences. In such cases the collapse of investment is driven by recording high real interest rates, which in turn are due to deflation brought about by mistake in monetary policy governments. The resultant condition is that the real GDP will start to increase but at a slower rate that cannot absorb the current pool of unemployment that had been created by recession in production. According to (Peter, 1993) there had been a financial crisis in September of 2008 but that in itself was not what caused national sales and production to decrease. It was the loss of confidence on the part of businesses about the future of the economy that produces the decline in demand. The finance crisis was an influence on the loss of confidence, but it was the loss of confidence itself which was the cause of the recession in prod


Macro & microeconomics: Why economy is lagging and how to improve it. [Name of Author] [Course] [Institutional Affiliation] Macro & microeconomics: Why economy is lagging and how to improve it The major impediment to economic growth at the present has been the uncertainty on the part of the key economic factors, namely businesspersons and consumers…
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