Over 2013/14, to what extent was the output gap a cause for concern - Essay Example

Problem of Output Gap in England: Is it serious Problem of Output Gap in England: Is it serious The output gap is the difference between the real time Gross Domestic Product and the maximum level it can reach theoretically, if all factors of production are used to their optimal extent. The factors of production are wasted due to multiple Adapted from www.economichelp.orgreasons and that is why, economies do not attain an ideal level of productivity in the local production systems but again the economists try to reach nearer and nearer to the level of optimal capacity every now and then.

However, the governments risk overproduction and inflation once they attempt to reach the optimal production capacity (Salameh, 1995). In the case of English economy, the system is jamming up and therefore, the country is currently muddling through the times of demand pull inflation. In condition like this, the people want to purchase products and services but cannot do that because of lack of sufficient disposable income. The companies on the other hand face the same dilemma because all they want to do is to respond to the demand in the market but they are also unable to do so due to general scarcity of financial resources in the economy (Neiss & Nelson.E, 2005). The country of England is going through severe underproduction at this point in time and the desperate measures are expected to be taken from the local government in order to manage the already worsening situation.

The problem lies with incapability of the economy to embrace international trade. The international trade would have allowed the country to pick and choose the products that should be produced locally and which cannot be done so must have been outsourced to the other countries. The decision to uphold the national identity of England in the global economic arena backfired to say the least (Koyama, 2010). The country is left alone in the global community of nations because it tried to fight one powerful trend of globalization.

The globalization has engulfed every aspect of human life in the modern era of the 21st century and therefore, nations have to submit to the force in order to survive in the international marketplace. The countries are starting to operate like organizations and they intend to develop their competitive advantage with the help of which they are planning to sustain in the global economic world. The concept of self-sufficiency was the main force behind the English decision of not joining the European Union but the plan is falling apart.

The plan is failing because UK’s local production has become notorious for expensiveness and low quality (Koyama, 2010). They are not a match for Chinese products in the global market and because of this reason; the government is facing difficulties in terms of boosting the economic cycle in the local economy. Conclusively, it can be established that the English economy is suffering from severe underproduction whereas, people’s basic needs remain unfulfilled and all of this is happening due to general scarcity of financial resources in the economy.

Based on previous paragraph’s discussion, the output gap is a serious issue for England.ReferencesKoyama, M., 2010. The political economy of expulsion: the regulation of Jewish moneylending in medieval England. Constitutional Political Economy Vol 24 no 4, pp. 374-406.Neiss, K. S. & Nelson.E, 2005. Inflation Dynamics, Marginal Cost, and the Output Gap: Evidence from Three Countries. Journal of Money, Credit and Banking , 37 no.6, pp. 1019-1045.Salameh, M. G., 1995. China, oil and the risk of regional conflict.

Survival: Global Politics and Strategy, 37 no. 4, pp. 133-146.www.economichelp.org, 2012. UK Output Gap. Image viewed at 18 Feb 2014 from http://www.economicshelp.org/blog/6040/economics/what-is-the-uks-actual-output-gap/.