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Analyse or evaluate macroeconomic problem using appropriate macro economic theory. (no keynsian cross or IS-LM model) - Essay Example

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The performance on the recovery path has been different among members of the G7 group as monitored. This paper is about a comparison in this performance and…
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Analyse or evaluate macroeconomic problem using appropriate macro economic theory. (no keynsian cross or IS-LM model)
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Download file to see previous pages The results were evidenced in the forms of reduce activity in the stock market and collapse of financial institutions. This caused massive job losses and it had a direct impact on the price of goods. Prices of most commodities went up due to economic effects of cost in production and unavailability of capital which had an inflationary effect on the country’s economy (Buttet & Roy, 2014). Since the occurrence of the credit crunch, countries have been on different recovery paths that have been determined greatly by the policies and financial strategies laid by their leaderships. Since the main focus of this paper is to compare the different growths, the paper shall also look into how the DAD-DAS model has been applied and how it has or has not worked in both the best performing country and the worst performing country in the G7 group (Chiarella et al, 2013).
The information available indicates Britain to be the best performing G7 country with a GDP growth rate of 2.6% compared to the United States of America whose GDP growth rate comes second at 2.4% per year. The economic performance in Britain has been attributed to improved consumer confidence, stabilisation of interest rates and reduced inflation rates in the country. Other G7 countries such as Germany, France, Canada, Japan and Italy have recorded low growth rates which have also been attributed to a slow growth in consumer confidence and high inflation rates (Ghosh & Ghosh, 2012).
There exists several relationships that make up the DAD-DAS model and they are inflation, interest rates, demand shocks and supply shocks. These are based on the thinking that if there is an expectation of inflation then it will definitely occur. This means that if a population expects inflation to be at a certain level at a particular point in time, then inflation will possibly occur even without the causative effects from other factors. The second reasoning is that excess demand will most likely cause ...Download file to see next pagesRead More
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