Contact Us
Sign In / Sign Up for FREE
Go to advanced search...

Macro - Essay Example

Comments (0) Cite this document
Stagflation is essentially a combination of recessionary demand coupled with inflationary rise in prices. It is arguably the worst possibility of a business cycle. Typical recessions are associated with falling prices but in case of stagflation, the situation is of inflation…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER96.9% of users find it useful
Read TextPreview

Extract of sample "Macro"

Download file to see previous pages Observe that the equilibrium output has fallen to Y2 implying recession and the price level has increased to P2 implying inflation.
2. The immediate impact of a reduction in taxes is an increase in aggregate planned consumption expenditure, a component of aggregate demand. Thus, aggregate demand increases implying a rightward shift in the AD curve. However, whether this would lead to a substantial economic expansion (growth) or inflation with some minor growth depends upon where the economy is located on the business cycle when the policy is undertaken. We shall consider two cases: (a) when the economy is in recession and (b) during a boom.
As is evident from the diagram above, the tax cuts led to the AD curve moving from AD1 to AD2 which in turn leads to an expansion of Y from Y1 to Y2. There is a negligibly small increase in the prices from P1 to P2. Thus, during recession or during the phase of recovery, tax cuts can yield substantial growth.
During a period of economic expansion or the “boom” phase of the business cycle, the tax cut on the other hand can have a harmful impact on the economy. This is shown in the diagram above. Observe that now the outward shift in AD has led to a substantial rise in the price level while the increase in real output has been small. The closer the economy gets to the full employment equilibrium, the less effective does the tax cut become in stimulating growth and most of the impact of the resulting rising demand is reflected instead in rising prices.
Essentially, during recession the economy is located far out from its full employment equilibrium and thus has surplus unused capacities. So, when the aggregate demand rises, the capacity utilization rises and so employment and output rise while prices stay more or less the same. However when the economy is in a boom and is located close to its full employment equilibrium, there are no unused capacities. As a result ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Macro Essay Example | Topics and Well Written Essays - 1250 words - 2”, n.d.)
Macro Essay Example | Topics and Well Written Essays - 1250 words - 2. Retrieved from
(Macro Essay Example | Topics and Well Written Essays - 1250 Words - 2)
Macro Essay Example | Topics and Well Written Essays - 1250 Words - 2.
“Macro Essay Example | Topics and Well Written Essays - 1250 Words - 2”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document



...? The effect of a temporary positive aggregate demand shock is shown above in the diagram. Initially, the economy starts off at the long run equilibrium point E0. Observe that the Long Run Aggregate Supply (LRAS) curve is vertical at output level Y*. The Aggregate Demand (AD0) and the Short-Run aggregate supply (SRAS0) curve intersect at this level of output resulting in the equilibrium price level = P0. As a result of the positive demand shock at t=1, the AD curve shifts out to AD1. The SRAS curve remains the same. As a result the new short-run equilibrium point at t=1 is E1. Short run aggregate output increases to Y1 and the price level rises to P1. In period t=2, the AD curve shifts back to its initial pre-shock level AD0... The effect of...
6 Pages(1500 words)Essay

Macro Economics

...?Running Head: Macro Economics Macro Economics Macro Economics Question The determination of the level of GDP (Gross Domestic Product) in the short run is determined by the model developed by John Maynard Keynes. This model works on the basic premise that the level of production in the economy depends upon the level of aggregate demand. (Sloman, 2006) Keynesians believe that if left to the market forces there is no guarantee that the economy will achieve a full employment level of GDP. They argue that instead when left on its own economy may not function as required and may result in high levels of unemployment. Therefore, to control this it is important for the government to intervene....
4 Pages(1000 words)Essay


...?Running Head: ABBREVIATED OF YOUR CHOICE (all caps) and Section # of Macro Answer #1 Germany is an open economy, so its economy is affected by international competition and location of its product and factor market. The rate of unemployment in Germany has been around 5.4 percent by end of 2012. This is because the demand for labour is a derived demand and the low demand for German products from its 17 Euro countries. This is because of crisis in other parts of German markets such as Cyprus. (Riecher, 2013) Figure 1: Unemployment Rate in Germany1 Germany has been able to deal with structural changes efficiently as its policy doesn’t include laying off workers rather makes the work shorter hours. So when workers cut off...
4 Pages(1000 words)Assignment

Macro responsible for ensuring that United States economy attains sound macroeconomic levels in terms of price stability, full employment, economic growth and equilibrium in the balance of payment. In order to attain this, the bank has in place a raft of monetary and fiscal policies that they use to attain their macro-economic objective. The US government targets an inflation rate of 2.0%. This inflation rate is well balanced with the unemployment level, which is pegged at 3%. Friedman (123) says that currently, the unemployment level is at 7% and the inflation rate in United States is at 2.7%. This level falls way below the target set by the government as inflation target rate and unemployment target rate respectively. The...
8 Pages(2000 words)Term Paper


...? Macro & microeconomics: Why economy is lagging and how to improve it. al 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. The businessmen are hesitant to hire and invest whereas the consumers are hesitant to spend because of uncertainty about their prospects. When an investor has to decide whether to invest in a new product or other facility, with the success of his decision dependent on future revenues and costs, there is bound to be an irreducible element. In the same manner, when a consumer has to decide a major...
3 Pages(750 words)Essay


...Define opportunity cost. What is the opportunity cost to you of taking s? Ans: Opportunity cost is the value of next best alternative sacrificed for any economic activity. The opportunity cost of taking any course is measurable when we can say what the options we have i.e. what we can do if we are not in the courses. We have to consider our ability to work. Then we have to find out which could be the best alternative for us if we had not joined the courses. Then the potential earring from that activity would be considered as the opportunity cost of taking courses. (See: Net MBA) What change must occur in an economy for its production possibility frontier to shift outward? Is it possible for an economys production possibilities... opportunity ...
2 Pages(500 words)Essay


...Global Financial Crisis and number Andy Kilmister Source: IV Online magazine, 07/12/2008 Global Financial Crisis Summary: This article points to the Global Financial Crisis (GFC). The number of unemployed is rising in most economies, Andy Kilmister (2008). Among developed economies, “the number of unemployed has more than doubled in the United States of America since the beginning of the recession in December 2007” (p. 45). The unemployment rates in the euro area and Japan have also increased notably. The actual situation is even worse as it does not include unemployment data for discouraged workers who are unemployed but not currently looking for work because they believe no jobs are available for them. Unemployment rates... Financial...
1 Pages(250 words)Essay


...Macro Economics, Essay (Inflation) My chosen article is Fed Responds to a Grim Reality from the New York Times news analysis. I chose the article because it addresses the interplay between several macro economic factors and players. It also offers a macroeconomic analysis of the current monetary situation of the nation from the government’s perspective. The article documents the past focus of the federal government on inflation as the sole and greatest cause of macroeconomic problems. In recent times however it has become apparent that the problem is no longer inflations but more to the over 20 million Americans who cannot find full time jobs (Appelbaum). The popular opinion among monetary economists is...
1 Pages(250 words)Essay


...Describe the adjustments in the production possibilities curves in each of the following situations for the U.S. economy. a) When the economy moves from full employment into a deep recession In this section of the economic cycle, aggregate economic performance is at the peak of the curve as all factor input are employed. Recession is marked with significant reduction in economic activities in which there in unemployment. The economy basically operates down the cycle with production level below the potential level as input factors are unemployed. b) How the end of the cold war lead to cuts in military spending This case could be presented by a private spending and government spending tradeoff in a curve. This is interpreted... the...
1 Pages(250 words)Essay


...Macro economics al affiliation: Unemployment An increase in population is one of the major challenges being faced in the world today. This issue, comes along with problems such as; inflation, unemployment, the balance of payment problem as well as lack of growth. In many countries today, majority of the unemployed people are the youths. These pose great dangers not only to the economy but also to the social and political world. Unemployment is an important issue of macroeconomic issue. This is where majority of the people in a country have no jobs. Unemployment could either be voluntarily or involuntarily. Voluntary, is when people do not work because they feel better off unemployed. Conversely, involuntary unemployment people... economics al ...
1 Pages(250 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Macro for FREE!

Contact Us