Rich World Economies: Public Institutions, Policies & Jobs - Essay Sample

Introduction

Economies of the rich word are made up of millions of firms and billion consumers taking their decisions. However, they feature various public institutions that attempt to steer the economy, such as governments that decide the amount of money to borrow and spend or central banks that set different monetary policies. The institutions have been operated under created rules for the past decades. Moreover, the government wishes to have a booming market of jobs that can win votes, but in case the economy overheats, the action might cause inflation. Therefore, the independent central banks are required to prevent the punch bowl as the party is warming up, to borrow Willian McChesney Martin's familiar quip, once a federal reserve head (Burda and Wyplosz). One might think of the action as a division of labor as many politicians pay more attention to the state's long-term size and myriad other priorities. The depicted paper, therefore, is premised on a discussion regarding macroeconomics and how it relates to the current events today.

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The neat arrangement of nations is collapsing, and reports explaining the connection between higher inflation and lower unemployment have gone missing. The rich world and rich people are enjoying the boom of jobs even as primary commercial banks undershoot the targets of inflation. The rate of unemployment in America has been 3.5%, which has been the lowest since 1969, but the rate of inflation is only 1.5% (Burda and Wyplosz).

The rates of interest are meager that central and commercial banks have limited cutting space should any form of recession take place. Currently, people are trying to support quantitative easing demand, such as purchasing bonds to free their economic status, but the action is still difficult. There are unfavorable government policies, inflation, unemployment rates, taxes, gross domestic products, and taxes.

Gross Domestic Product (GDP)

Output, the most significant macroeconomics concept, gets construed as the total amount of services and goods produced by a country, referred to as the gross domestic product, which is like an economy's snapshot at a specific point in time. Most macroeconomists use the real GDP that takes inflation into account instead of the nominal GDP that only mirrors price changes. The nominal figure of GDP always increases when inflation goes up annually, which makes it not indicative of various high levels of output for higher prices. However, the disadvantage of GDP is that data needs to be collected after a specific period has elapsed; a current GDP figure might be an estimate (Blanchard, Dell'Ariccia, and Mauro, 206).

Once some figures have been collected after a certain period, they might be compared, and investors and economists start to decipher the cycles of business obtained from the alternating periods between booms (expansions) and slumps (economic recessions) that take place over time. From the depicted scenario, different cycles occur that might be due to international phenomena, consumer behavior, or government policy (Dullien et al.).

For instance, in the current world, when consumers purchase goods or opt for expensive services, the GDP increases according to the amount of money spent on a particular product or service. Or, when the economy of a nation is healthy, there will always be low unemployment that increases wages and salaries because businesses will demand more labor and finance to meet the growing economy (Burda and Wyplosz).

The Unemployment Rate

The rate of unemployment in a country often tells macroeconomists the number of available people from the labor pool who cannot find work. When there is regular economic growth in a nation as depicted in the GDP growth rate, the levels of joblessness tend to decrease because when the levels of the real GDP increases, the output will automatically increase. The action depicts that more employees will be required to maintain greater production levels. Moreover, in an economy, the rates of unemployment often measure the amount of unemployment, i.e. the employees' percentage with no jobs in the labor force (Blanchard et al., 208).

The rate of unemployment in the pool of labor only includes people who are actively looking for jobs while those discouraged from looking for work, pursuing education, or retired are excluded. The country has always tried its best to employ as many people to increase their lifestyle as well as their economy through hard work and that of the nation at large. Nevertheless, joblessness can be broken down into many types related to different causes. For instance, there is classical unemployment that takes place when there is an increased wage for employers to wish to hire more employees (Barro and Redlick, 78).

Macroeconomy suggests that when the wages increase, the unemployment rate decreases, creating more consumer demand in certain goods and services. On the other hand, unemployment is also caused by reduced demand for services and goods that are produced through intense labor. However, the action takes place only in markets or places where there are low margins of profit as well as where the market cannot sustain any increase in prices of services or products. Also, there is frictional unemployment that takes place when there are relevant job vacancies (Dullien et al.). However, the current world requires a good connection for one to get a sustainable job making the less fortunate people spend most of their time searching for employment and the used period leads to unemployment.

Most people who are employed in big companies or government agencies also do not have relevant skills but are employed because of family history, friendship, or corruption. The action leads to structural unemployment, which covers many causes of joblessness to qualified people, such as a mismatch between the required skills and the skills of the worker for open jobs.

More cases of structural unemployment often occur when a country or an economy diverts its focus on new employees and industries, making them feel like their abilities and efforts are no longer needed. Nonetheless, while some types of joblessness occur despite the economy's condition, cyclical unemployment takes place when the growth rate of a nation or place is stagnant. For instance, in some parts of America, a 5% output increase might result in a 2% unemployment decrease (Blanchard et al., 211).

Inflation and Investments

Inflation is always measured in two ways: through the deflator of the GDP or the index of the consumer price (CPI). The GDP deflator gets construed as the nominal GDP ratio to the real GDP ratio, while CPI showcases the current approximate price of a chosen basket of services and goods that are regularly updated. Therefore, if the real GDP is lower than the nominal GDP, one might assume that the prices of services and products are always increasing as the GDP and CPI deflator tend to coincide and might vary by less than 1% (Barro and Redlick, 81).

For instance, when shopkeepers raise the price of their products, it means that the economy is high, and there is an increase in wages. Even if they inflate prices of their initially purchased products while there was no change in economy, the consumers will not know as they will be convinced by the rising economy. The same action happens when new people want to invest in a business but have no knowledge and skills regarding price fluctuation, rising prosperity, and how to maintain good profits (Dullien et al.).

Demand, Disposable Income, and Taxes

Demand often determines the output of service and originates from exports and imports, the government (federal employees spending on services and products), and consumer (business-related and residential, for savings or investments). However, demand cannot determine what is produced or how much is produced by an organization. The demand for clients is always not necessarily what they can buy or what they can afford (Blanchard et al., 212). Therefore, for the economy of a nation to be stable and open, demand must be determined through measuring the disposable income of the consumer. The amount of finances left is always set aside for investment or spending after taxes.

Before calculating an employee's disposable income, his or her wages must be quantified. Their income is a function of two primary components: the number of employers willing to employ and retain their employees and the minimum salary for which the workers will work. In most cases, supply and demand often go hand in hand, and when there is a high rate of unemployment, the levels of salary decrease and can only increase when there is a low level of unemployment. The levels of production (supply) must be determined by the demand to reach and equilibrium in the economy of a country. However, to feed supply and demand, funds are required (Dullien et al.).

For instance, the American central bank in the US federal reserve must put finances in economy circulation. The total expenditure of all demand of people will then determine the amount of money required in the economy. To approximate the country's economy, economists must analyze the nominal GDP that determines the aggregate transaction level to find a suitable level of finances to be supplied (Barro and Redlick, 87). Also, when the income of a person increases, the tax rate increases to reach an equilibrium between the low-class, middle-class, and high-class people as well as balancing the nation's economy at large.

Government Policy

The government often has ways of implementing macroeconomic policies in the country. It uses the fiscal policy and monetary policy that help in stabilizing the economy of the state.

Monetary Policy

An example of the government's monetary policy is the operations of the open market of the central bank. When finances should be increased in the economy, the central bank often purchases the bonds of the government for monetary expansion (Burda and Wyplosz). The involved securities will then allow the economy to be injected with the central bank with immediate money supply, in turn, the costs of borrowing money or the rates of interest are always reduced as there is the demand for the government bonds to increase the price and lower the rates of interest. In theory, more businesses and people with then invest and buy that will increase the demand for services and goods and as a result, increase the output.

To cope with the increased production levels, the levels of unemployment will be forced to fall, and wages will increase. On the other hand, the central bank will be forced to sell its T-bills as it will require to absorb extra cash in the economy and lower the levels of inflation. The action will, in turn, lead to higher rates of interest such as investments, less spending, less borrowing, and less demand, which will decrease inflation (price level), leading to less real output (Weale et al.).

Fiscal Policy

The government can always lower its spending and increase taxes to conduct a fiscal contraction. The action will then lower the real output as less spending by the government implies that there is less disposable income for customers or consumers. As time progresses, the wages of the consumers will change or go to taxes, decreasing the level of demand (Weale et al.). Moreover, a government fiscal expansion might imply that taxes should be reduced or the spending of the government to be increased.

When either of the actions occurs, the outcome will always be expansion and growth in the real output as demand will be stirred by the government with its increased spending. During the period, a consumer with high disposable income will always be willing to purchase more products or services (Dullien et al.). Thus, the government often uses both the fiscal and monetary options to set policies dealing w...