Fundamentals of Macroeconomics Paper
May 11, 2015
Fundamentals of Macroeconomics
Macroeconomics is the study of the economy as whole (Colander, 2013, p. 5). It considers the problems of inflation; unemployment, business cycles, and growth (Colander, 2013, p. 5). Inflation is a general increase in prices and fall in the purchasing value of money. Unemployment rate refers to the number of people actively looking for a job but unable to find one (Colander, 2013, p. 5). Business cycle is a cycle or series of cycles of economic expansion and contraction (Colander, 2013, p. 5). Economist analyzes each of these factors to determine the state of the economy. We live in an environment that is constantly changing. There are a number of factors, behaviors and trends that affect the economy. One event can caused a domino effect. This paper will outline how scenarios such as purchasing groceries, massive layoffs, and a decrease in taxes affects government, households, and businesses. PURCHASING GROCERIES
As simple as it seems, the task of buying groceries can be very difficult during harsh economic times. During these times, families must decide what foods are needed and what items can they do without. Consumers may opt to purchase foods that can make multiple meals such as rice or chicken. When the economy is struggling, consumers become more cost conscience and are more likely to monitor their spending habits. This can also have a negative effect on the government, and business. A large percentage of food sold in the United States is imported from other countries. For examples, bananas are widely produced in countries such as Columbia, Costa Rica, and Ecuador. If the sales of bananas are reduced significantly, it could spark changes in the entire global economic system and trade agreements. The purchase of grocery effect government is other ways as well. Sales tax is attached to sale or groceries. When consumers make fewer purchases, it decreases the amount of money going into the treasury. MASSIVE LAYOFFS
Another factor that affects the economy is massive layoffs. Organizations have a responsibility to their shareholders to remain profitable. In many cases, layoffs are necessary to keep the business operating. Individuals are affected by massive layoffs because they have less money to spend. Individuals are then forced to choose between food, healthcare, and other necessities.
When consumers have less money to spend, luxury items are no longer a priority. Studies show that when faced with economic woes, consumers spend less money on high ticket items such as clothes, electronics, and travel. For example, during the 2008 recession, twenty-seven percent of clothing manufacturing jobs was lost. Retail giants such as JC Penny’s and Macy’s experienced a significant drop in the sale of clothing. When individuals are laid off, they have less money to spend on luxury items. As a result, those businesses are also affected. Massive layoff effects the government as well. It causes less money to go into the treasury which results in higher interest rates and decreased market value. DECREASE TAXES
One way to get the economy moving in a positive direction is by decreasing taxes. The collection of taxes is used to fund government projects. When taxes are decreased, it can have an immediate impact on the economy. A deduction in payroll taxes gives consumers more spending power. When individuals have more spending money, they tend to spend more. In thriving economy industries such as travel, automotives, and retailers often see an increase in capital. Increase in profits means businesses have excess capital to expand and promote job growth. Decreased taxes also benefits businesses. Tax breaks on businesses allows them to lower prices on goods and service. If taxes are too low, the government is unable to fund projects such as rebuilding infrastructure, education, and social...
References: Colander, D. C. (2013). Economics (9th ed.). Retrieved from http://newclassroom3.phoenix.edu/Classroom/#/contextid/OSIRIS:48714987/context/co/view/activityDetails/activity/b175ddb2-c998-4da6-9980-b689bfff2fc2/expanded/False.
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