Sunday, August 4, 2019

The effect of the macro-economy Essays -- essays research papers

External Influences The Macro-economy The production and exchange process of the whole economy as opposed to individual markets within the economy. Businesses are affected by changes in the macro-economy and by government processes towards the macro-economy. Government economic policies change a lot. (E.g. labour made bank of England independent on their first day in office.) Instead of dividing the economy into different sectors (e.g. retail, cars etc) we look at the economy of the country as a whole. Government Macro-economic objectives: †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Control of inflation – 2.5% †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Maintain full employment-all who want a job can get one. †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Control of balance of payments. Imports vs. exports †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Stability of exchange rate. Could stabilise exchange rate by joining euro. †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Maintain steady economic growth -2%-2.5%. That means that the country as a whole does better next year than it does this year. Inflation is a general rise in the price level over a period of time. Inflation in the late 70’s in the U.K was 27%. That meant that if bread was 100p, the next year it would be 127p We can measure inflation by: †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Looking at the standard retail price index. This is where the government agrees a standard shopping basket e.g. food, petrol, mortgage. †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  RPIX-RPI take away mortgages †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  RPIY-RPIX takes away taxes and local authority taxes. †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  HICP-adopted by all EU countries. This was made to try and determine with the position is within Europe. They have decided not to include for example, housing costs in each country, they are looking for a general price rise in general retail goods. However it is expensive in any city to live there, so housing costs are an extremely important factor. It does include university fees, to measure how good an economy is in any country. Because students are future of economy, the more students you can produce (theoretically) the better. Balance of payments †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  A record of trade between U.K and other countries. (although it applies between all countries) †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  It is the difference of imports and exports †¢Ã‚  Ã‚  Ã‚  Ã‚  &... ... own country. Economic Growth Measured by the GDP (Gross Domestic Product) – the value of output of goods and services in the economy over a period of a year. †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Measured by adding up total incomes (Y) or total expenditure (E0 or total output of industry †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  In theory all should be the same. †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Appropriate growth levels in U.K e.g. If it is too high, the economy is overheating, if it is too low it is stagnating –resources, unemployed, an actual growth of 2-2.5% is seen as being sustainable and is ‘appropriate’ †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  If growth rates get too high the economy is expanding too quickly and people spend too much money which leads to an overheating of the economy and inflation. There is also a fear of whether it is sustainable to have it expanding that quickly. If it is too low resources may be unused/underused (e.g. labour) and this leads to unemployment. This is with low economic growth, not a recession. The u.k economy has not hit the targets it wished, but was not shrinking like U.S.A and Japan and Japan went into recession (2 quarters, or 6 months of a shrinking market.

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