Describe the Terminology of Macroeconomics Including Gdp, Gnp, National Income Business Cycles, Monetary Policy, Fiscal Policy, Inflation and Unemployment

In: Business and Management

Submitted By Meshmohh
Words 1224
Pages 5

Describe the terminology of macroeconomics including GDP, GNP, national income business cycles, monetary policy, fiscal policy, inflation and unemployment Macroeconomics is a broad sub-field of economics that establishes the behavior, outlook and structure, collective and established decision making system of an economy at large and usually involves national economies, regional and global economies with little or no involvement of the individual markets.
Gross National Product is a determining tool in macroeconomics that measures a nation’s economy and status through international investments and residents working over-seas. GNP excludes any product values produced by foreign investors within the country. GNP is a great indicator in macroeconomics when assessing economic progress in comparison with Gross Domestic Income. (Clark & Montjoy, 2001)
Macroeconomics uses GDP to determine the value of all market products and services produced within a given boundary usually a nation in a period of one year. At every stage of production, the value of all goods is added and the economic growth established based on the previously assessed standards.
Macroeconomists explain that unemployment tends to reduce with a rising GDP rate since the output is increased and thus need for more skilled and unskilled labor force. Inflation gives an explanation on the rate at which product prices increase over time. Macroeconomists study this phenomenon through The Consumer Price Index that gives a timely price for particular products. (Blanchard, 2006)
Monetary policy allows for the evaluation of the current cash levels following an economic rise. A need to increase cash levels in a country renders opportunity for investments, higher loan lending rates and overall increased production boosting an economy. Fiscal Policy of a government would…...

Similar Documents

Monetary Policy

...The Impact of Monetary Policy on Economic Growth and Inflation in Sri Lanka C.Amarasekara 1 Abstract Based on a vector autoregressive (VAR) framework and utilising both recursive and structural specifications, this study analyses the effects of interest rate, money growth and the movements in nominal exchange rate on real GDP growth and inflation in Sri Lanka for the period from 1978 to 2005. The results of the recursive VARs are broadly in line with the established empirical findings, especially when the interest rate is considered the monetary policy variable. Following a positive innovation in interest rate, GDP growth and inflation decrease while the exchange rate appreciates. When money growth and exchange rate are used as policy indicators, the impact on GDP growth contrasts with established findings. However, as expected, an exchange rate appreciation has an immediate impact on the reduction of inflation. Interest rate innovations are persistent, supporting the view that the monetary authority adjusts interest rates gradually, while innovations in money growth and exchange rate appreciation are not persistent. Several puzzling results emerge from the study: for most sub-samples, inflation does not decline following a contractionary policy shock; innovations to money growth raises the interest rate; when inflation does respond, it reacts to monetary innovations faster than GDP growth does; and exchange rate appreciations almost always lead to an increase in GDP growth.......

Words: 18533 - Pages: 75

Monetary and Fiscal Policies

...Monetary policy Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability.[1][2] The official goals usually include relatively stable prices and low unemployment. Monetary theory provides insight into how to craft optimal monetary policy. It is referred to as either being expansionary or concretionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it. Expansionary policy is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that easy credit will entice businesses into expanding. Contractionary policy is intended to slow inflation in hopes of avoiding the resulting distortions and deterioration of asset values. Monetary policy differs from fiscal policy, which refers to taxation, government spending, and associated borrowing.[3] Overview Monetary policy rests on the relationship between the rates of interest in an economy, that is, the price at which money can be borrowed, and the total supply of money. Monetary policy uses a variety of tools to control one or both of these, to influence outcomes like economic growth, inflation, exchange rates with other currencies and unemployment. Where currency is under a monopoly of......

Words: 6429 - Pages: 26

Fiscal Policy fiscal policy and how can it be used to manage the economy? Briefly describe the current UK fiscal policy, and comment on the effect it may have on the economy. Fiscal policy is the use of government spending, taxation and borrowing to influence the level and growth of aggregate demand, output and employment. Aggregate demand (AD)= Consumption + Investment + Government spending + (Exports – Imports). Changes in fiscal policy affect both aggregate demand and aggregate supply. (Riley 2006) Fiscal policy is used to achieve macroeconomic objectives such as full employment, price level stability and sustained economic growth. Expansionary fiscal policy is an increase in government expenditures or transfer payments, or a decrease in tax revenue. A tax cut will increase AD because it increases households’ disposable income. The greater the disposable income the greater is the quantity of goods and services demanded and therefore the greater is AD. This will stimulate economic growth in a recession, which will shift the AD curve to the right. (Parkin, Powell and Matthews 2008) The magnitude of the shift = expenditure multiplier x the increase in government expenditures. In the short run it will increase both Gross Domestic Product (GDP) and the price level. An increase in the price level will increase the money wage rate, which reduces the SRAS. The SRAS curve shifts left until in the long run real GDP = potential GDP at a higher price level. Contractionary fiscal policy is......

Words: 1853 - Pages: 8

Identification of the Mexican Monetary Policy and the Fiscal and Monetary Indicators

...To identify the fiscal and monetary policy tools used by Mexican Presidents since Miguel Aleman and Make clear the fiscal and monetary indicators that define each policy the economic models of that time must be examined; from Miguel Aleman to Felipe Calderon there has been just 3 Economic Models: a) 1940-1964: Import substitution model. (Modelo de sustitución de importaciones) b) 1964-1982: Stabilizing development model. (Modelo de desarrollo estabilizador) c) 1982- ………: Neoliberal model. (Modelo neoliberal) in order to understand this models and its implications it’s important to make sure a clear understanding about the policies. The Macroeconomic policy affects a country or region as a whole. It deals with the monetary, fiscal, trade and exchange regime, as well as economic growth, inflation and national rates of employment and unemployment. Changes in demand and aggregate supply can cause short-term fluctuations in output and employment. The monetary and fiscal policy can shift aggregate demand and, therefore, influence these fluctuations. a) 1940-1964: Import substitution model, presidents on it: Manuel Ávila Camacho, Miguel Alemán Valdez, and Adolfo Ruiz Cortines. In the import substitution model, the management of public finances, which sought to redistribute income and promote domestic production, contributed to the process of industrialization and modernization in Latin America. Fiscal functions got away from their initial orientation because......

Words: 1273 - Pages: 6

Fiscal and Monetary Policy

...The Fiscal and Monetary Policy and Economic Fluctuations XXXXXXXX Strayer University Principles of Economics, ECO100 Professor XXXX XXXXXXXX August 24, 2013 The U.S. Economic Situation: A 5 Year Comparison Compared to five years ago, the U.S. economic situation has improved. The real gross domestic product (GDP), a macroeconomic measurement used to “summarize the total production of [the] entire economy” (O’Sullivan, Sheffrin, & Perez, 2012), has shown positive growth since the bottom point of the recent recession that occurred in 2009. (See graph in Figure 1.) In fact, by 2012, growth in the U.S. GDP surpassed that of the 2007 pre-recession point. Conversely, the key economic indicators of interest rates, inflation, and unemployment were examined for the same time period, from 2007 to 2013, in an attempt to discover possible correlations between them. First, U.S. government security interest rates published by the U.S. Treasury reflect a steady reduction since the height of the recession in 2009. Specifically, in 2007, the average annual rate was 2.34 percent and in 2012 it was .017; a 99 percent decrease of 2.323 percent over this five year period. (See graph and table in Figure 2.) It is most important to reiterate that the vast majority of the reduction in government security interest rates occurred between 2009 and 2012, reflecting a correlation and possible Treasury reaction to the 2009 recession that is indicated in the previously discussed U...

Words: 1900 - Pages: 8

Monetary Policy and Gdp

...DOES MONETARY POLICY INFLUENCE ECONOMIC GROWTH IN PAKISTAN? Haji Saif Ullah (Author) Email: Muhammad Ashraf (coordinator) Department of Management Sciences University Of Gujrat, Gujrat ABSTRACT This study examines the impact of monetary policy on economic growth in Pakistan. The study uses time-series data covering the range of 1991 to 2011.The effects of stochastic shocks of each of the endogenous variables are explored using Error Correction Model (ECM). The study shows that Long run relationship exists among the variables. Also, the core finding of this study shows that inflation rate, exchange rate and external reserve are significant monetary policy instruments that drive growth in Pakistan. It is therefore recommended that the establishment of primary and secondary government bond markets that can also increase the efficiency of monetary policy and reduce the government’s need to rely on the central bank for direct financing. Keywords: Policy instruments, Economic Growth, GDP, Money supply, monetary policy INTRODUCTION The aim of this study is to examine the impact of monetary policy on economic growth. Economic growth is an important macroeconomic objective for any country. Monetary policy has direct relation with economic growth. Folawewo and Osinubi (2006) stated monetary policy as the arrangements which are planned to control supply of money in a country. In many countries the basic aims of the monetary policy are to stabilize......

Words: 3750 - Pages: 15

Current Macroeconomic Situation, Fiscal and Monetary Policies

...Current Macroeconomic Situation, Fiscal and Monetary Policies Current Macroeconomic Situation, Fiscal and Monetary Policies Introduction As the leading world economy, the United States and has been in a recession since 2008 and the leading outcome of this recession has been no other than unemployment. The newsflash among media and television about this recession has resulted in unemployment, and how to remedy this “current macroeconomic situation”. No one seems to have an immediate solution on how the economy will get better. The news and media do a lot of finger pointing and giving various unpleasant names to the situation such as calling it “the decade of depression”. Our inflation rate is about 2.3%, which is currently lower than the past rate that was 3.4%. As of July 2012, unemployment rate has been around 9.3%, compared to the prior average years back of about 5.6%. Research We all know that if there is unemployment, consumers do not spend as much money and businesses suffer, from that but honestly speaking, not many of us know what these unemployment figures mean or represent for sure. We can assume or estimating what it means without understanding since we were not aware of what it was before or one is not personally affected by the unemployment saga. So it gets to be a bit mind-boggling when some industries throw these percentages out there and expect us all to know what they mean and as a way to......

Words: 845 - Pages: 4

• Assess the Impact of Fiscal and Monetary Policy on Business Organisations and Their

...point I hope to determine in detail all the characteristics of the UK economy, government fiscal and monetary policies and how each one effects on the Tesco PLC organisation. I plan to give a clear and comprehensive look into each of the factors which build the UK economy and analyse and evaluate with strong evidence of application to theory throughout the report. The UK has a democratic, parliamentary system of governance known as the Westminster system. The structure of the administration ensures that there is an adequate separation of powers between the executive branch, led by the prime minister, the bicameral legislature and the judiciary, and that there is a system of checks and balances in place. The current population of the UK is 64.1 million. The UK was one of the largest macroeconomics in the world. It was seen to be one of the strongest and most stable economies before 2007, however post 2008 economic deceleration began and the GDP growth rate fell to 0.7%. In 2008, the economy entered into a recession, with a predicted negative growth rate of -4.5% for the following year. (Data monitor Statistics) The current conservative government’s main economic aims are Economic growth with more goods and services produced in the economy, alongside low inflation, little unemployment with a Fair distribution of income. (HM Treasury) Taxation comes in two forms direct taxation (taxation on income and profits) and indirect taxation this is taxation on expenditure (VAT, excise......

Words: 2585 - Pages: 11

Fiscal and Monetary Policy

...key indicators include economic growth, inflation unemployment of the country. From these indicators economic growth which is measured by GDP is most important. Policy makers judge the economy by measuring these macroeconomic indicators. The performance of the economy is measured in terms of the achievement of its economic objectives. Policy makers develop fiscal and monetary policy to achieve these long term objectives of the economy. Fiscal Policy Fiscal policy is used to collect revenue for the government in terms of taxes. Main tools of fiscal policy are taxes and government spending. If government make any changes in tax structure and government spending it effect the aggregate demand and level of economic activity in the country. To stabilize the economy on a business cycle fiscal can be used. Fiscal policy is made under the law of a legislature. Making any changes in the fiscal policy tools it effects the level of activity and aggregate demand in the country, it also effect the savings and investment in the economy, and distribution of income. * Expansionary fiscal policy In expansionary fiscal policy government increases spending and decrease taxes. To correct the problem in business cycle transfer payments are increased. Expansionary fiscal policy is used to close the recessionary gap, to decrease unemployment and improve the economic condition during recession. * Restrictive fiscal policy In restrictive fiscal policy government increases taxes and......

Words: 2178 - Pages: 9

The Fiscal and Monetary Policy

...The Fiscal and Monetary Policy Lajeska Willingham Dr. Onipede Principles of Economics 08/24/2014 The role of government in the United States economy expand far beyond its activities as a manager of specific industries. The government also manages the overall measure of economic activity, seeking to provide immense levels of employment and substantial prices with two main tools for achieving these objectives: fiscal policy, through which it regulates the applicable level of taxes and spending; and monetary policy, through which it manages the supply of money. Discuss the current economic situation in the U.S. as compared to five (5) years ago. Include interest rates, inflation and unemployment rate in your explanation. Interest rates started out in January 2009 at 3.8% and by the end of the year in December 2009 the interest rates had been cut down to 3.2%. According to the daily treasury, interest rates are now at 3.16% which is a decrease from 3.92% from the beginning of the year. The buying power of the dollar has increased over the past years according to the consumer price index. If an item was purchased in 2009 at $20.00 that same item would cost $22.21 today which is at an inflation rate of 11.1%. The current economic situation in the United States is unemployment is still above its natural rate. The economy has continued to grow since the recession but, at a slower rate than what society would like to see. According to Time Business &...

Words: 1306 - Pages: 6

Fiscal and Monetary Policies

...Fiscal and Monetary Policies Name University ECON CL # Professor Name Date Submitted Fiscal and Monetary Policies American great depression made policymakers come up with some drastic actions to counteract it. The policy makers are adopted and implemented various monetary and fiscal policies to reduce the effect of the depression. As a counteractive measure, economic decisions makers increased government spending and cut taxes while financial policy makers opted for quantitative easing that is a move by the central bank to introduce new money into the money supply (Blinder, Zandi, & Moody's, 2010). There has been a raging debate on the issues surrounding the action taken by the federal government but to understand better the effects it is prudent first to know the reason behind the decision and the roles of both national and fiscal policies. In the past, around 1930s classical economist held that the economic downturn can only correct itself and doesn’t need intervention from government. American great depression made many economist and policy makers to give a second thought to classical economist by seeing a need for policy intervention (Blinder, Zandi, & Moody's, 2010). Since then monetary and fiscal policies have remained the key intervention measures to correct economic downturns. When monetary and fiscal policies applied resulted in maximum employment growth and stable inflation. Both of......

Words: 952 - Pages: 4

Fiscal Policy

...1 2 >> Fiscal Policy A BRIDGE TO PROSPERITY? I n 1998 the Japanese government though on a smaller scale. Indeed, many completed the longest suspension countries attempt to manage aggregate de- bridge in the world. The 6,500-foot mand by using discretionary fiscal policy. span linking Awaji Island to the city of Governments also adjust taxes in an at- Kobe cost $7.3 billion to build. Yet as skep- tempt to manage aggregate demand. They tics had predicted, it currently carries very may reduce taxes to try to stimulate the little traffic—about 4,000 cars a day. By economy or raise taxes when they believe comparison, America’s longest suspension that aggregate demand is too high. bridge, the Verrazano Bridge that links New In this chapter, we will learn how discre- York City’s Staten Island to the borough of tionary fiscal policy fits into the model of Brooklyn, carries more than 300,000 cars short-run fluctuations we developed in each day. Chapter 10. We’ll see how deliberate In Japan, stories like this are common. During the 1990s the Japanese government What you will learn in this chapter: changes in government spending and tax policy affect real GDP. We’ll also see how ® What fiscal policy is and why it is an important tool in managing economic fluctuations ® Which policies constitute an expansionary fiscal policy and which constitute a contractionary fiscal......

Words: 15653 - Pages: 63

Fiscal Monetary Policies

...Question 1 Introduction In economics there are two main schools of thought; these schools differ in their belief of what policies are best suited to attain full employment in the economy. Keynesians tend to favour demand side policies and are more prone to intervene in the market and therefore prefer to use fiscal policy whilst monetarists believe adjustments in money supply is more appropriate in stabilising the market ,therefore preferring monetary policy.  In this question I will discuss the views of Keynesians and monetarists regarding the effectiveness of monetary and fiscal policies in controlling aggregate demand through the IS-LM framework.   I will first provide a brief description of the curves explaining their formation and what they represent and then I will go on to examine monetary and fiscal policy within the   IS-LM framework. Finally, I will examine the views of monetarist and Keynesians regarding the effectiveness of both policies in raising the level of national l income and also consider the extreme cases. The IS-LM model was initially developed by John Hicks in 1937 but was made popular in 1949 by Hansen in order ‘to provide a framework for analysing the factors determining the level of aggregate demand’.   The IS-LM model is a short run model of the determination of output. It shows the unique combination of income and interest rates that lead to an equilibrium in both the goods and money market at the same time (Begg, 2008). The IS-LM model is......

Words: 1998 - Pages: 8

Monetary Policy

...Fiscal and Monetary Policies essay Frank iula Mod3a 2-22-12 The Monetary and Fiscal Policies, although controlled by two different organizations, are the ways that our economy is kept under control. Both policies have their strengths and weaknesses, some situations favoring use of both policies, but most of the time, only one is necessary. Fiscal Policy can be explained in many ways, for example. Fiscal policy is the use of the government budget to affect an economy. When the government decides on the taxes that it collects, the transfer payments it gives out, or the goods and services that it purchases, it is engaging in fiscal policy. The primary economic impact of any change in the government budget is felt by particular groups make tax cut for families with children, for example, raises the disposable income of such families. Discussions of fiscal policy, however, usually focus on the effect of changes in the government budget on the overall economy on such macroeconomic variables as GNP and unemployment and inflation. Fiscal Policy also can be explained as the economic term which describes the behavior of governments in raising money to fund current spending and investment for collective social purposes and for transfer payments to citizens and residents of the territory for which the government is responsible. The money may be raised by taxation, by borrowing, by user charges on social assets or services,...

Words: 2795 - Pages: 12

Monetary Policy of Bangladesh

...REPORT ON Monetary Policy of Bangladesh PATUAKHALI SCIENCE AND TECHNOLOGY UNIVERSITY Monetary Policy of Bangladesh SUBMITTED TO M. Kazi Tamim Rahman Lecturer Department of Agricultural Economics and Rural Sociology Faculty of Business Administration and Management SUBMITTED BY Group: 01(Warrior) Level-3, Semester-1 Faculty of Business Administration and Management Name of the students | Reg. No. | Roll No. | Md. Kamruzzaman (L) | 00660 | 01 | Shuvradeb Barai | 00668 | 09 | Abu Zafour | 00680 | 21 | Sahana Parveen | 00666 | 07 | Nazmul Alam Siddiqui | 00565 | 25 | Money and Banking Course code: FBK 312 SUBMISSION DATE: PATUAKHALI SCIENCE AND TECHNOLOGY UNIVERSITY Acknowledgement At first we desire to express our deepest sense of gratitude of almighty Allah. With profound regard we gratefully acknowledge our respected course teacher M. Kazi Tamim Rahman, Lecturer, Department of Agricultural Economics and Rural Sociology, Faculty of Business Administration and Management, for his generous help and day to day suggestion during the preparation of this report. We like to give thanks especially to our friends and many individuals, for their enthusiastic encouragements and helps during the preparation of this report us by sharing ideas regarding this subject and for their assistance in typing and proof reading this manuscript. Table of Contents Chapter – 1 ...

Words: 13748 - Pages: 55