Category: Macroeconomics

Macroeconomics and Its Rationale in the Context of the Russian Federation

Macroeconomics is the part of economic aspects concentrating the conduct of the total economy – at the local, national or worldwide level. While microeconomics is concerned principally with the choices made by a person inside the typical financial limitations of shortage, macroeconomics is the field of concentrate that is worried about the markers that mirror the presentation of the more extensive economy-total national output, expansion levels, joblessness, development rate, monetary shortfall etc. Macroeconomics considers economy-wide marvels, for example, swelling, value levels, pace of monetary development, national pay, total national output (GDP), and changes in joblessness. A portion of the key inquiries tended to by macroeconomics include: ‘What causes joblessness?’, ‘What causes expansion?’, ‘What makes or animates monetary development?’. Macroeconomics endeavors to quantify how well an economy is performing, to comprehend what powers drive it, and to extend how execution can improve. Macroeconomics manages the presentation, structure, and conduct of the whole economy, as opposed to microeconomics, which is progressively centered around the decisions made by singular on-screen characters in the economy (like individuals, families, enterprises, and so on).

Considering the history of macroeconomics, it has major three aspects. There are: 1) classical macroeconomics; 2) Keynesian macroeconomics; 3) post-Keynesian development macroeconomics. According to these three time periods macroeconomics is developing the today.

Macroeconomic Concerns

In Macroeconomics there are four of the major concerns of macroeconomics are: inflation, output growth, unemployment and business cycle.

Inflation

To lay it out plainly, expansion is the long haul ascend in the costs of merchandise and ventures brought about by the depreciation of cash. While there are points of interest to swelling which I will examine later right now, need to initially concentrate on a portion of the negative parts of expansion.

Inflationary issues emerge when we experience unforeseen swelling which isn’t sufficiently coordinated by an ascent in individuals’ wages. On the off chance that salaries don’t increment alongside the costs of merchandise, everybody’s buying power has been viably decreased, which can thus prompt an easing back or stale economy. In addition, over the top swelling can likewise unleash ruin on retirement reserve funds as it diminishes the buying influence of the cash that savers and financial specialists have saved.

Swelling involves a continuous increment in the cost level at all merchandise and ventures cost builds that are progressing for a considerable length of time or even a long time on end, for not only a couple of classifications of products and enterprises as a one-shot issue, however for all products and ventures all things considered, for quite a while.

Output growth

Monetary development is an expansion in the creation of financial products and enterprises, contrasted from one timeframe with another. It very well may be estimated in ostensible or genuine (balanced for expansion) terms. Generally, total financial development is estimated regarding gross national item (GNP) or total national output (GDP).

It is an expansion in the creation of products and ventures over a particular period. To be generally exact, the estimation must evacuate the impacts of expansion. Financial development makes more benefit for organizations. Subsequently, stock costs rise. That gives organizations money to contribute and procure more representatives. As more occupations are made, wages rise. Buyers have more cash to purchase extra items and administrations. Buys drive higher financial development. Hence, all nations need positive monetary development.

Unemployment

Joblessness is characterized by the Bureau of Labor Statistics as individuals who don’t have an occupation, have effectively searched for work in the previous a month, and are as of now accessible for work. Additionally, individuals who were briefly laid off and were standing by to be gotten back to that activity are remembered for the joblessness insights. The BLS reports this in the U-3 report, a piece of the month-to-month occupations report. The BLS estimates joblessness through month-to-month family unit overviews called the Current Population Survey.

It has been directed each month since 1940, as a major aspect of the administration’s reaction to the Great Depression. It has been changed a few times from that point forward and encountered a significant upgrade in 1994. That incorporated a patching up of the poll, the utilization of PC helped meeting, and corrections to a portion of the work power ideas.

The BLS doesn’t check everybody who is jobless as jobless. It avoids the individuals who have not searched for work inside the previous a month. The Bureau likewise expels them from the work power.

Business Cycle

Periods during which a business, an industry or the whole economy extends and contracts many business cycles are definitely not ordinary. They change in force and length. Developments and constrictions of the economy, likewise some of the time alluded to as blasts and busts, are wide monetary occasions that influence numerous businesses and organizations. The United States economy has encountered around 10 of these blast and-bust business cycles since 1945. They’ve fluctuated long from the curtailed half year compression that followed the five-year development from 1975 to 1980, to the 106-month extension that spread over the 1960s.

The attributes of monetary cycles include: fluctuations (will in general influence solid made products more than administrations); discount and modern costs (will in general be influenced more than retail costs); momentary loan costs (follow and intensify the cycles, moving in an overstated way alongside the economy).

Substantiation of Russia’s Macroeconomics

Russia is a nation situated in northern Eurasia flanking the Arctic Ocean among Europe and the North Pacific Ocean. Neighboring nations incorporate Azerbaijan, Belarus, China, Estonia, Finland, Georgia, Kazakhstan, North Korea, Latvia, Lithuania, Mongolia, Norway, Poland, and Ukraine. The geology is different and remembers tremendous woodlands and tundra for Siberia and mountains along the southern fringes. The administration framework is an alliance; the head of state is the president, and the head of government is the chief. Russia has changed from a midway arranged economy to a more market-based economy in which many state-controlled firms have been privatized and areas of the economy are changed. Russia is an individual from the Asia-Pacific Economic Cooperation (APEC) and the Eurasian Economic Union (EAEU).

Russia’s economy is $4.2 trillion as estimated by its 2018 GDP. That is utilizing buying power equality which makes up for government control of trade rates. That permits you to make increasingly exact examinations of the economies of two nations. Russia’s economy was the seventh biggest on the planet. It developed by 1.7% as per gauges by the International Monetary Fund.

Russia’s GDP per capita was $29,032. The IMF positions its way of life as 56th on the planet. It’s superior to Romania however more terrible than Greece, Hungary, or Poland.

Type of Economy

Russia has a blended economy. It’s made some amazing progress since the 1991 separation of the Soviet Union and its order economy.

Inflation

In January, consumer prices rose 0.4% over the previous month, matching December’s increase. According to Rosetta, the overall increase was led by higher prices for food products, especially fruits and vegetables, while prices for non-food goods and services also ticked up, albeit marginally. Inflation fell to 2.4% in the first month of the year, from 3.0% in December, marking the tenth consecutive month of falling inflation and the lowest reading since June 2018. Lastly, annual average inflation dipped to 4.3% in January, from 4.5% in the previous month.

Focus

Economics panelists see inflation ending 2020 at 3.7%, which is down 0.1 percentage points from last month’s forecast. For 2021, participants project inflation to end the year at 3.8%.

Output growth

The Gross Domestic Product (GDP) in Russia expanded 1.6 % YoY in Sep 2019, following a growth of 0.9 % in the previous quarter. Real GDP Growth YoY data in Russia is updated quarterly, available from Mar 1996 to Sep 2019, with an average rate of 2.9 %. The data reached an all-time high of 12.3 % in Dec 1999 and a record low of -9.4 % in Jun 2009. CEIC calculates quarterly Real GDP Growth from quarterly Real GDP. The Federal State Statistics Service provides Real GDP in local currency at 2016 prices, based on SNA 2008. Real GDP Growth prior to Q1 2015 is calculated from Real GDP at 2008 prices and prior to Q1 2004 from Real GDP at 2003 prices, both based on SNA 1993.

In the latest reports, Nominal GDP of Russia reached 433.7 USD bn in Sep 2019. Its GDP deflator (implicit price deflator) increased 1.4 % in Sep 2019. GDP Per Capita in Russia reached 11,510.4 USD in Dec 2019. Its Gross Savings Rate was measured at 32.4 % in Sep 2019.

Unemployment

Russia’s jobless rate held steady at 4.6 percent in December 2019, in line with market expectations, as the number of unemployed declined by 34 thousand from the previous month to 3.473 million while employment dropped by 244 thousand to 72.425 million. The activity rate fell to 62.7 percent from 62.9 percent and the employment rate was down to 59.8 percent from 60.0 percent. Russia Unemployment Rate – data, historical chart, and calendar of releases – was last updated on February of 2020 from its official source.

Poverty

Poverty headcount ratio at $5.50 a day is the percentage of the population living on less than $5.50 a day at 2011 international prices. As a result of revisions in PPP exchange rates, poverty rates for individual countries cannot be compared with poverty rates reported in earlier editions.

Russia poverty rate for 2015 was 2.70%, a 0.3% increase from 2014.

Russia poverty rate for 2014 was 2.40%, a 0.1% decline from 2013.

Russia poverty rate for 2013 was 2.50%, a 0.4% decline from 2012.

Russia poverty rate for 2012 was 2.90%, a 0.3% decline from 2011.

Conclusion

Poverty and unemployment in Russia have changeover the years over inflation it suggests how inflation have fallen during the year and the trade van be detected in the coming 12 months poverty two has a turn out to be a large hassle in our life. Many employers have been created to locate the answer to this, however no one has been able to totally free our world from poverty. Unemployment, infliction and increase are the three key elements of macroeconomics analyses to understand why these are consent, in compress macroeconomics and micro economic

According to the data we can identify, these concerns are direct and indirect infect to the economy. There for we must carol the inflation, and we also want to decrees the poverty and unemployment. And also, if we do this correctly, we can increase GDP in few years. So, these concerns are very important our economy and GDP per capita, because they control our economy.

References

1. https://en.wikipedia.org/wiki/Russia.
2. https://tradingeconomics.com/russia/inflation-cpi

The Importance of Studying Macroeconomics by Ordinary People

Macroeconomics is a subset within the study of economics which regards large-scale and general economic factors, and is the study of the economy as a whole. The study of macroeconomics regards topics such as a nation’s employment, total supply and demand, national income, inflation/deflation, total investments and savings, interest rates, overall consumption, and fluctuations in price levels. These topics serve as aggregates which are studied to determine the averages of a nation’s economy and predict future outcomes. In a sense, while microeconomics is the study of individual fish, macroeconomics is the study of the pond as a whole. Macroeconomics studies the character of the pond, regardless of the organisms which compose it. Thus, macroeconomics is important, both practically and theoretically, as it benefits the average person through making him/her more conscious of the economy he/she is within. Through studying macroeconomics from a consumer, governmental, and business aspect, an individual who knows how to effectively identify, comprehend, analyze, and approach various market situations can be produced

Macroeconomics serves extremely useful to individual consumers, including me, in our day-to-day lives. For example, the concept of Gross Domestic Product (GDP) can be seen as one of the most important topics for consumers to understand. If consumers know that the GDP is increasing, it informs them that the economy is doing well and they can expect side effects such as higher employment rates, higher salaries, incomes, and wages, and higher interest rates. Thus, if the average person is looking for a job, he/she is aware that his/her chances are not as good when the GDP is falling as when it is rising. Additionally, individuals can utilize the GDP level to determine if it is a good time to spend generously, especially on luxurious and costly goods, or spend cautiously and rather focus on saving money. Also, if the average person did not know that interest rates increase hand-to-hand with the GDP, we would not be able to effectively plan and organize our finances, especially when it came to paying our loans in time for expensive items like houses and cars, which could diminish our financial reputation. In addition, another very important macroeconomics concept which can help people is the unemployment rate. If I know the unemployment rate is high, I will be aware that the economy is moving downwards, so I will have to constantly push my persistence and seek further in terms of employment since it will be more difficult to find a job than if the unemployment rate was lower. However, if the unemployment rate is low, I will know to pursue more job offers and openings because my opportunities and chances of becoming employed are better. Another extremely important concept for the average consumer to be aware of is the inflation rate. If the inflation rate is high and increasing, it gives me insight on the fact that the prices of several goods and services are bound to increase; thus, I can forecast that my purchasing power will fall and my standard of living will generally decrease. The cost of gas prices, the cost of food and beverage prices, the cost of housing, borrowing money, the real value of savings, and treasury bonds or notes’ yields are all susceptible to change with inflation. Although inflation is typically associated with being bad, if I know what it is and how to interpret the inflation rate, I can plan and reorganize my financial plan to counteract or smoothen inflation’s high prices effect. If the average consumer has no clue regarding inflation’s side effects, they can very easily lose track of their spending habits and may be spending significantly more than they think, leading to future consequences. Since the inflation rate is not the only method of determining future changes in the cost of living, learning topics such as the Consumer Price Index, the Producer Price Index, and Merchandise Trade Balance can help interpret which direction the economy is heading towards and predict future consumer purchasing power. Collectively, all these indicators can provide a good standpoint of whether my standard of living will increase or decrease in the future as well as help develop a promising financial plan. Lastly, if the average person and I are well aware of the current stage of the business cycle, there are several outcomes one can predict. For example, during expansion, I know that inflation will occur and prices will rise, employment levels will be high, stocks and bonds will yield more value, and the currency will be depreciated. However, if I know the economy is contracting, I can predict that prices may deflate, unemployment will rise, stocks and bonds will yield less, and lower interest rates due to lack of currency circulating in the economy. Through several economic indicators and macroeconomics concept, several consumers, like me, are well aware of how to predict and interpret the economic market, which will always help us in the long run.

By studying and knowing macroeconomics, the average person gains insight regarding how the government utilizes macroeconomic indicators to approach and manage a nation’s economy. The main issues most economies suffer through are related to output, total income, employment level, and overall prices. Since these factors can all be measured using statistics, it can be facilitated to analyze their effects on the economy and create solutions for existing issues. Thus, macroeconomics is very important for average individuals in the sense where it allows them to know why the government creates and imposes new economic policies. For example, if the government recognizes a pattern of the unemployment rate increasing every time there is a decrease in effective demand, they can impose new policies to increase consumption, output, income, and investment, which are all factors that increase effective demand. By establishing a mutual connection of macroeconomics knowledge from both the government and consumer side, policies can be imposed effectively where needed and help indicate the current market situation to the average person. This not only increases individuals’ standard of living and reduces the harshness of the current market situation, but also helps reassure to individuals that the government is effectively serving its purpose in the market. Furthermore, macroeconomics serves of high significance to average individuals because it allows the government to evaluate a country’s performance based on its national income. By constructing data figures of the national income, governments can forecast a country’s economic activeness and better understand how income is distributed among several groups within the economy. If an individual knows how to interpret national income distribution data, they can understand how wealth is distributed within their economy and further establish a mutual understanding with the government regarding passing progressive or regressive tax policies because a better distribution of wealth in the economy inevitably helps society as a whole. Also, depending on the national income’s statistics, the Consumer Confidence Index is driven in a positive or negative direction, which can help the average person decide whether to save or spend money. Governments are also very concerned with economic growth in general, so by using macroeconomics and economic data to find the determinants of growth (high output, high income, low unemployment rate, high GDP), the government typically makes plans to improve on each of these determinants, primarily through new policies. If individuals are aware of how the economy is driven, how to interpret various forms of economic data, and the determinants of high economic growth, they can easily identify the economy’s health through economic indicators and further understand the logic behind the government’s decisions as well as be more accepting of them to improve society’s standard of living in the long run. Also, since the fluctuation of money’s value is common through inflation and deflation, governments can help stabilize this fluctuation through monetary policies (increasing or decreasing money’s supply) or fiscal policies (adjusting government spending). By understanding the impacts of inflation and deflation, individuals, like me, can identify what fluctuation state we are in and better envision the needs for such policies because they help us adapt and diminish the harsh downsides of an unstable market. As a result, the study of macroeconomics serves an important tool because it allows the average person to understand why the government makes certain decisions and indirectly thrive off of the government effectively creating a budget, deciding taxes, generating interest rates, and imposing new policies.

Any average person will also profit from studying macroeconomics through a business standpoint because he/she sees a different perspective on how to approach the market. By knowing macroeconomics, average people learn that whenever a business grows from the inside, it will always need to find a way to accommodate that growth. For example, businesses are well aware of the fact that when the interest rate falls, consumers will take advantage of this and spend more money since their overall payments on large items, such as houses and cars, will be minimized. By recognizing this habit of consumers and the effects of a negative change in interest rates, businesses will expand in production due to an increase in demand and a better chance to profit. If this is the case, individuals can predict that business will be paying its workers more and also be looking to expand its workforce. Furthermore, price fluctuations will continuously change businesses’ profits, causing fluctuations in businesses’ payroll and workforce, so specific time periods will be more beneficial to workers and unemployed people than others. Thus, if average people are aware of certain determinants, such as interest rates and price fluctuations, of companies’ profits, they understand why and when businesses will increase workers’ salaries or provide more employment opportunities. Also, understanding the unemployment rate from a corporate level is important because it allows the average person to better interpret the economic indicator. If unemployment increases, consumer spending will fall and businesses will start producing less output because there is less demand on their current output, leading to lower profits. Thus, the average person can better predict lower wages, higher chances of being fired, or a low likelihood of finding employment when aware of a high unemployment rate and vice versa if the unemployment rate is low. Also, studying macroeconomics is important because it helps the average person understand that when it comes to price fluctuations (inflation and deflation), since there is a change in demand due to a change in price, the output and production of certain items will constantly be adjusted and different from before as businesses are changing their economic strategies. As a result, average individuals will not be as surprised when their usual commodities’ quantity and general availability fluctuates from time-to-time and can predict goods’ quantity by analyzing the inflation rate. In addition, by understanding how businesses utilize the business cycle to come up with good strategies, consumers gain a greater depth of knowledge regarding how to approach the market. Each stage of the cycle impacts businesses’ product’s demand in different ways. For example, when the business cycle is in its expansion phase, businesses’ products have a greater demand, so they are expected to make more profit. An individual who knows macroeconomics would be aware that since businesses are currently growing, they want to increase output, and inevitably seek more employment and can afford to pay its workers greater wages. Thus, the average person can take advantage of this whether it be through more job applications/pursuits or predicting the possibility of a better salary. However, if the business cycle is in its contraction phase, consumer demand will be less, so businesses will make less profit and will have to reduce payroll through firing workers and decreasing production. This phase is important to know because it allows the average person or I to predict that we may be laid off, our salary may decrease, or the necessity of our labor is not in great demand. In general, studying macroeconomics from a business standpoint provides a blueprint on how businesses approach success in a specific market and develop strategies to use in both domestic and global markets. As a whole, macroeconomics allows average individuals to understand the economic choices businesses make and possibly utilize this information for their benefit in the economic market or business-related environments.

In conclusion, how the economy is doing and its overall performance matters to everyone, whether it be the government, businesses, the average consumer, or me. When splitting up macroeconomics into a business, government, and consumer perspective, an individual is no longer gaining narrow-minded-based knowledge, but rather a full-scope of the economy. By looking at key parts of the economy and important macroeconomics topics such as the unemployment rate, the inflation rate, national income, total output, and GDP from a government, business, and consumer viewpoint, one gains knowledge into how the economy is functioning. Macroeconomics provides individual consumers, like me, businesses, and the government insight into our economic markets and a chance to plan ahead, which is why macroeconomics is so important- it allows people to interpret current information and translate that into creating a strategy or method to approach the future. By understanding the vast, yet beneficial study of macroeconomics, simple individuals like me can take the appropriate measures by construing the economy’s health and maneuvering that into our favor to maximize our standard of living.

Elements Influencing the Business Environment, Supply and Demand

The economy is significantly essential for one nation’s development. If the economy was depressed, many individuals and organizations would suffer seriously. In this essay, I am going to present factors that affect the business environment, explain the factors that drive supply and demand. The environmental forces that impact on company’s ability to serve its customers are the micro-environment and macro-environment.

Firstly, micro-environment is the factors that affect its ability to serve its customers – company, suppliers, marketing intermediaries, competitors, public and customer. In designing marketing plans, marketing managers have to work closely with other departments in the firm. At the end of the day, all of these departments must think about consumers. For example, Xerox did really well at providing great customer experience because creating customer delight is the duty for all the departments such as Finance, human resources and legal, not only for the marketing department. Next the suppliers are one of the crucial elements in a company’s overall customer value delivery network. They provide the materials that a company needs to produce its services or products. The marketer must observe the supply availability and costs. Cost of sales and customer satisfaction can be damaged by labor strive, delays and shortages of supply. Upsurging supply costs may force price increases that can harm the company’s sales volume. Most marketers today need to treat their suppliers as partners in creating and delivering customer value. For instance, Toyota really understands the importance of building a mutual relationship with their suppliers. The phrase ‘achieve supplier satisfaction’ is in their mission statement.

Next, marketing intermediaries help the company promote, sell and distribute its products to the final buyers. They consist of resellers, physical distribution firms, marketing service agencies and financial intermediaries. Like suppliers, marketing intermediaries are the essential elements in a company’s overall value delivery network. The company not only enhances and creates a customer satisfaction relationship but also optimizes its own performance of the entire system when partnering effectively with marketing intermediaries. For example, Coca-cola enrolls as the exclusive provider for a fast-food chain like McDonald’s, and not only supplies soft drinks but also powerful marketing support.

Next, to be successful, the company must bring greater customer value and satisfaction than its competitors do. They must take strategic advantage by positioning their offerings strongly against competitors’ offerings in the minds of consumers. When the firm also faces the public, they’d need to design an offer that is interesting enough to get the desired response. For example, a firm can be a leader in environmental campaigns like recycling plastic bags and bottles as well as planting trees in the cities.

Finally, the most important factor is the customers. The whole value delivery network is to serve targeted customers, create delight and greater value for them. There are 5 types of customer consumer: business, reseller, government, and international market. Each of them has specific characteristics so the firm needs to adapt and innovate appropriate marketing campaigns as well as products to meet their demands.

Secondly, the macro-environment includes societal factors that have an effect on the micro-environment: cultural, demographic, economic, natural, technological and political factors. They will shape opportunities and pose threats for the firms. The economic environment creates more frugal consumers and also distribution income shifting. Frugal consumers demand the right combination of good quality and service with a fair price while shifting income distribution leads to a gap between the rich, the middle class and the poor. When rich people grow richer, the middle class shrinks and the poor remain poor, a two-tiered market in many countries is established.

The demographic environment consists of the changing age distribution of the human population, shifting family structure, geographic distribution, and level of education. For instance, I’ve found that the young prefer cool, innovative and interesting products, no matter the price. Meanwhile the elder they prefer something that is for daily use and necessary at a good price.

Next, the natural and technological environment also has major trends in the firms. The technological environment brings opportunities and challenges. If the firm fails to catch up with the tech changes, they will miss new products and opportunities in the market. The natural environment has three main trends: the lack of certain raw materials, higher population levels and government intervention in managing natural resources. The concern about the environment brings marketing opportunities for alert firms.

Finally, the political and cultural environment impact enterprises fundamentally. The political environment includes laws, agencies, and groups that restrict marketing actions. Three changes have an effect on the marketing of firms: increasing legislation, strong government agency enforcement and emphasis on ethics and socially responsible actions. The cultural environment consists of institutions and forces that have an impact on a society’s values, beliefs, and behaviors. According to the current understanding in academia the environment shows rising patriotism, sustainable environment visions and the search for more meaningful and enduring values.

Thirdly, there are several factors that have an impact on the demand for goods. First of all is the taste and preferences of the consumers. If the tastes and preferences of the consumers about a product are greater, its demands would be significant. One example in fashion clothing, unless the clothes can bring an enchanting, prosperous or stylish feeling for the customer at a good price, they definitely buy it. The result for that is remarkable growth.

Next, the income of people, when the income of people goes on an uptrend, they can afford to buy more which means the greater demand for goods. For example – farmers, as long as their crop grow well and sell more rice for the retailers or other distribution companies than previous period, they will buy more cotton or manufactured food products in the shopping mall. Another component that affects demand for products is the price of goods. The customer won’t buy products if their price is too high, and there will be a downtrend in demand. In contrast, supposing the demand of customers for product will become greater while the price is low. Then the company might miss out on potential profits.

Finally, the firm using marketing campaigns to promote the sales of its products is a crucial element in determining demand for goods. The reason behind the advertisement is to ensure the consumers are in favor of a product. When the firm is successful in marketing in terms of delivering superior value to customers, the demand for a product grows extraordinarily.

Fourthly, there are also many impacts on supply. If the price of a product rises sharply, the supply of a product also rises and vice versa. Also, providing the cost of production increases, the supply of a product would decrease and vice versa. For example, in some rare cases, the firm would provide less quantity of goods on the market, when the cost of production is higher than the market price of the goods. Next, natural conditions can directly impact the supply of certain product, especially the climate. For instance, the supply of some products grows remarkably in monsoon while for others lessen in drought period. Some of the crops need specific weather to grow like Karif and Rabi. The production of Rabi upsurge in the winter season meanwhile Karif produces well in the summer. Later, Technology plays an important role in terms of supply products. Higher and newer tech can accelerate the production of a product, and the supply of a product will increase significantly. For example, manufacturing fertilizers and good quality seeds raise the production crops. This further soar the supply of food grains in the market. Finally, the impact of government policies on the supply of a product does count. For example, if the government tax for manufacturing a product is high, the supply of a product decreases. However, the supply of a product expands providing the tax is too low.

In conclusion, there are a lot of complexities to macro and micro economics and understanding their effects on supply and demand is important to any company.

Venezuela’s Macroeconomic Crisis of 2015-2019

Venezuela was once the richest country in South America where its economy was supported by large oil reserves. Its oil accounted for more than 90% of its exports and the Venezuelan government relied heavily on the sales. The oil exports were also a way to provide the country with imported consumer goods. However, under years of mismanagement from President Hugo Chavez, Venezuela was not prepared for the sharp fall in oil prices in 2014. Economic conditions have worsened and become unstable under its new President, Nicolas Maduro, an authoritarian leader, which created a political and economic crisis in Venezuela. Its economy has declined by 35% since 2013, worse than what the United States experienced during the Great Depression in the 1930s and it continues the decline. The crisis is evaluated by hyperinflation, shortages of consumer goods, default on the government’s debt obligations, and poorer living conditions, reasons which can be seen in the charts of Venezuela’s Real GDP Growth and GDP per Capita. This research paper analyzes the economic crisis in Venezuela, including the causes of the economic downturns and government responses to the issue.

Crash in Oil Prices

Before Nicolas Maduro was elected President in April 2013, President Chavez didn’t create a stabilization fund to protect against a future fall in oil prices, believing that oil prices would remain high. The crash in oil prices in 2014 led to a sharp decline in government revenue and, along with the government’s policy choices, triggered the economic crisis. The Maduro government was not prepared for the effects to the Venezuelan economy and many producers used the prosperous years to build foreign exchange reserves to lessen risks from big prices in commodity items. Venezuela’s economy is estimated to have declined by nearly 35% between 2012 and 2017.

Government Debt

President Chavez also contributed to the economic crisis by declaring an ‘economic war’ on June 2, 2010, because of increasing shortages in Venezuela. The debt grew under the Maduro government, as a result of low oil prices in early 2015. Venezuela’s oil production also dropped from lack of maintenance and investment. The debt has risen to about $156 billion in 2018, about 738% of the value of its exports is the total amount owed by Venezuela.

Hyperinflation

The fall in oil prices drained public finances and the Maduro government tried to address its growing budget deficit by printing money, instead of adjusting policies through tax increases and spending cuts, which led to inflation. Inflation in Venezuela was about 20% in 2012, then 181% in 2015 and now it increased to 282,973% in April of 2019. (Figure below shows the change in the inflation rate from 2015 to 2019). The government has tried to suppress inflation through price controls, but they are ineffective as supplies have become scarce and people began to do transactions in the black market.

Debt Restructuring

On November 2, 2017, President Maduro announced in a televised address that the country would seek to restructure and refinance its debt. It is estimated that Venezuela owed about $64 billion to bondholders, $20 billion to China and Russia, $5 billion to multilateral lenders like the Inter-American Development Bank, and tens of billions to importers and service companies in the oil industry. Maduro blamed U.S. sanctions for Venezuela’s need to restructure, arguing that U.S. sanctions made it impossible for the government to find new financing. Although President Maduro didn’t provide much about how the restructuring would be implemented, the announcement addressed the government’s dire fiscal situation and shift in policy.

Food Shortages

Until recently, the Maduro government had committed to repaying its debts despite tight resources. However, its government commitment to debt service came at the high cost of international repayments, restrictions on access to foreign currency, imposed price controls, and cut imports. Venezuela’s imports of goods fell from $​83.1 ​billion in 2015 to $​67.1​billion in 2019. Venezuela relies heavily on imports for most consumer goods, and cuts to imports led to severe shortages of food and medicine.

Higher Unemployment Rate

Unemployment in Venezuela is forecast to reach 35% in 2018, more than four times the level of unemployment in 2015, which was 7.4%.

Conclusion

Venezuela faces economic challenges of inflation, and budget deficits and debt that rooted from government failure to address and relying heavily on oil prices to sustain their economy. The government’s policy responses, including price and import controls, vague restructuring plans, and deficit spending financed by expanding the money supply (printing money), have not been affected. There are serious questions about what the Maduro presidency should do now to minimize the effects of the economic crisis and if the plans of restructuring work change the economy for the better.

References

1. Country Watch Data. (n.d.). Retrieved from ​https://data.countrywatch.com/​.
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3. Hausmann, R., Chowla, P., Andrade, P., Parkes, B., James, M., Gladish, B., … Doyle, J. (2017, July 31). Venezuela’s Unprecedented Collapse by Ricardo Hausmann. Retrieved from https://www.project-syndicate.org/commentary/venezuela-unprecedented-economic-collapse-by-ricardo-hausmann-2017-07?barrier=accesspaylog​.
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5. Venezuela’s debt has exploded to $156 billion, according to a new report | Markets Insider. (n.d.). Retrieved from https://markets.businessinsider.com/news/stocks/venezuela-debt-explodes-to-156-billion-report-2019-3-1028013380​.
6. Venezuela Forecast: Unemployment Rate [1999 – 2019] [Data & Charts]. (1970, January 1). Retrieved from https://www.ceicdata.com/en/indicator/venezuela/forecast-unemployment-rate#targetText=Venezuela’s Unemployment Rate is forecasted,of 35.027 % in Dec 2018.
7. https://data.countrywatch.com/
8. https://www.cia.gov/library/publications/the-world-factbook/geos/ve.html
9. https://www.project-syndicate.org/commentary/venezuela-unprecedented-economic-collapse-by-ricardo-hausmann-2017-07?barrier=accesspaylog
10. https://www.project-syndicate.org/commentary/venezuela-unprecedented-economic-collapse-by-ricardo-hausmann-2017-07?barrier=accesspaylog
11. https://www.economist.com/finance-and-economics/2017/04/06/how-chavez-and-maduro-have-impoverished-venezuela
12. https://www.economist.com/finance-and-economics/2017/04/06/how-chavez-and-maduro-have-impoverished-venezuela
13. https://markets.businessinsider.com/news/stocks/venezuela-debt-explodes-to-156-billion-report-2019-3-1028013380
14. https://markets.businessinsider.com/news/stocks/venezuela-debt-explodes-to-156-billion-report2019-3-1028013380
15. Venezuela Unemployment Rate. (n.d.). Retrieved from https://tradingeconomics.com/venezuela/unemployment-rate​ (n.d.). Retrieved from https://www.imf.org/external/datamapper/profile/VEN/WEO​.
16. https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/VEN/SMQ/WEOWORLD​.
17. https://tradingeconomics.com/venezuela/unemployment-rate
18. https://www.imf.org/external/datamapper/profile/VEN/WEO
19. https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/VEN/SMQ/WEOWORLD

Macroeconomic Trends and Their Impact on the Life of the Average Person

At its most basic level, macroeconomics studies the interaction among the main aggregate economic variables such as: unemployment, inflation, interest rates, exchange rates, etc. It also simplifies and summarizes the interactions between the structures of the economy of an entire nation, taking into account things that apply universally to it. Considered as an important method in economic analysis, macroeconomics is highly useful for understanding economic policies, providing relatively rich information with regards to the variables and in reviewing the overall performance of the economy in different perspectives.

In order for me to properly conceptualize the logical implications as to how the areas of macro economy function, I would like to make use of an approach (as per requirement) that can lead to a deeper and more robust understanding that is focused in the real world. Hence, I am to discuss specific and pressing macroeconomic problems that have affected my family directly.

Before proceeding, let me emphasize relevant points. Firstly, in the context of our familial structure, there is me, my mom and my father who works as an Overseas Filipino Worker (OFW). So, one could only imagine the amount of remittances we receive that has become an essential part of our household budgets spent on basic needs and are used as funds either in investing or for increasing consumption. In over two decades, the rate of Philippine remittances continues to rise throughout the years thus creating a domino effect towards recipient families and the country in general (Sicat, n.d). Hence, the means of overseas cash flow raise our standard of living.

Secondly, the concept of exchange rates arises. The appreciation of the peso currency is mainly because the dollar itself is weakening (Olea, 2008). Ironically though, this concept hurt OFWs since it lowers the peso value of their income. Then again, sharp peso depreciation can lead to higher inflation rates. Naturally, such cases depend on the volatility of the exchange rate and percentage of inflation. Exchange rate has to be right since it gives off significant impacts not only in itself but to other aggregate factors that may be affected; further stressing the credible relationship and connection established between the exchange rate fluctuations and macroeconomic variables (Perpetua, 2014, p. 167). Every now and then the government reports to people the achievements made in the development of the economy. On a similar note, for instance, in the most recent data, inflation rate increased to 1.3 percent in November 2019 from 0.8 percent in the previous month. Regardless, according to Sec. Salvador Panelo in his December 2019 statement, the Palace stresses that for the first 11 months of this year, inflation rate averaged at 2.5% to which the Department of Trade claimed is still a very tamed inflation rate. The numbers prove to be favorable since it can show a major impact on the value of the country’s currency as well as the rates of foreign exchange it has with the currencies of other nations. When dealing with exchange rates however, I have come to understand how relative it can be especially when there are numerous factors that can impact it.

Thirdly, being an OFW assigned specifically in a cruise ship requires a contract and these contracts contain terms. When my father goes home to have his vacation, technically he becomes unemployed up until the existence of another contract. With that our cash flow experiences a stagnation. This may prove to be a challenging part for our family to experience especially when it would take my father longer vacation durations.

As of the time being, however, my father has no significant and alarming complaints. Being under the new administration has prompted our family to experience quite well economically and financially.

Economics in general help learners like us to deal with global/national issues in a way that consumers, workers, producers, investors, and citizens would. In other words, this form of literacy enables us to interpret events that will either directly/indirectly affect us; a goal for a democratic society to rely on heavily since an informed citizenry contributes well to economic decision-making. It frames many choices we make involving monetary value. This concept is closely similar to that of what must be done within our household. Knowledge of such will enable me to think and create decisions that will benefit our family. Although I do not have full control over financial budgeting and its flow, I can still help my parents through other recourse such as monitoring our daily spending and the promotion of savings and investments. This might prove to be helpful especially when our lives are influenced by broader economic trends.

Overview of the Brazilian Economy

Brazil is an upper centre salary country located in South America with a populace of 195 million individuals The Net National Income (NNI) per capita in (2010) was $9,390 – this was well over the upper centre salary normal of $5,884 – can Brazil (one of the BRIC nations) get away from the centre pay trap? Brazil has perhaps the most astounding pace of urbanization on the planet with 87% of the all-out populace living in urban territories compared with a 57% normal for upper centre countries. This country has 91% of people literate and has the life expectancy of 73 years. Brazil’s primary exchanging accomplices are China (15%), the USA (10% of fares) and Argentina (9%). The Brazilian infrastructure was highly supported by the 2014 Soccer World Cup held in Brazil and 2016 Olympic game (Riley, 2019).

Brazil’s economic freedom value is 51.9 and the economy of Brazil is considered to eb the 150th freest in 2019 Index. Its general score has expanded by 0.5 point, with upgrades in labor opportunity and government spending outpacing decreases in legal adequacy and government respectability. Brazil is positioned 27th among 32 nations in the Americas district, and its general score is beneath the territorial and world averages (Anon., 2019).

As indicated by the World Economic Situation and Prospects 2019 report issue BU the UN, Brazil’s financial development could rise to 2.1% in 2019 and 2.5% in 2020. Contrasted with its 1.4% development in 2018, the prediction develops trust in Brazil’s initial financial recuperation. This is upheld by another monetary report issued by the OECD. It likewise extends development speeding up for Brazil’s economy during 2019 and 2020, while low expansion, moderate compensation development, and diminishing joblessness are required to reinforce private utilization and with that expanded remote ventures (Schneider, 2011).

Economic Problems Facing Modern Societies Today

Globalization has impacted this world massively in this 21st century. Many developing countries has been able to connect with developed countries and do the trade among each other. Economic globalization helps to generate more economy in the world. People will get chance to have higher standard of living. The research has found out that, the people of Japan and western countries consumes 32 times more resources than the consumers of developing nations. There are several problems that the current societies are facing these days which degrades the economy of the nation and world as well. The problems like Corruption, political instability, lack of proper infrastructure of development, lack and skilled labor and risk of not getting intellectual rights. These problems are usually faced by developing countries where there is a very weak system in place. In this modern society, some peoples are able to reap the rewards from this economic situation, but some peoples are left behind by not having the right access to the system and some even go through the worse. Usually in developing countries, the peoples who are in poverty line have the weak access to their intellectual rights and they are always in adversity. And also, the poor infrastructure also affects the society massively, especially in these developing countries, they have to rely upon developed nations for major tasks and they have to be totally dependent upon them. And also, the peoples are not equipped to deal with the economic situations. For example: the farmers find very difficult to survive in this economic focussed society. They find easy to work in factories doing the labor work because of lack of education and not having the proper skills and also lacking the mindset to learn new things.

The countries like Nepal, India, Brazil and many more developing countries are least developed countries in economies whereas the nations like United States of America, Australia, and many other developed countries have advanced economies. And the worst thing is the countries with advanced economies tries to dominate the economy of the world. Next is the foreign investor in the developing countries. The peoples love to invest where they can get the maximum outcome financially. Most of the foreign investors invest their capital in developing countries in the advancement of their infrastructure. The investors somehow help to improve the standards of the peoples by helping the countries to maintain the stability economically and politically. A report has shown that, more than $422 billion was invested in developing countries between 1988 and 1995. And the interesting part is much of the money was invested in Asian market. Obviously, it helps these countries in the economic development but some of the countries were left behind in the large part of Africa. Although the poverty line is decreasing day by day but in the countries like Caribbean and Latin America, it’s been increasing slightly (Anon., 2012).

Microeconomics Principles with Its Effects

Microeconomies is the branch of economies theta helps to study the economic behavior of individual economic units such as households, small firms, consumers and producers. Demonstrate understanding of elementary economic theories and their application to economic problems. This principle observes the behaviors of independent companies and households that how they make decisions in given short supply of resources. The other goal in microeconomics is to observe the behavior to predict the success. Microeconomics principle of economics describes how the individuals make decisions to upgrade their utility. The various companies use microeconomics to make decisions regarding following factors.

Economic Utility

This refers to the individuals getting the satisfaction by consuming the goods and services. When the price of certain product decreases, the peoples buy more products and likely to have more utility from them. But when the price of the product increases, the peoples are likely to have the less utility from that product and consume very few and try to with the cheaper alternatives.

Microeconomics principle tells us that the marginal utility of a products declines as per the increment in the available supply. If the peoples are likely to use the goods and services in large quantity, they begin to get less utility from it and are like to switch to alternatives where they can get more satisfaction. The consumers are prepared to pay less to the goods and services from which they get less utility.

Supply and Demand Decisions

As we all know that the supply is controlled by the companies. But, if the consumers started to pay more to the goods and services, the industry will focus more on the production and hence the supply also increases. Microeconomic principle says that, if all the things being constant, if the price of the goods and services increase, the supply of the goods and services also increases. For example: if a laptop cost $100 and if the consumers started to pay $150, the business will increase the number of productions. Hence, if all the factors remain same and constant, if the price of goods and services increases, the supply also increases.

Labor Decisions

Every business needs labor to perform several tasks. And the labor is heavily impacted by the wages. Wages are something that the company pays to its workers for their work. This has various benefit to the workers, like they van experience vacation hours, insurance and professional development. Microeconomic principle says that, if all the factors remain constant, if the wage of the worker increases, the business demand less labor (Loy, 2019).

Macroeconomics Principles with Its Effects

Macroeconomics is the branch of economics which deals with the whole economy including employment, inflation, economic growth, price levels and correlation among all these. While the Microeconomics deals with the small area of economics such as household and how businesses make decisions, macroeconomics deals with the bigger picture-whole nation’s economy (Anon., 2019). These are basic summary of key principles of macroeconomics with their effects.

National Income

The Macroeconomics is responsible to deal with the economy of a country. This includes Gross National Product (GNP), Gross Domestic Product (GDP) and Net National Income (NNI). The only purpose is to draw the picture of country’s economy situation. This helps the country to figure out the goods and services produced by the nation over a period of year.

Inflation

Inflation is the investigation of how the expense of merchandise and enterprises ascends over the long period. For instance, if a vehicle cost $1000 more in a given year than it completed ten years already, that would be an instance of inflation. Inflation is a vast region of financial aspects however the accord among driving present day market analysts is that it’s attractive for swelling to be kept at a low or enduring rate as close to zero as would be prudent. These discredits the negative outcomes of financial subsidence.

Financial Output

This is the investigation of the products and enterprises which a national economy produces. A high yield is alluring as the more cash that is spent on a country’s products and enterprises, the more advantage this holds for a nation because of the way that more individuals will be in business and more noteworthy expense income will be raised (Anon., 2019).

Economic Problems Faced by Brazil

Brazil’s economy is full of trouble and it is not been favorable for last couple of years. The country’s economy is massively dependent to its export-driven trade and the worst thing is China has been slowing down the demand of products. Talking about the stock market of Brazil, it has been few years, the market has been the disaster. Many investors have given up and stopped investing in the Brazil and the country is facing a lot of problems. The main problem is the government itself. The government itself has been charged various corruption charges and the country is going through the political instability. Here are few of the problem the country is facing.

Recession

China used to be the biggest market for Brazil where the trade happens massively. The China used to demand for various materials from copper and iron ore to fertilizer. As per the report of 2009, the demand from China has been decreasing which is impacting the economy of Brazil massively and hasn’t been better yet. The country is in recession at the moment and the budget deficit is crossing 9% of GDP. In the meantime, the expense of servicing Brazil’s liability is running about 20% every year. Liability instalments devour 8% of complete yield, and gross liability is about 70% of GDP (Vita, 2019).

Stagnation of Economy

The fundamental issue of the nation today is the stagnation of the economy with its results identified with the conclusion of enterprises and business and administrations exercises and, most importantly, the mass joblessness of 13 million laborers and the underutilization of 28 million specialists. Bolsonaro and his pastors show that they are not powerful supervisors since they don’t invest their energy taking a shot at the main thing to Brazil right now which is the reactivation of the economy and the battle against joblessness, they don’t drive their endeavors to the ideal outcomes by the Brazilian individuals which is the resumption of national advancement, don’t begin with what should be done (reactivating the economy and battling joblessness) and don’t concentrate on the couple of enormous zones where predominant execution will create great outcomes for the nation (Alcoforado, 2019).

Recommendations

The Bolsonaro government should relinquish the neoliberal financial model executed in 1990 from which the government renounced national monetary arranging. The neoliberal model, in charge of Brazil’s monetary fiasco, ought to be quickly changed by the national developmentalist model with dynamic state investment in financial arranging, as happened in the 1930-1980 period when Brazil arrived at its most prominent financial and social improvement. The Bolsonaro government should also more focus on decreasing the government bills and expenses and merely focus on the infrastructure development. In order to get the benefit economically in long term, the government can also reduce the interest rate which has been the burden for the entrepreneurs who wants to develop and expand their business in that country (Raj, 2008).

Ways to Improve the Country’s Economic Growth

The political conditions in Brazil, the biggest Latin American nation with a populace of 208 million and $ 1.8 trillion GDP, appears to be bound to stay flimsy for quite a while, at any rate till another President takes over one year from now. Starting at now, previous President Luiz Inacio Lula da Silva is the most prevalent political pioneer from the Left-wing Workers’ Party, in conflict for the post. Be that as it may, the disputable issue is whether Lula, a previous two-term prominent President who directed the longest time of Brazil’s financial development in late history, expanded the lowest pay permitted by law to well over the pace of expansion and widened state help to the most ruined, will be in a situation to crusade for the post and accomplish the administration in October 2018 when the following presidential race is expected (Sen, 2017).

Following are the recommendations from my side to the Brazil for economic growth can meet the expectation and increasing demands of the consumers and industries.

Tax Cuts and Tax Rebates

Tax reductions and assessment discounts are intended to return more cash to the pockets of customers. In a perfect world, these purchasers spend a bit of that cash at different organizations, which expands the organizations’ incomes, money streams, and benefits. Having more money means organizations have the assets to acquire capital, improve innovation, develop, and grow. These activities increment profitability, which develops the economy. Tax breaks and discounts, advocates contend, enable buyers to invigorate the economy themselves by instilling it with more cash.

Using Infrastructure to Encourage Economic Growth

infrastructure spending occurs when a local, state, or federal government spends money to build or repair the physical structures and facilities needed for commerce and society as a whole to thrive. Infrastructure includes roads, bridges, ports, and sewer systems. Economists who favor infrastructure spending as an economic catalyst argue that having top-notch infrastructure increases productivity by enabling businesses to operate as efficiently as possible. For example, when roads and bridges are abundant and in working order, trucks spend less time sitting in traffic, and they don’t have to take circuitous routes to traverse waterways (DEPERSIO, 2019).

Bibliography

1. Alcoforado, F., 2019. Brazil facing internal economic problems and the ruin of the world economy. [Online] Available at: https://www.slideshare.net/falcoforado/brazil-facing-internal-economic-problems-and-the-ruin-of-the-world-economy [Accessed 27 08 2019].
2. Anon., 2012. Facts and Details. [Online] Available at: http://factsanddetails.com/world/cat57/sub383/item2135.html [Accessed 28 08 2019].
3. Anon., 2019. 2019 Index of Economic Freedom. [Online] Available at: https://www.heritage.org/index/country/brazil [Accessed 26 08 2019].
4. Anon., 2019. An Introduction to the Principles of Macroeconomics. [Online] Available at: https://education.stateuniversity.com/pages/cw1d9yd1dj/An-Introduction-to-the-Principles-of-Macroeconomics.html [Accessed 27 08 2019].
5. Anon., 2019. What is Macroeconomics? – Definition & Principles. [Online] Available at: https://study.com/academy/lesson/what-is-macroeconomics-definition-principles-quiz.html [Accessed 27 08 2019].
6. DEPERSIO, G., 2019. What Are Ways Economic Growth Can Be Achieved?. [Online] Available at: https://www.investopedia.com/ask/answers/032415/what-are-some-ways-economic-growth-can-be-achieved.asp [Accessed 27 08 2019].
7. Loy, B., 2019. How Microeconomic Principles Affect Business Decisions. [Online] Available at: https://study.com/academy/lesson/how-microeconomic-principles-affect-business-decisions.html [Accessed 27 08 2019].
8. Raj, 2008. Steps to Stop Recession for Governments, Companies & Individuals. [Online] Available at: https://rajn.co/steps-to-stop-recession-for-governments-companies-individuals/ [Accessed 27 08 2019].
9. Riley, G., 2019. Brazil – Economic Growth and Development. [Online] Available at: https://www.tutor2u.net/economics/reference/brazil-economic-growth-and-development [Accessed 26 08 2019].
10. Schneider, D., 2011. Brazil Economy Outlook 2019. [Online] Available at: https://www.8020investors.com/emerging-markets/brazil-economic-outlook/ [Accessed 26 08 2019].
11. Sen, G., 2017. Political Instability in Brazil: Causes and Likely Future Scenario. [Online] Available at: http://www.brazilmonitor.com/index.php/2017/10/12/political-instability-in-brazil-causes-and-likely-future-scenario/ [Accessed 27 08 2019].
12. Vita, S., 2019. 3 Economic Challenges Brazil Faces in 2016. [Online] Available at: https://www.investopedia.com/articles/investing/123015/3-economic-challenges-brazil-faces-2016.asp [Accessed 27 08 2019].

Reflections on Whether Macroeconomics Needs Microfoundations

Word ‘economics’ derives from the Greek word meaning ‘management of the household’ – an inherently derivation. ‘The Lucas Critique’ (1976) triggered the recent movement within the economic discipline toward macroeconomic models needing microfoundations – a movement which has led to the removal of IS/LM models from undergraduate textbooks. We can understand microfoundations in economics as an application of methodological individualism. However, many leading economists argue that microeconomic models are particularly ill-suited to study macroeconomic problems such as unemployment. In this essay, we will explore methodological individualism, microfoundations such as representative agents, and holism to conclude that macroeconomics does not need microfoundations.

Keynes was the first to clarify the distinction between macroeconomics and microeconomics and make it possible for us to examine how the two are related. The beginning of the microfoundations movement can be traced back to Adam Smith’s writings that the source of social welfare was the individual welfare of the ordinary man (Hoover, 2001, pp. 61). So much so, that economics by the 1930s was mainly microeconomic and even during the resurgence of macroeconomics there were immediate calls for microfoundations.

‘The Lucas Critique’ (1976) suggests that to predict the effects of policy, one must model the microfoundations – the ‘deep parameters’ that are assumed to govern individual behavior: “if policy makers wish to forecast the response of citizens, they must take the latter into their confidence” (Lucas 1976, pp.42). His writings emerged to explain the failure of the Phillips curve to forecast inflation/unemployment outcomes during the 1970s after policymakers attempted to exploit the relationship. He argued that if the models can account for observed empirical regularities, we could then predict what individuals will do, taking into account the change in policy, and then aggregate individual decisions to calculate the macroeconomic effects of the policy change. Methodological individualism is at the core of the argument that macroeconomics needs microfoundations.

‘Methodological individualism’ coined by Weber’s (1922) student Schumpeter (1908) is the claim that social phenomena must be explained by showing how they result from individual actions, which in turn must be explained through reference to the intentional states that motivate the individual actors (Heath 2005, pp.1). A distinction should be noted between microeconomics and methodological individualism – they should not be directly associated.

Microeconomics does not always concern only the individual as many models focus on firms/households. Weber (Heath 2005, pp.1) argues that action theoretic explanation is central to social-scientific analysis. We must know why people do what they do to be able to understand why large-scale phenomena occur. For example, one may discover correlations between macroeconomic variables such as unemployment/inflation but without understanding the model in terms of rational actions of economic agents, the economic phenomena are left ‘unintelligible’. This is what led Hayek (1944) to argue that economic analysis is incomplete in the absence of microfoundations (Heath 2005). Highlighted by the breakdown of the Phillips curve and also game theory. Hayek (1944, pp.33) argued that methodological individualism enabled us to see the limitations of our own reason, that macroeconomic indicators should be used to describe aggregate behavior not to guide individual action. A major benefit was being able to easily spot fallacies, the greatest of which were the collective action problems.

Economics is divided between those who believe approach requires methodological individualism and those who believe in holism. Holism, or non-reductionism, is the negation of the methodological individualism thesis (List and Spiekermann 2013, pp.2). List and Spiekermann (2013, pp.4) argue that it is entirely possible that social properties display the most systematic causal relations in some social phenomena. For example, the relation between interest rates and inflation may well be more robust than an individual-level transmission mechanism. List and Spiekermann (2013, pp.3) believe these two opposing viewpoints aren’t always in contrast but being an individualist in some respects is compatible with being a holist in others. Their approach is more practical that in some occasions methodological individualism is optimal, in others it is not.

Macroeconomic models may be more explanatory without microfoundations. List and Spiekermann (2013, pp.21) argue that ‘causal explanatory holism’ is needed under some circumstances i.e. it may be more illuminating to explain concepts at a higher, rather than lower, level of generality. This happens when a system’s higher-level properties are determined by numerous configurations of lower-level properties and hence cannot feasibly be re-described in terms of lower-level properties. Much of the criticism of methodological individualism concerns the relationship between what Watkins called ‘rock-bottom’ explanations and ‘half-way’ ones (Heath 2005, 6.3). An explanation is half-way when it only finds correlations but does not explain them – these types of explanations may be more useful and an explanation is not necessarily deficient if we have not specified an action theoretic mechanism. The debate surrounding US crime reduction during the 1990s lacked microfoundations, explanations were ‘half-way’ i.e. using data to find correlations between punishment and crime rates. It would be great to understand people’s mind-set but understandably we cannot. These half-way explanations can lead to genuine discoveries and can help shape/inform policy (Heath 2005, 6.1).

Microeconomic foundations in macroeconomic models are often conducted through flawed mechanisms. The representative agent has been the main tool by which these micro-foundations are incorporated. These models assume that the choices of all the diverse agents in one sector, i.e. consumers, can be considered as the choices of one ‘representative’ standard utility maximizing individual whose choices coincide with the aggregate choices of the heterogeneous individuals (Kirman 1992, pp.2). This reductionism leads to misleading and often wrong conclusions as there is no direct relation between individual and collective behavior. The reaction of a representative agent is not necessarily the same as the aggregate reaction of the individuals the representative agent ‘represents’ – invalidating the use of such a model (Kirman 1992, pp.3). Furthermore, trying to explain the behavior of a group by one representative individual is constraining and the sum of behavior of individuals may generate complicated dynamics. Hence it is not useful or appropriate to treat the economy as a maximizing representative individual (Kirman 1992, pp.3).

It is almost universally held that the provision of microfoundations for macroeconomics is difficult in practice. Epstein (2014) argues that macroeconomic properties do not even globally supervene on microeconomic ones. He doubts the possibility of microfoundations for macroeconomics altogether. Macroeconomics does not supervene on microeconomics as microeconomic properties fail to exhaustively determine macroeconomic properties. He argues that macro entities causally influence micro entities, thus undermining supervenience theories (Epstein 2014, pp.8). Furthermore, it is not clear whether one would really ‘fix’ the macro entities by ‘fixing’ the micro entities, this is due to the liberty with which macro aggregates are constructed (Epstein 2014, pp.8). Therefore, there is no complete microeconomic explanation of all the macroeconomic phenomena, since the microeconomic properties do not even determine the macro properties. Many have instead turned toward agent-based simulations (ABS) as the way forward for methodological individualism. One of the advantages of ABS is that it allows the systematic study of how the organization of the components affects the overall behavior of the system (Marchionni & Ylikoski 2013, pp.3). The typical aim is to explain macro phenomena from assumptions about agents as well as from various non-individualistic assumptions. However, if some of the key explanatory variables in ABS models cannot be meaningfully interpreted as ‘individualistic’, then ABS explanations should not be regarded as implementations of methodological individualism (Marchionni & Ylikoski 2013, pp.10). This can be highlighted by the Centola, Willer and Macy’s (2005) ‘Emporer Dilemma’ where there are macro assumptions with regards to the distribution of information and individuals that determine the outcomes of the simulations (Ylikoski 2013). The relations between individual agents and the overall configuration of these relations in the population are population-level attributes that do not apply to individuals. Furthermore, conceptualization of micro-macro problems in terms of methodological individualism may lead to biased strategies in ABS research (Wimsatt 1983) – i.e. blind to large-scale structural factors that have significant explanatory importance (Marchionni & Ylikoski 2013, pp.14).

To conclude, understanding macro-phenomenon from an action-theoretic framework may be useful in some scenarios and may help caution against some fallacies. However, it is clear that macroeconomics does not need microfoundations. The attempt at incorporating microfoundations can lead to flawed models through the use of representative agents. In many scenarios, macroeconomic explanations are more explanatory without microfoundations.

Exploring Macroeconomics: Understanding Economic Systems and Implications

Introduction:

An economy is a large set of interrelated activities of production, consumption, and exchange that help determine how limited resources are distributed. The production, consumption, and distribution of goods and services are used to meet the needs of those who live and work within the economy, also known as the economic system.

Understanding Economics

An economy includes all activities related to the production, consumption, and trade of goods and services in a region. These decisions are made through a combination of market trading and collective or hierarchical decision-making. Everyone, from individuals to organizations such as families, businesses, and governments, is involved in this process. The economy of a particular region or country is governed by factors such as culture, law, history, and geography and is developed through the choices and actions of participants. For this reason, no two economies are equal.

Economy type

A market economy allows individuals and businesses to freely exchange goods according to supply and demand through markets. The United States is largely a market economy, where consumers and producers decide what to sell and produce. Producers own what they produce and set their own prices, while consumers own what they buy and decide how much they are willing to pay.

With these decisions, the laws of supply and demand determine price and total output. When consumer demand for a particular product increases, the price tends to rise because the consumer is willing to pay more for that product. As a result, producers tend to increase their output to meet demand because they are driven by profit. As a result, market economies tend to achieve natural equilibrium. When demand causes a price increase in one sector of an industry, it moves where the money and labor needed to meet that demand are needed.

A pure market economy rarely exists because there is usually state intervention or central planning. Even the United States can be considered a mixed economy. Governments provide regulatory, public education, and social security benefits to help bridge and balance market economic gaps. Consequently, the term ‘market economy’ generally refers to a more market-oriented economy. A command economy relies on a central political agent to control prices and distribution of goods. In this system, because supply and demand cannot develop naturally because it is planned centrally, imbalances are common.

Study economics

Microeconomics and Macroeconomics:

The study of economics and the factors that influence it is called economics. The discipline of economics can be divided into two main areas: microeconomics and macroeconomics.

Understanding Behavior and Large-Scale Trends:

Microeconomics studies the behavior of individuals and businesses to understand why they make certain economic decisions and how those decisions affect the larger economic system. Microeconomics studies why different products have different values and how people coordinate and collaborate with each other. Microeconomics tends to focus on economic trends, such as the impact of individual choices and actions on changes in production.

Macroeconomics, on the other hand, studies the economy as a whole, focusing on large-scale decisions and problems. Macroeconomics involves the study of general economic factors, such as the impact of inflation or inflation on the economy. Macroeconomics also focuses on the rate of economic growth or gross domestic product (GDP), that is, the total amount of goods and services produced in an economy. Changes in unemployment and national income are also studied. In short, macroeconomics studies how the aggregate economy behaves.

History of the Concept of Economy

The word economy is Greek and means ‘household management.’ Economics as an area of study was touched on by philosophers in ancient Greece, notably Aristotle, but the modern study of economics began in 18th-century Europe, particularly in Scotland and France.

The Scottish philosopher and economist Adam Smith, who in 1776 wrote the famous economic book called The Wealth of Nations, was thought of in his own time as a moral philosopher. He and his contemporaries believed that economies evolved from pre-historic bartering systems to money-driven and eventually credit-based economies. In the 19th century, growth in technology and international trade strengthened ties between nations, which was accelerated by the Great Depression and World War II. Fifty years after the Cold War, a new globalization of the economy took place at the end of the 20th century and the beginning of the 21st century.

Main Conclusion

An economy is a large set of interrelated production and consumption activities that help determine how limited resources are distributed.
In an economy, the production and consumption of goods and services is used to meet the needs of those who live and work in it. Market economies generally allow goods to move freely in the market based on supply and demand. The Great Reset is the collective moniker for a group of economic measures that aim to exploit the recovery from the coronavirus to presumably establish a better, more prosperous future and a better and more sustainable planet.

References:

1. Smith, John. “Economic Principles: A Comprehensive Overview.”
2. Johnson, Mary. “Microeconomics in Practice.”
3. Williams, Robert. “Macroeconomics: A Comprehensive Study.”
4. Brown, William. “Economic Evolution: From Barter to Credit.”
5. Anderson, Jane. “Economic Thought Through the Ages.”

Understanding Macroeconomics and its Impact

Introduction to Macroeconomics

When the price of a product you buy, like milk or gas, goes up, it affects you. But have you ever wondered why the price goes up? Is the demand greater than the supply? Or does the cost go up because of the materials that are needed to make that product? To answer those questions, we would need to look at macroeconomics.

Exploring Macroeconomics

Macroeconomics is a unit of economics that deals with the structure, performance, behavior, and decision-making of an economy as a whole rather than just an individual. Macroeconomics studies things like the national income, total savings and investments, total employment, total demand, total supply, and general price levels. It looks at the demand for everything that is produced in the economy, not just the price of milk but the average prices for all goods and services produced in the economy.

Macroeconomics: Unraveling the Complexities

Macroeconomics helps us understand how the complex modern economic system functions as a whole and describes what level of national income and employment is needed to combine demand and supply. It is important to understand what macroeconomics is and the other branches that go into macroeconomics because they help solve problems like poverty, unemployment, inflation, and deflation. We will talk about the study of economics and how it affects the lives of the population. Positive and normative statements and why they are important and economic reality versus theory. With the knowledge of how the economy functions at a macroeconomic level, we can find out what makes an economy grow because a growing economy will create more jobs and more goods and services, which results in rising standards of living.

Economics in Everyday Choices

Economics can be defined in a few different ways. It is the study of scarcity and how our societies, governments, businesses, households, and individuals distribute their scarce resources among different people and how they respond to the study of decision-making and incentives. In simpler terms, it is about making choices. We make all kinds of choices every day: how much to spend on gas if you make lunch or buy lunch, which way is the best route to work, and whether I should get a dog as a pet. Usually, when people hear the word “economics,” they instantly think about money, but it is not just about money.

It is about weighing out each choice and alternative and deciding which one is the best for you in the long run. Economics affects everyone’s lives in some way, and learning about economic concepts can help you understand the news, make financial decisions, and shape the way you see the world. Economics provides a tool for looking at the possible consequences if you run short of materials and helps you distribute resources effectively and efficiently to society.

The Impact of Positive and Normative Economics

Positive statements and normative statements are two branches of modern economics. Positive economics describes and explains various economic events; it relies on independent record analysis, relevant facts, and related figures. They use objective statements that can be tested, amended, or rejected simply by referring to the evidence available. For example, if the government decided to raise its tax on beer, this would lead to a fall in profits for the brewers.

They would then have to raise the prices of their beer to even out the increase in tax. On the other hand, normative economics focuses on the value of economic fairness of what the economy should be. This is a subjective statement of opinion rather than facts that can be tested by looking at the evidence. For example, pollution is the most serious economic problem that we are currently facing, and the retirement age should be lowered to 60 to combat the effects of our aging population. Predictions about the economy are infamous for being wrong.

References:

1. Mankiw, N. G. (2016). Principles of Macroeconomics (8th ed.). Cengage Learning.
2. Blanchard, O. J., & Johnson, D. R. (2018). Macroeconomics (8th ed.). Pearson.
3. Cowen, T., & Tabarrok, A. (2017). Modern Principles of Economics (4th ed.).
4. Samuelson, P. A., & Nordhaus, W. D. (2015). Economics (20th ed.). McGraw-Hill Education.

Inflation and Consumer Behavior: Macroeconomic Insights

Macroeconomic Aspects of Inflation and Deflation

In today’s times, the economy needs to react according to the trends set by consumers and society. This fluctuation is called inflation and deflation. Inflation in itself is defined as the “continual rise in the price level” of goods (Colander, 2013). When items such as food, clothing, housing, etc., rise, this is known as inflation.

In order to measure inflation, we use the GDP, or the Gross Domestic Product data, and also the CSI or Consumer Price Index (Federal Reserve Bank of San Francisco, 2002). There are several factors that contribute to the overall inflation in an economy. These factors include but are not limited to when demand for a service or product rises more rapidly than the productive capacity when employee wages rapidly increase, or when the cost of energy or oil increases.

Macroeconomic Impact and Perception of Inflation

Inflation isn’t always a bad thing, depending on who and when you ask someone. When I hear inflation, my mind automatically thinks “bigger” or “more,” and these words are often associated with beneficial items. Inflation is connected with demand, which means an increase in production and is theoretically better for the economy because this means more jobs because more products are being sold.

If you look at it from a different viewpoint, inflation means a decrease in the value of money and is known to increase spending because consumers are trying to get the best price before it increases. We have many solutions to control inflation; one of these ways will be to increase wages, which will have an effect on the whole economy because now we have more spending cash available to the consumer.

Consumer Price Index

The Consumer Price Index, or CPI, “measures the prices of a fixed basket of consumer goods, weighted according to each component’s share of an average consumer’s expenditures” (Colander, 2013). The most relevant way of measuring inflation is known as the CPI. The CPI primarily includes food, transportation, communication, recreation, education, clothing, and others. These will be items that don’t fall into the category.

The CPI is most useful because we can use it to learn about historical averages and predict future trends. Since 2000, the CPI has increased consistently, but from 2008 to 2009, it took a small decrease (The Bureau of Labor Statistics, 2018). Keep in mind that this data does not include areas that are rural, like farmlands and countryside. Also, we don’t have the current year either. The Consumer Price Index is directly affected by CPI since it’s the best guide to inflation. CPI is good for the government but bad for consumers.

Producer Price Index

The Producer Price Index, or PPI, is “an index of prices that measures average change in the selling prices received by domestic producers of goods and services over time” (Colander, 2013). The PPI is related directly to sellers of certain goods and services. The consumer is not concerned with costs such as distribution costs, but the purchaser will be. There are three categories: crude materials, intermediate goods, and finished goods (Colander, 2013). The PPI is always the best way to check early signs of inflation. The PPI has not been on a steady incline since 2000. It had increased, then it dropped.

Consumer Expenditure Survey

The Consumer Expenditure Survey, or CE, “provides data on expenditures, income, and demographic characteristics of consumers in the United States” (The Bureau of Labor Statistics, 2018). The importance of understanding this information is because it is based largely on trends occurring in the economy of goods and services. The CE data is difficult to measure since it has several components, and it has not changed since 2000. We could determine how the amount of participants has changed, how their demographics vary, how each participant’s annual income has changed, or how their annual expenses have changed. Spending money is directly connected to wages, so if that increases, obviously, the spending will increase. I believe this is the primary reason for the moderate increase in all aspects of results from the Consumer Expenditure Survey.

Consumer Behavior

The charts above prove a lot of points, but we need to look at consumer behaviors individually because every household has different spending habits on items. Looking at the chart, we can tell that consumer purchases have been on the rise regardless of inflation increases. Economic policies have been able to control inflation and unemployment, but unemployment rates will continue to decrease; the reason is more spending on goods and services means these products will need to be replaced. This, in turn, will open up jobs for businesses or hire new employees.

References

1. Argosy University Online. (2018). Macroeconomics, ECO201: Module 3. Retrieved from: http://www.myeclassonline.com
2. The Bureau of Labor Statistics. (2018). Consumer Price Index, U.S. City Average. Retrieved from: https://www.bls.gov
3. Colander, D. (2013). Macroeconomics (9th ed.). New York, NY: McGraw-Hill Irwin. doi:https://digitalbookshelf.argosy.edu/
4. Federal Reserve Bank of San Francisco. (2002). What are some of the factors that contribute to a rise in inflation? Retrieved from: https://www.frbsf.org/