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Free «Macro» Essay Sample

Nominal Personal Savings are the nominal personal outlays subtracted from nominal disposable personal income. I.e. Nominal Disposable Income (NDPI) is Nominal personal outlays. Also Nominal Personal Saving can be received by NDPI – NCON + PINTPAID + TRANPF, where NCON is the Nominal Personal Consumption Expenditure, PINTPAID is the Interest paid by consumers to business and TRANPF is the Personal Transfer Payment to foreigners. Personal Savings for the recent quarter were 11,406.1 and 11,517.5.

Nominal Disposable Income is the Nominal Personal Income minus Personal Tax and Nontax Payments. For the quarters, Nominal Disposable Income was $11,886.4 billion and $11,962.5 billion, respectively. For Nominal Personal Taxes, it was $1,471 and $1,484.2 billion, respectively.

Nominal Personal Income was $13,357.4 billion and $13,446.7, respectively.

Nominal Personal Income is given by:

NPI = WSD + OLI + PROP + RENT + DIV + PINTI + TRANR – SSCONTRIB, where WSD is the Wage and Salary Disbursement, OLI is the Other Labor Income, PROPI is the Proprietors’ Income, RENTI is the Rental Income, DIV is the Dividends, PINTI is the Personal Income Interest, TRANR is the Transfer Payments, and SSCONTRIB is the Personal Contribution for Social Insurance.

Nominal Personal Consumption is the primary tool used to measure how consumers spend on goods and services in a country’s economy. It shows how greatly the income received by a household is being used up on the present consumption as opposed to how much is being put aside for upcoming consumption. In the year 2012 the last recent quarter had the following Nominal Personal Consumption: $ 11,067.2 billion and $ 11,171.9 billion, respectively.

APS is an acronym for Average Propensity to Save. It shows how a known level of income is divided between saving and consumption. To get APS, the Income is divided by Savings. APS for the immediate last but one quarter for the year 2012 is 0.848, and for the last quarter of the year 2012 has an APS of 0.856.

MPC is the change in savings that has resulted from a change in income. It indicates the proportion of additional household income that is used in saving. This is the slope of saving line, a key to the slope of aggregate expenditure line. Alternatively, MPC can be calculated by dividing change in consumption by change in income. For the last two recent quarters of 2012, MPC value was 1.17.

APC is the proportion of household income which is used for consumption. In other words, it refers to the total percentage of income which has been spent by a household It shows how a known level of income is shared between savings and consumption. In this case APC is 0.83 and 0.83 respectively

MPS is the change in savings which results from the change in income. It indicates the proportion of additional income which is used for saving. This is the slope of the saving line that enters an injections-leakage model. Alternatively, MPS is the inverse of MPC. MPS for the recent two quarters of 2012 is 0.85

There are various kinds of unemployment. These are the frictional unemployment, structural unemployment, seasonal unemployment and cyclical unemployment. Frictional unemployment is when the workers shift jobs in the search for new ones. This may be due to the graduates or young people changing jobs, and workers searching for greener pastures. Structural unemployment comes by where there is a mismatch between the supply and the demand skills in the labor market. This may be caused by occupational immobility whereby there are difficulties in learning the skills applicable to new technologies, difficulty in changing regions to secure employment, development of labor saving technology and structural change in the economy. Seasonal unemployment is an involuntary unemployment which is caused by change in the demand and supply of the labor along the year. This makes the workers in the seasonal industries lose their jobs during slower periods. Finally, Cyclical Unemployment refers to an involuntary unemployment which occurs during the times of contraction and expansion of the economy. In the economic expansion period, there is low unemployment and vice versa during economic recession.

There are a number of costs associated with unemployment. There is the loss of earning to the unemployed, the development of hysteresis effect, the increase of the government’s borrowing as the tax revenue of the government falls, since less people are being taxed; and there is also the increased expenditure by the government on the unemployment benefits, Low Growth Domestic Product for the economy since the economy is below the full capacity. Despite the negative effects of unemployment, there are also positive effects. Unemployment lowers the inflation index. According to the answers of Mary, Jack and Alice, all of them are correct because unemployment is perceived in different perspectives.

NRU (Natural Rate of Unemployment) refers to the rate of unemployment that is associated with full employment equilibrium, supply side or real forces and a constant rate of inflation. Unemployment rate is given by (Unemployed/labor force) *100. The GDP of the last two quarters of 2012 is $ 15,585.6 billion and $ 15,775.7 billion, respectively. With the current unemployment status, the GDP is at NRU.

The current unemployment state is not at equilibrium. Equilibrium refers to when there is a full employment, i.e. when there is only frictional and structural unemployment and full employment rate of unemployment, the economy is producing its potential output and the number of job seekers is equals to the number of job vacancies.

There are two main types of gaps in economics. These are the output gap and recessionary gap. The output gap, also known as GDP gap, refers to the economic measure that occurs between the definite production of an economy and the production it can realize when it is most effective. When the economy operates in the short term at a level below the potential full-employment, the recessionary gap (also known as contractionary gap) occurs. This implies that the Gross Domestic Product that is achieved is lower than it would have been compared to the full employment. Right now the economy is faced with the recessionary gap due to the high rate of unemployment. When managing the economy, we should focus on building the output gap, which is more beneficial.

Fiscal policy refers to the government’s policy in regard to the taxation and spending programs. Difference in the taxation and spending determines the amount of money the central government feeds into or withdraws from the economy. This either restrains or stimulates the economic growth. On the other hand, monetary policy refers to the process by which a country’s monetary authority controls the supply of money. This usually targets the rate of interest aimed at achieving the objectives designed to facilitate growth and stability of the economy. For the Member of Parliament to make a recommendation about managing the economy, he/she will have to integrate all the economic policies in that is Fiscal policy and monetary policy in his/her recommendation.

Distinguishing among the three effects that of inflation has on real tax liability helps understand how to adjust for inflation. These effects include erosion of amounts which is expressed in national currency, effect on measurement of the tax base and erosion of value of tax obligation.

It is no possible to have MPC greater than one. This is because MPC is received from division whereby change in consumption is divided by the change in income. Change in consumption can never exceed the change in income. This implies that MPC can never be greater than one.

MPS, which is the proportion of additional savings out of an additional income, is always a positive number. There is no possibility of having negative MPS since the income generated can only be saved or consumed.

Reserve requirement refers to regulations which set the minimum amount of reserves banks should hold against deposits. When the reserve requirement increases, the reserve ratio is raised, the money multiplier (spending, investments, money and deposit multipliers) is lowered and there is a decrease in the money supply. Deposit multiplier is a term describing the amount of money that a bank’s money supply has created. This is through lending which is excess of its required reserve to the borrowers. Deposit multiplier is given by the inverse of required reserve ratio i.e. Deposit Multiplier = 1/required reserve ratio. Spending multiplier is initiated when there is an increase in one agent’s spending, which triggers succession of increases in spending by other agents; as a result, there is a cumulative effect which exceeds the initial stimulus.

Investment multiplier is a concept which states that an increase in private or public investment spending has more proportional positive influence on the aggregate income and general economy i.e. it is the multiplier’s outcome on the introduction of investment into the economy. Money multiplier, which is sometimes called deposit multiplier or credit multiplier, refers to a measure to the extent at which generation of money in the banking system causes the development in the money supply to surpass in the monetary base.

Investment demand is the negative relation that exists between investment expenditures and interest rate basing on the efficiency of investment for different capital investment. Increase in Reserve requirement increases investment demand. Aggregate expenditure refers to the overall expenditures on gross domestic product assumed in a specified time frame by four sectors (Business, foreign, household and the government). Any expenditure made by these sectors is referred to as consumption expenditure, investment expenditure, government purchases and net exports. Aggregate expenditure is vital in macroeconomics. If the government increases the reserve requirements, the impact will be greatly felt by the aggregate expenditure. That is, the aggregate expenditure will generally rise.

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Demand refers to the willingness and desire for a consumer to pay a price for a specific services and/or goods. An increase in reserve requirements directly reduces the demand. On the other hand, inflation, which is rise in the general prices of goods and services that results in purchasing power, rises when the reserve requirement is increased by the central bank. Lastly, expenditure – which refers to payment of cash equivalent for services or goods – is increase when the central bank increases the requirement reserve.


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