This report is aimed at addressing recent economic events and economic reports. First is analysis of problems of unemployment rate, changes in general price level, total output of goods and services and the ways in which the government raises and spends money. Other areas to be reviewed include examining the relationships between economic variables such as output, employment, interests, money and prices. This is the key variables that determine macro-economic activities and the level of national income in an economy. It therefore analyses the performance of the economy as a whole.
Goals of Macro-Economic Policy: The major aims of macro-economic policy in relation to the recent economic events are as shown below. (1)It aims at full employment level in the economy: Full employment is favorable in an economy because the greater the level of unemployment the greater the goods and services in an economy. When more goods and services are produced in an economy more sales are made. The more the sales are made. The more the sales made the profits also made by a company also increase. Therefore to improve and increase profits made by companies there should be full employment level in an economy.
Also the burden of unemployment and loss of goods and services is not desirable in an economy. (2)Price stability: In consideration to the recent economic events inflation should be avoided at all costs such that prices remain stable and predictable offer time. And this is advocated since inflation adversely affects a number of businesses and individual purchasing decisions. (3)Economic growth: Takes place when the real output increases more rapidly than the increase in population. In developed countries production is higher than the increase in population growth.
With economic growth the society has more goods and services at its disposal and correspondingly high standard of living. (4) External balances: If a country has a favorable balance of payment its foreign exchange results will increase and therefore it can import much needed capital for investment. Unfavorable balance of payment will lead to reduced flow of foreign exchange to finance the trade deficit. Most developing countries have unfavorable balance of payment. This has lead to poor growth of their economies. Unlike in developed countries that have a favorable balance of payment.
Hence they earn more foreign exchange. This makes developed countries to import needed capital for investments. National income accounting National income accounting is an accounting framework used in measuring current economic activities of all countries in the world. They use or apply national income accounts as their standard measure. The national income accounts are based on the idea that the amount of economic activity that occurs that occur during a period of time can be measured in terms of the following. (1) Output produced, excluding output used up in intermediate stage of production.
If a country produces more goods and services per year then its economy will be improved. If the GDP (gross domestic product) is high it means that the country has produced more goods and services within that year hence promoting the economy of the country. (2) Income approach: In terms of income received by the producers output Inflation Inflation refers to persistent increase in the general price level over time. By analyzing the recent economic events inflation has got a number of effects to an economy. The following are the effects of inflation.
Due to inflation income and wealth are redistributed arbitrarily, for inflation. Imposes a tax on those who hold money as opposed to those who holding real assets. Inflation reduces the standard of living of persons dependent on fixed incomes, for example pensioners. It benefits debtors and penalizes lenders. Due to inflation banks charge higher interest rates. Due to inflation interest rates rise, both because people require a higher reward for lending money which is falling in value and also because the government is forced to take ant inflationary measures. Investment is discouraged by government ant-inflation policy .
because of inflation the prices of goods go high compared to the wages people are getting. Savings is discouraged by high level of inflation in our economies things are likely to cost more if bought later. Hence people will spend money to buy goods and stock them . this discourages savings. Inflation encourages speculation by the purchase of really assets by borrowing later than investment by the use of resources in production. Indeed inflation discourages investment in long-term projects because possible government anti-inflation policies are difficult to forecast.
Because of inflation inefficiency is encouraged because a buoyant seller market blunts competition as higher prices obtained for their products allow even inefficient firms to survive. Inflation does not promote health promotion. Good and efficient firms lack market while inefficient firms gain market. Inflation generates industrial and social unrest since there is competition of higher incomes. Thus because of rising prices, trade unions ask for annual wages rise. Often demands exceed the rate of inflation anticipating future rise or seeking a larger shares of the national cake to improve their members’ real standard of living.
Those with the most muscle gain at the expense of the weaker groups. Due to inflation employees in companies will strike in demand for high wages. This will force the companies to deploy its employees due to industrial unrests. By deploying a few workers the remaining once will then demand for higher wages. This situation will affect the operations of a company. If also the company reduces the number of its employees fewer products will be produced. If production is low fewer sales will be made also affecting the smooth running of the company.
Additional administrative costs are incurred in offsetting go-slow and work to rule disruptions, allowing for inflation in negotiating contracts and wage rates, revising price lists and labels. High administrative costs arise due to inflation. Due to inflation companies may change their suppliers this means that new contracts should be made. To sign a new contract with a new company takes some time; this will affect the progress of a company. Due to inflation also prices of products change. Time is taken at preparation of new price lists and price labels.
The rate of inflation tends to increase largely because high wage settlements in anticipation of higher future prices help to bring about the very rise which people fear. Since people are demanding for high wages then the rate of inflation increases this leads to an increase in the price of goods. External effects of inflation Inflation can create serious difficulties for a country that depends on international trade. These difficulties include: Exports tend to decline because they are relatively dealer in foreign market. Inflation increases the prices of products produced.
This high prices discourse exports. Imports tend to decline because foreign goods are relatively cheap compared to Kenyan goods. Because of high prices of locally produced goods imports become discouraged. Higher money incomes in the economy increase the demand for imports and tend to decrease exports because of buoyant home market makes it less vital for manufactures to seek outlets abroad for their goods. An outward movement of capital may take place if price rise continues. Since foreign trades and financiers lose confidence in the shilling maintaining its current rate of exchange.
Due to high levels of inflation, prices of goods will keep on growing this will eventually lead to investors losing confidence in a country hence they will not continue investing there. Money will not be invested in that country. It will lead to saving in other countries with stronger economies. Microeconomics Analysis on recent economic event under microeconomics Scarcity: Due to the drought that is already affecting people many products are know scarce. For example due to lack of rain milk is now scarce hence the price of milk has gone very high.
Due to the since there is high demand for milk and less is readily available at the market the price of milk keeps on increasing. Since milk is not available in the market it means that it’s limited in supply. Scarcity is a relative term and it means less than requirements. Scarcity of resources is the main economic problem because all the abilities within our disposal like time, wealth and money are all scarce. A commodity is considered scarce when it is limited in supply. And because of scarcity of resources human beings can not be satisfied.
Theory of demand and supply in microeconomics: In the country presently there is a shortage of maize. Due to the shortage of maize in the country the price flour has almost doubled. Demand theory plays a crucial role in business decision making. Business executives have to take decisions such as what to produce and how much to produce . However production managers will seek information regarding the commodity its respective quantities demanded by the consumers at different prices. There has been a shortage of bread in the country.
The main factors that led to the shortage of bread are: Cost of production: It is likely possible that the cost of production of bread was high, relative to the price hence few types of bread were being produced. When the cost of production of a product is higher than its relative price less of that product is produced or so firms end up closing their businesses due to the high cost involved in production. The production method: Prices of the inputs such as labor, energy or machinery: The price of bread was high for example due to the inflation rate of the country.
Due to inflation labor charges go high also affecting the price of bread. Some factors affect the demand of bread in the market. Such factors include: The level of income of people: This is a key determinant. It states that as people’s income rise individuals will tend to buy more of market products. Size of Market: The size of the market may be measured by the population. A larger population implies a bigger demand of goods and services. Price of related goods; changes in the price of substitutes will lead to a decrease or increase in the demand for the product.
Anticipated price rises; If the government changes the tax rates, then there will be anticipation of price increases. This will lead to an increase in demand for the product in the short run. Increase in information technology; The availability of broadband services to homes and offices has led to an increase in demand for products because shopping has become interesting. Nowadays in the world, every home is intending to have an internet connection which is in essence increasing the demand for products and have a wide variety to choose from.
Taste or preference; Special influence. These are seasonal demands, festivals or feasibilities and demonstration effects. Market structures Perfect competitive market structures: In perfect in a competitive market structure no individual seller can influence the price of the commodity, Perfect competitive is that situation of the market when there is large no of buyers and sellers, and there is no individual who dictates the price or the level output. Its therefore clear that one price of one commodity prevails in such a market.
Further its noted that in such a market average revenue and marginal revenue bath will remain constant under the perfect competition however the concept of cost is significant under this markets. The cost that are usually involved include total cost average fixed costs and marginal cost. Monopoly and monopolistic market: Monopoly is that market structure in which a single producer controls the whole supply of a single commodity which has no close single substitute. In case of monopoly the following conditions must apply:
(1) There must be one producer or one seller; That single producer may be an individual owner or a group of partners. (2) The commodity produced by the producer must have no close substitute. For example considering the current shortage of tomatoes in our county. Only one group of people are producing the tomatoes hence its price can only be controlled by this group of people country wide.
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