Learning and Expectations in Macroeconomics - Essay Example

Economic Policy P The sources of local economic growth interact with the local policies and it addressed how the policies are directed to the factors that influence the behaviors of the local firms. Appropriate policies depend on its effect to the economic welfare. There are also policies that have positive impact in the welfare of the economy and zero sum from a wider perspective. There are also policies that increase the economic welfare that applies locally and from wider perspectives. The government has the authority over the political units and ruling power in the society. The government has the functions to make laws, to adjudicate and to influence all the administrative decisions. They can influence in making decisions and in the monopoly of the authorized force. The government illustrates the fact that people are living in the community and personal autonomy must be constrained. Governments are created to increase the survival potentials of the people and they are directly involved in manipulating and managing all the regional economies. The government itself can make reforms on currencies and they ensure that the values of money will undermined by prohibiting counterfeiting. The government regulates most of the aspects in the economy and they stabilized it for the benefit of the people. The government has a crucial role in managing the public goods and the environment. They are the institutions that resolve problems in the local level and global scales. The economic market has suitable mechanism and governmental intervention and regulation that sustain the management. Normally, the government manipulates the economy of the nations wherein the members of the government shape the economic policies. There are social programs such as Social security and Medicare. The flexibility of the government resulted to unusually dynamic economy and it produced growing affluence, technological innovation and growing trade with other nations Services are relative to traditional manufacturing, some Economic Policy P 2 industries give more specialized production and it gives emphasis on product diversity and customization Large companies have merged and split up and reorganized in numerous ways, and increasingly the government and business leaders emphasize the importance of high skilled and flexible work force in ensuring the future economic success of the country. Territorial competition involves the formation of policies in promoting local economic development in competing with other territories. It involves competing for mobile investment and it gives consideration in promoting the territory as a competitive place in conducting business. It includes improvement of the environment for all its existing local businesses and they are directed to foster formation of new firms than attracting inward investment. It involves leading agency formation that coordinates actions and efforts in developing a strategic analysis of the territory. This applies to the level of city regions and it is a principle of distinguishing the traditional top-down regional policy by the local origins and the fact as locally determined goals. This gives consideration with the issues on regional spatial equity and the efficiency of local economy. Incentives involved in territorial competition and it works against wider issues on spatial equity. Territorial competition can be inevitable and beneficial; it is beneficial to local inhabitants, society, and economy. Unrelieved malign influence stemming from benefiting the interests of small or group of property owners leads an implicit rejection of economic growth as goal for the policy. The government breaks up and regulates companies that they have so much power wherein they could defy the market forces. Government normally addresses matters the private economy overlooks. Government nurture new industries and they even protect the companies from competition. Economic Policy P 3 It shows that there are implications in the policy in national and super national government, in local and regional level. It shows that not all the citizens are benefited from successful territorially competitive policy. Successful local policies not benefit all locals and benefit some of the non locals and policies fall into three categories such as those that are pure waste wherein, they have no impact in diverting activity to region and in generating new activities and they cost resources. The impact on economic welfare identifies the criteria on how the economic welfare impact the territorial competitive policies and it varies according to the geographical perspective on evaluation. Policies relate to the acts of investment and it arises from the findings that developing countries attract significant foreign direct investment inflows and not be taken for granted that domestic firms be benefited from the presence of transnational corporations. They mainly happen when the absorption capabilities are present to receive the horizontal and vertical spillovers. Rapid transition encourage open and competitive economic environment that meant to be a great challenge for domestic enterprises (Policy Implications, 2008). The indigenous entrepreneurs were incapable in upgrading the import substitution industrialization stage and either sold or broke their businesses. There are numbers of domestic enterprises were able to meet the challenge through their modernization process and restructuring. The government has the functions to make laws, to adjudicate and to influence all the administrative decisions. They can influence in making decisions and in the monopoly of the authorized force. The government illustrates the fact that people are living in the community and personal autonomy must be constrained. Economic Policy P 4 competitiveness and domestic firms is incorporated new product, process technologies and most of them reduced their domestic technological efforts and the national content of their products. There are types of policies such as those applied in trade, technology, and enterprise policies and those policy measures in promoting competitiveness that have an impact on the strategies of foreign subsidiaries and induce the generation of positive spillovers. Some of the policies strengthen the capability of locally owned firms to benefit from spillovers generated by the activities of the transnational corporations. In several studies, developing countries refer to the effects of the foreign direct investment on closed economies and do not take deep changes that have taken place in the context. Several cases dealt with countries with a not developed manufacturing sector and have not received much foreign direct investment. The most significant economist contributing to the theory applied in economic activities is the theory of entrepreneurial alertness and discovery that improved the understanding about the phenomenon of economic development. The concept explains the economic development of the latecomer economies. The insight of Kirzner explains the nature of entrepreneurial alertness and discovery. The concepts of entrepreneurial alertness and discovery are associated with the actor's interpretation framework or the stock knowledge and it is derived from the everyday life. Discovery explains that actor interprets incoming information that is different from the perception of the general public. There are two kinds of entrepreneurial discovery such as the ordinary and extraordinary wherein ordinary discovery is a backward interpretation that the entrepreneur endeavors exploit the profit opportunities by doing better things. Extraordinary discovery is a forward interpretation involving the new dimension of events wherein the Economic Policy P 5 entrepreneur explores the profit opportunities by doing things drastically and it is different from the traditional practices. The discovery enhances the changes in the economy and it explains the result of actors taking the knowledge for granted and being locked inside the interpretation framework. The argument developed explains why the firms integrate vertically and why the socialist system is an opportunity negative structure. The arbitrage of theory of profit argues the existence of disequilibrium situations in the market and it implies the profit opportunities. The entrepreneurs exploit the opportunities and in eliminating errors in moving the economy towards the equilibrium. In a multi period situation, the entrepreneur introduces creative actions in constructing the future (Macroeconomic Theory, 2008). The concept of entrepreneurship explains the foundation of Mises' human action theory. The concept of alertness leads individual in making discoveries valuable in the satisfaction of human wants. An entrepreneur lies in the alertness leading them to make discoveries that exploit situations wherein they can sell for high prices which they can buy for low prices. Alertness to profit opportunities implied arbitrage activities wherein it is distinguished from entrepreneurship. There are always an alternative ways in doing things and opportunities have long existed though they need to be identified. Most often, new idea is invented and people appreciate the ideas and it is right claiming the opportunities are often something that can do. New things waiting to be discovered and it extends the concept of alertness and discovery. Profit opportunities emerged because of inefficiency in the old system that intensifies. The issue of opportunities needs to be identified by the entrepreneurs. Discovery denotes the degree of technological breakthrough of creativity. Economic Policy P 6 Discovery enhances systematic change to the economy and it brings incremental change to economy. Learning and searching is motivated dissatisfaction with the information that already obtained. Dissatisfactions inspired searching for more and better knowledge and prior knowledge is not a result of deliberate search and it is often accumulated in everyday life experiences. Individual's expectation and awareness are the result of learning experiences occurred without having been planned. The opportunity discovery is similar with the human actions and it involves knowledge and ignorance problems. In the argument of ignorance of opportunities, it is associated with the knowledge. Technological knowledge and know where to buy and sell spontaneously absorbed from the life experiences. Information and knowledge is gained from deliberate search and it gives emphasis on economic analysis. Deliberate acquisition of knowledge is cost consciousness and individual compare cost and benefit of each additional search. Opportunities cannot be seen as the firm deliberately searches for them. Most companies set up their research and development departments in searching profitable opportunities. Deliberate search remarked knowledge that presupposes the agents that are already know enough of the territory that they know the information they want and how to acquire the information. Individuals search fro something that they do not know and they estimate the costs and benefits associated with the search. Firms in search of profits imply degree of enterprise and the profitability of expansion in a given direction is obvious and the decision expands almost automatic that no particular quality is required. Most entrepreneurs have extraordinary smelling opportunities and alertness permits recognition of gaps in the market that Economic Policy P 7 give little outward sign and they are always positioned on high grounds where signals of market opportunities can easily strike them. Public spending at microeconomic level has implications on macro economy. The sources of local economic growth interact with the local policies and it addressed how the policies are directed to the factors that influence the behaviors of the local firms. Appropriate policies depend on its effect to the economic welfare. Policies relate to the acts of investment and it arises from the findings that developing countries attract significant foreign direct investment inflows and not be taken for granted that domestic firms be benefited from the presence of transnational corporations. The structural measures are implemented by the government in achieving greater efficiency in a stylized model and it increase the price elasticity of demand of government expenditures. The structural policies improved the efficiency of public spending and it change the positive and normative pattern across the countries and it follows the asymmetric fiscal shock. In improving efficiency, it relates to the process of reducing the degree of monopoly power and enjoyed by the firms in selling goods and services and it brings their prices closer to marginal costs. The impact on economic welfare identifies the criteria on how the economic welfare impact the territorial competitive policies and it varies according to the geographical perspective on evaluation. Positive inputs can be tested by looking at the facts while the normative inputs used to make value judgments, in prescribing solutions, and in identifying problems. It suggests that economic facts are normative statements and they are based on values that are prescriptive and normative inputs cannot be proved or disproved by the facts alone. Economic Policy P 8 Reference Policy Implications. Retrieved January 12, 2008, from the Internet Explorer website: http://ec.europa.eu/regional_policy/sources/docgener/evaluation/pdf/finalrep_full.pdf Fiscal Policy. Retrieved January 12, 2008, from the Internet Explorer website: http://www.uwe.ac.uk/bbs/acad/luth.pdf Blinder, Alan, Elie R. D. Canetti, David E. Lebow, and Jeremy B. Rudd. Asking About Prices: A New Approach to Understanding Price Stickiness. NewYork: Russel Sage Foundation, 1998. Evans, George W. and Seppo Hnokapohja, 2001, Learning and Expectations in Macroeconomics (Princeton, NJ: Princeton University Press) isbn: 0-691-04921-1 Gourieroux, Christian and Joann Jasiak, 2001, Financial Econometrics (Princeton, NJ: Princeton University Press) isbn: 0-691-08872-1 McCallum, B. (ed), 1990, Handbook of Monetary Economics vol 1 & 2. (Amsterdam ; New York : North-Holland) isbn: 0444880275 (set); 0444880259 (v. 1); 0444880267 (v. II) Call Number: HG221 .H26 v.1 and v.2 Ljungqvist, Lars, and Thomas J. Sargent, 2000, Recursive Macroeconomic Theory, (Cambridge, MA: MIT Press) isbn 0-262-19451-1 Read More