Globalization of Macroeconomics - Essay Example

?Macroeconomics Chapter 8 Globalization is one of the most significant trends in the modern world. The world has become a single and unified entity, where cultural and national differences are not so crucial anymore. There are a lot of reasons for globalization. Probably the most important are the following: technological development, development of transport infrastructure, growth of the role of international companies, etc. In any case, these reasons have led to creation of a global world. Global economy is one of the most essential areas of this world. “Although technology, tastes, and public policy each have important independent influences on the pattern and pace of economic integration in its various dimensions, they clearly interact in important ways. Improvements in the technology of transportation and communication do not occur spontaneously in an economic vacuum. The desire of people to take advantage of what they see as the benefits of closer economic integration—that is, the taste for the benefits of integration—is a key reason why it is profitable to make the innovations and investments that bring improvements in the technology of transportation and communication” (Mussa, n.p.).  Balance of payments is a balance through international operations, expressed in value of all complex economic relations of a country in the form of the ratio of receipts and payments. Balance of Payments is a statistical report that provides data on the foreign trade of a country with other countries over time. Simply speaking, this document reflects economic transaction of a country with the rest of the world. From the accounting point of view, the balance of payments is always in balance. However, deficit or surplus may occur in its separate sections, when receipts exceed payments, or when payments exceed revenues. The principle of double-entry accounting is used in a balance of payments, every transaction has two sides - debit and credit. Under this accounting system total of the debit should always be equal to the total amount of the loan. Generally, any balance of payments consists of two accounts – current account and capital account. A current account reflects operations with real assets, while capital account – with financial assets. According to the majority of experts, current account plays more significant role in the overall balance. For instance, negative current account of the USA has played a tremendous role in negative dynamics of the country’s balance of payments. It can be seen on the following graph. The other important theoretical item in international economics is exchange rate. Simply speaking, exchange rate is a price of a motional currency in some particular amount of a foreign currency. There are nominal and real exchange rates. Nominal exchange rate - is the relative price of currencies of two countries, or the currency of one country, expressed in the currency of another country. In turn, the real exchange rate describes the ratio in which products of one country can be sold in exchange for goods of another country. The following law is related to the problem of exchange rates. “The law of one price is the theory that the price of a given security, commodity or asset will have the same price when exchange rates are taken into consideration. The law of one price is another way of stating the concept of purchasing power parity” (Financial Theory, n.p.). Chapter 9 A curve of production opportunities is dependence that graphically illustrates the possibility of simultaneous production of two products based on limited resources spent on producing these products. A simple production possibilities curve is presented on the following picture. The curve is constructed in a coordinate system, each of which reflects the output of one of the products. It restricts the production capabilities so that any point on the curve shows the maximum possible resource constraints on the combination of production of two products. Aggregate supply is the total amount of goods and services that can be produced and offered for sale in accordance with the level of prices prevailing. Aggregate supply is the real gross domestic product. It depends on the level of prices, production capacity of the economy and spending. Aggregate demand is the amount of goods that consumers will to buy at the current price level. Aggregate demand is filed within the country and from abroad: inside - on the part of consumers (businesses, households and governments) and local investors, and from abroad - on the part of foreigners. Accordingly, it consists of purchases of goods by enterprises (industrial consumption), people (private consumption), government (public consumption), domestic investment and exports abroad. Aggregate supply and demand are not static concepts of macroeconomics, designed to study the whole range of phenomena and processes that lead to cost imbalance between the volume of purchases and the volume of production of goods, entering the same market in the same time. Production function is dependence of the final yield or its value from using various factors of production, specific types of resources and expenditures filed in mathematical form. Usually it is used with one simple function or more variables - linear, quadratic, a power, exponential, hyperbolic others. First, the most famous version of the production function was production function of Cobb-Douglas, developed in 1923, by the U.S. economist P. Douglas with mathematician Ch. Kobe, based on research of U.S. manufacturing over the period from 1899 to 1922, pp. It describes dependence ob volumes of production on two factors - capital and labor, abstracting from al-Shih. Chapter 10 The problem of economic growth is associated with the previous question. In fact, economic growth can be considered as upward movement of production possibilities curve. It can be described via the following picture. Enlarged reproduction of the social product is embodied in economic growth. The solution of the problem of economic growth depends on creating the appropriate basis of socio-economic progress, prospects of growth of national wealth and well-being of every person. Economic growth and expanded reproduction are the same, but not identical concepts. Extended play belongs to both macro (national and world economy) and to micro levels (company, firm, industry). In the case of advanced social production, the center is a problem of proportions in the growing social production. Economic growth mainly characterizes entire economies, such as the country's economy, a group of countries that live belongs mainly to macro. The emphasis is on the indicators as gross domestic product, national income, employment, social capital etc.. They characterize absolute results of macroeconomic business objects. These indicators are also needed to compare the macroeconomic objects, with different quality characteristics such as national economies, which are at different levels of development, or societies that are different structure of their productive forces. Economic growth means a regular, steady expansion of economic system, which is to increase the size of the applied social labor and manufactured product - goods and services. Economic growth is the main problem of quantitative and qualitative development. Economic growth is in the specific dynamics quantitatively increase and qualitative improvement of social productivity and the factors that produce it. There are two main types of economic growth - extensive and intensive. Extensive type of economic growth - is expanding production based on a quantitative increase in its production factor in maintaining the preliminary technical and technological parameters and qualifying them. Intensive type of economic growth - is expanding production through qualitative improvement of its operating factors in improving organizational and economic relations of production (division of labor, specialization and cooperation of production, etc.). This increase is achieved by increasing the employees who can develop their professionalism, the use of innovative tools and items of work, the use of a more rational production potential. This increases the pro-labor productivity and efficiency. The main sources of intense economic growth are: Firstly, to improve the efficiency of human labor, its productivity; Secondly, improving materialized labor-based growth impact functioning of technology, the means of labor in general, their fundamental renewal and cost items of work per unit of product. Each type of economic growth in practice does not exist in pure form. In real life there are mainly extensive or predominantly intensive types of economic growth. Increasing the role and share of intensive type of economic growth called the intensification of the economy. The ongoing qualitative change in the relationship between society and nature, nature conservation, the problem becomes more acute as a particular field of activity of society. Given the current problems GTR natural environment, environmental issues have become a global. Solving environmental and economic problems can be reached through the use of scientific and technological and a social progress of mankind in peace and international security. The concept of economic growth reflects primarily character of the productive forces of society. More ambient and wide is the concept of economic development. Along with the nature of the use of the productive forces of society, it also includes the evolution of the economic system as a whole, including all subsystems economic relations of production, including the socio-economic as a social form of existence of the productive forces. The problem of economic growth is highly correlated with growth population. Such correlation is presented in the following table. Chapter 11 Labor market is the area of supply and demand for labor. In the labor market the sale of labor for a fixed term is performed. It gives answers to the questions what, for whom, how to produce. Labor market, in particular, regulates the movement of labor resources in the national economy. The labor market is a market of one of the factors of production, where households as wage workers offer their labor, and firms - producers of goods and services (employers) - need. In the labor market, a price of labor - the wage rate - and the amount of the employment are defined. Work (work or services) is one of the main factors of production, owned by households, is the physical and mental abilities of people that can be used in the production of goods. Uniqueness of labor as production factor is that it can not be separated from the worker. However, because the object of sale is the only service workers, and not the employee, along with the price of labor not less weigh conditions, which are determined by labor contracts and applicable law. The scope of use of labor measured in hours of work over a period (hence, work - is the value of production). Stocks in the economy measured indicator of labor: the working-age population, i.e. the number of people who have reached a certain age (in Ukraine it is 16 years) and working or even not have a job, you are looking for or expect to be offered a job. Like any other market, this one should be characterized with a high degree of efficiency. Low degree of efficiency leads to a lot of problems, for example, inflexibility of prices. As a result, a national economy faces with such significant problem as unemployment. The best situation is, when there is an equilibrium on this market, as it is described on the following picture. Chapter 12 No matter how perfect would work market mechanisms, they can not, however, provide full employment even in the presence of vacancies. Many of the various areas of economic researchers consider unemployment a central problem of modern society. It is an essential attribute of a market economy. Unemployment is a very important problem and one of the main goals of macroeconomic policy. It is tantamount to all the countries, despite the degree of development. Unemployment is a socio-economic phenomenon, within which part of the working population can not find work, it becomes relatively superfluous, adding reserve army of labor. Unemployment in the market economy is a state of the labor market in a situation where labor supply exceeds demand. Unemployed by ILO classification are persons registered with the Employment Bureau, who are actively seeking work. Temporarily laid off and those who intend to start work within 30 days are considered unemployed if they do not fulfill the second requirement of actively seeking work. Western economic schools have different views on the nature and causes of unemployment. Unemployment first appeared in Britain in the early nineteenth century. However, by the end of the century it had widespread, growing only during economic crises. The first attempt to explain the nature of unemployment did British economist T. Malthus. He explained it by too rapid population growth that outstrips increase livelihood. The cause of this phenomenon, he saw in the eternal biological law, characteristic of all living beings - multiply faster than the number of livelihood. This theory with some modifications exists today. In the mid 50's there was a technological theory of unemployment, according to which its reason is technological progress, technical changes in production, especially sudden. Fight against unemployment according to its authors should be due to the limitations of technological progress, its slowdown. The most common nowadays is the Keynesian theory of unemployment. According to what its cause is insufficient aggregate demand for goods. State, growing revenues or reducing taxes can increase public demand in the economy that will lead to the increased demand for labor, and this, in turn, will lower the unemployment rate. Another concept of unemployment (classical approach) is not seeing unemployment serious economic problems as the reason it considers too high wages, and in a free market this situation can not persist for long. Effective measures against unemployment are lower wages to the level of economic equilibrium. Unemployment is caused by a complex of reasons: - Structural changes in the economy; - Uneven development of productive forces in the economy in some regions; - The constant progress of technology, especially its revolutionary form - STR; - Finding workers jobs where higher wages, more meaningful work; - Disparity of economic development; - Limited demand for goods and services and so on. Hidden unemployment occurs when the number of employees in manufacturing districts exceeds the desired objective. Outcome is decrease in professionalism, low quality products, falling labor discipline, equality in pay, reduction in real wages. Among the common forms of hidden unemployment - forced production downtime for technological reasons, absenteeism and downtime associated with unscrupulous attitude of workers to work. There are the following types of unemployment: - Frictional; - Structural; - Cyclical. Frictional unemployment occurs when some people voluntarily changing jobs, some looking for a new job through dismissal, some temporarily lost seasonal work, and some, especially the young, first time job seekers. Frictional unemployment is inevitable and to some extent desirable, since some workers temporarily lost their jobs, moving from low-paid, unproductive work in higher-paying and productive. This means higher income for workers and rational distribution of labor, and hence more real national product. Structural unemployment is a continuation of friction. It occurs as a result of STP there are important changes in techniques, technology and production, which change the structure of demand for labor. These changes lead to the fact that the demand for some occupations reduced or eliminated, and other professions that did not exist before, increases. "Structural" unemployed can not find jobs without proper training, additional training, and even residence. Frictional unemployment is short term in nature, and structural - long-term, and therefore is more difficult. Cyclical unemployment occurs when cyclical downturns when there is a reduction in output. Consequently falling aggregate demand for labor and employment shrinks and unemployment rising. Unemployment rates in the United States of America is provided in the following table. Chapter 13 Consumption, savings and investment - those processes have a major impact on the macroeconomic equilibrium and growth of national income. That is why macroeconomic equilibrium analysis provides a detailed examination of consumption, savings, investment, and their mutual interaction. In fact, economic equilibrium and overall state of a national economy depend on correlation between these three mentioned items. Every certain economic situation requires respective economic actions, for instance boosting of consumption, investments or savings. Consumption is the total amount of goods and services purchased and consumed within a certain period. The point is that consumption is a reflection of the consumer, or consumer demand. Savings - this is nothing but a pent-up demand, or part of human needs that are not backed by purchasing power for some reason. Consumption - is the income after paying taxes that is spent on goods and services, and savings - the second part of the income after paying tax, which is not consumed. Savings means a reduction in consumption. Probably, the most famous and, on the other hand, quite simple consumption function is Keynesian consumption function. A simple example of Keynesian consumption function is described on the following graph. Chapter 14 An opposite item for consumption is saving. Savings is a part of the cash income that is not spent on consumption and is designed to meet the needs in the future. There are motivated and not household savings. The main reasons for savings can be grouped into the following groups: - Purchase of expensive goods; - Unforeseen expenses; - Prepaid expenses (marriage, education, etc.) - The habit of saving money; - Savings for profit. Unwarranted household savings result from excess solvency above requirements. This may occur in the following cases: - The level of income is large enough, i.e. household is able to meet current needs; - The level of supply and quality of goods or services can not meet the demand of consumers; - The state has implemented effective policies to increase household savings. The nature of mobilized household savings is divided into organized and unorganized. Organized savings are savings, mobilization and deployment which is performed by banking system or other financial and credit institutions. Fugitive cash savings are savings that are stored directly in people cash in local and foreign currencies. By unorganized savings are also keeping money in the form of jewelry, precious metals, expensive durables like. Bulk storage of trafficking money in cash (unorganized savings), despite the appeal to use more sustainable forms of savings and support the national economy, largely due to the naturally subjective sense of risk of possible losses, which increases extremely negative experiences in times of hyperinflation certification privatization and financial pyramids. Chapter 15 The economy is never at rest. Therefore, an important feature of the economy is its instability. Prosperity varies crash or panic. National income, employment and production fall. Prices and profit declines, but the laborers are thrown out (increasing unemployment). Finally reached a critical point and begins recovery. Recovery may be slow or fast. It may be incomplete, and vice versa, so strong, leading to a new boom. New band of prosperity may mean a long, steady level of lively demand, a large number of vacancies, higher prices and living standards. Or it could mean rapid inflation inflating prices and rising speculation, which comes hard new crisis. Although no cycle is not like the other, they all have a lot in common. They do not like each other, like twins, but they can identify features belonging to the same family. In its turbulent and unstable expression of economic cycles resemble waves of epidemic diseases, variability of weather. A typical model of business cycle is provided on the following picture. This preliminary objection must show that the economic cycle - is only one aspect of the problem of achieving and maintaining a high level of employment and production, and progressive economy. Each cycle is a sequence consisting of alternate phases that are repeated one after another. This means that each of his previous phases must be able to reproduce these. As a result, the economic cycle is finally able to reproduce. In addition, each economic cycle is characterized by the regularity of its passage. This allows you to mark a fundamental common structure of economic cycles in the market economy, and a more or less distinct sequence of phases. Since this motion occurs albeit unevenly, but continuously (the last phase of the previous cycle superimposed on the first phase of the next), the dynamics of macroeconomic indicators has an undulating form: at the end of the previous and the birth of a new cycle (the crisis) occurs declines, on the lower level (depression ) established a short-term equilibrium, while expanding new economic cycle (revival) rates soar, the top level rise (prosperity boom) - reaching equilibrium, then decline (crisis) etc. The initial phase of the economic cycle is the crisis. It disrupts the normal course of economic development, and all subsequent phases - restore it. Thus, each previous phase creates the conditions for its dying, and dying of the next phase. Chapter 16 Monetary policy is a policy, through which authorized state institution controls the volume of money supply in order to establish price stability, promote economic growth, compliance level of unemployment is low. There may be a lot of goals of monetary policy, depending on the situation. Some of them are described in the following table. Monetary policy can be a stimulant (expansive) if easing monetary conditions, generally lower interest rates (or increase the rate of change in money supply over the default level). Expansionary policy used to overcome recession, since it leads to an increase in aggregate demand, thus stimulating economic growth and reducing unemployment. In ordinary times, this policy leads to inflation. Restrictive policy is commonly used to slow inflation by stimulating the opposite policy, namely chilling effect on economic growth. Therefore, there are two types of monetary policy. Mechanism of expansionary monetary policy is described on the following picture. Chapter 17 Another key component of public policy is fiscal policy pursued by the Government and it consists of two areas - tax (types of taxes and regulations) and fiscal policy (policy implications). Fiscal policy - is the regulation of income and expenditure. Measures of fiscal policy are determined by the intended purpose (combating inflation, smoothing cyclical fluctuations in the economy, reduce unemployment). The state regulates aggregate demand and real national income through government spending, transfer payments and taxation. There are also two types of fiscal policy, like in the case with monetary policy. The expansionary fiscal policy is described on the following picture. There are also some rules and anchors of fiscal policy. Some of them are presented in the following table. Works Cited Financial Theory. Definition of Law of One Price. N.d. Web. Oct. 27, 2012, Mussa, M. Factors Driving Global Economic Integration. N.d. Web. 27 Oct 2012. Read More