The Contemporary Global Economy - Admission/Application Essay Example

?Macro and Micro-Economics of Introduction This paper identifies and compares the micro and macro economic infrastructures of the two important countries, namely, The United Kingdom and Brazil. It also would discuss briefly upon how the flaws and demerits of economic policies of either country can be overcome and what steps should be taken to achieve this. Recently, a research had been conducted by the AMR, which suggested the idea to look closely upon the fact that if United Kingdom is suffering from macro- economic variation which is internal and as well as external in nature. A great concern for the United Kingdom authorities as pointed out by the AMR was the high level of private debts in the internal infrastructure of the country. While on the external side, United Kingdom has lost a fair bit of export market share over the last decade, but a little stabilization has been there to see in the last few years. The loss took place without despite of the fact that there was a substantial downgrading of the sterling during the years 2007-2009. On the other hand, Brazil re-initiated its macro- economic policymaking organizations in the late 1990s. The initial policy making mainly focused upon the combination of targeting the problem of inflation with flexible exchange rate. This and such other reforms had been done to stabilize the macro- economic department of Brazil and also to enhance the abilities of the policy makers to encounter adverse situations. But still, the framework needs to be refined to a great extent in the near future to help the country touch the heights of the GDP per capita income that is enjoyed by many developed countries also to cope with the rapidly varying and fluctuating economy of the world. The main purpose of this in-depth paper is to investigate and present the findings of the AMR regarding the macro- economic structure of United Kingdom and to compare it with that of Brazil’s (Altman, 2011). Discussion The run-up to the international macro- economy along with the financial crisis that took place in the early 2000s brought in existence many new dynamic developments in the departments of income and domestic demand in the United Kingdom. The values of the house price to income ratio of the country reached great heights in the form of loss credit policies and infrastructures. Moreover, a buyer competition had also increased a great deal for a solid supply of housing, which resulted in the rapidly increasing prices of houses and ultimately, all these factors influenced to the accumulation of historically high levels of mortgage debts. Not including the financial corporations, the value of the total gross debt in the private sector reached at 212% of GDP by the end of 2010. The crisis affected the macro- economic structure of UK quite badly. The public finance department which was considered quite stable department in the pre-crisis years, unexpectedly deteriorated quite quickly. As a result, the UK authorities had to intervene in this matter extensively in the large and vast financial sector of the country by introducing nationalizations, capital injections and guarantees. The guarantees, along with the lower tax revenues and the operation of the automatic stabilizers prompted by the economic downfall, raised the debts of the government very quickly with the percentage of GDP from 44% to 80% in the years from 2007 to 2010 (Crouch & Mclean, 2011). On the other side, he main hurdle for the authorities of Brazil for the next coming years to stabilize the economy without the involvement of speculative flows. At the same time, the discouragement of the capital inflows related to the longer maturities should be checked as this would be the primary goal of the finance investment. Taking a look at the macro-economic situation in Brazil in the last two years and comparing it to that of United Kingdom, evidence is present in limited amount regarding the effects of various policies addressing the issues such as inflation and capital inflows; it is very wise to depend upon the array of policy utilities and instruments. The current policy of the exchange rate in Brazil that mainly focuses upon the flexibility of the exchange rate that was followed by the dissolution of the exchange rate policy of 1999, in addition with targeting the issue of inflation is by far the most vigorous step to minimize the chances of sudden terminations. This policy proved to be quite useful and beneficial which was complemented by the additional counter-cyclical fiscal measures, which resulted in the reduction of the domestic demand and help to overcome and reduce the ever increasing issue of inflation throughout the country. So, it can be rightly said that fiscal consolidation should be given priority over others. Moreover, macro-prudential steps and short term taxes were implemented on short term capital inflows. As for the future steps that should be taken by the Brazilian authorities, the first one being implementation of proper steps to ensure deepening of financial markets. This is because they play a role in the enlargement of investment opportunities and facilitate the economy’s capacity to take in flows. However, it should be noted that the effects of these measure will only appear in the medium term (Altman, 2011). Moving on, the United Kingdom on the external side has faced a secular type of trend of virtually small but at the same time quite significant current account deficits. The deficits average from 2.2% in the decade to 2010 which played a catalyst role in building up a negative investment from the countries worldwide also known as International investment position (IIP) of 23.8% of GDP by the end of 2010. Despite the fact that most of the European Union member states have lost and downgraded international market shares as a result of great competition from the new emerging economies of the world such as Brazil. As a result, United Kingdom coped quite non-seriously with a great drop of 24% in the five years till 2010. The main reasons for the external underperformance of the United Kingdom regarding the macro-economic infrastructure are much vast than mentioning its internal developments in the recent years 2010, 2011. Now, take a look at the macro-economic performance of Brazil in the last couple of years. At this particular point of time it is quite difficult to understand what has been the exact role of the IOD in the capital inflows department of Brazil. The financial accounts surplus surely had dropped quite some bit from the peak values in September 2010, but the decline had started far before the implantation of the taxes in the country. However, the capital growth rate tended to increase from the month of October 2010 till March 2011 but have been on the slow side of the movement since then. In line with the past experiences regarding the field of capital controls, the introduction of the IOF was followed by certain variations in the constituents of the capital growth rate towards the utilities of longer maturities. Portfolio investment has been significantly reduced, particularly in the equity securities category. However, the investment via the FDI remained quite stable and broad even after the October 2010 and rebounded strongly as well afterwards (Spilsbury, 2012). Moving on towards the unemployment rates comparison between the United Kingdom and Brazil. Firstly, let us take a look on the statistics regarding unemployment in the UK. The joblessness has deteriorated much further among the young people aging less than 25 years, rising to a rate of 22.8% in 2011 from a rate of 20.7% in the year 2010 which highlights the extensive impact of the debts crisis on the future generations of the country. One of the main reasons that played a catalyst role in increasing the unemployment rate in the UK was introduction of a mixture of tough somberness steps and the reducing demand of English goods, thus forcing approximately 34,000 people out of job in August, 2012. This resulted in the pushing of the overall number of unemployed people to estimated 18.2 million, which is roughly the total population of Sweden, Denmark and Ireland combined. Since the April of 2011, the unemployed number of people has further risen bringing the total to around 2.64 million. Despite the fact that the rate was slowest in April, 2011, the major economists of the country predict that the rate would tend to increase given that the business mawkishness remains at significantly low standards. Now let us compare these rates with ones in Brazil during the years 2010 and 2011. The Brazilian government had conducted a research regarding the rate of unemployment in the country, and they came up to be around 6.2% in November 2010. This was the lowest ever unemployment rate in Brazil’s history since 2002. The research was conducted by the Brazilian Institute of Geography and Statistics (IBGE) (Onaran, 2012). The average income that is earned by the workers of Brazil ($ 1,578.50 approx.) increased by a factor of 0.5% over the few months and around 4% over the years and the highest that was recorded was in the month of June, 2002. The number of employed people in Brazil is 22.4 million, can be considered stable as compared to the previous months, and has increased in by the factor of 2.4% since the month of June in the year 2010. The number of additional people employed after that one year period were counted to be approximately 512, 000 (Davis & Hendrickson, 2004). Let us now discuss the macro-economic performance of UK in terms of balance of payments. The recent depreciation of the sterling has been seen to have exerted a positive impact upon the external competitiveness as far as export market payments and shares are concerned. After approximately 10 years of the sterling power during which the current account got itself in worse situation, both the trade balance and exports share along with the total exports factor has also increases quite significantly. The increase in these factor mentioned took place after quite bad situation in the balance of payments department of the country along with a broader context of rebalancing the external sector of the UK. As a result of all these steps taken, the UK exports good and services department grew to a rate of 8.5% in real terms in just a time span of five years. While the mean geometric growth rate of the county rose to 1.64% per year. The figures are forced to down as compared to the growth that is taking place all around the world but are significantly higher if the GDP rate of the UK is taken into account and compared with that of Brazil. Overall, the macro-economic infrastructure of the UK is generally a flexible economy when compared to that of other international economies especially Brazil in this case. Flexibility in the sector of labor market allows for the appropriate adjustment of labor costs to gain the possible path back to giving a strong fight to the other economies of the world. However, Brazil is one of the most successful and has been the forefront of the Latin American region of the world as far economic strength is concerned. Despite the fact of existing inequality in the country of Brazil, though it has diminished in the last few years, the economy of Brazil has become one of the leading economies of the world. According to the research report of Forbes 2011, Brazil is country that is home to a large number of billionaires, and ranking 8th among all the countries of the world in terms of number of billionaires in the country. By the end of the year 2011, Brazil’s economy had become the sixth largest economy of the world (Eckes, 2011). List of References 1. ALTMAN, D. (2011). Outrageous fortunes: the twelve surprising trends that will reshape the global economy. New York, Times Books. 2. CROUCH, C., & MACLEAN, C. (2011). The responsible corporation in a global economy. Oxford, Oxford University Press. 3. DAVIS, S. J., & HENREKSON, M. (2004). Tax effects on work activity, industry mix and shadow economy size evidence from rich-country comparisons. Cambridge, Mass, National Bureau of Economic Research. 4. ECKES, A. E. (2011). The contemporary global economy: a history since 1980. Chi Chester, West Sussex, Wiley-Blackwell. 5. ONARAN, Y. (2012). Zombie banks: how broken banks and debtor nations are crippling the global economy. Hoboken, NJ, Wiley. 6. ROGOFF, K. (1985). The Optimal Degree of Commitment to an Intermediate Monetary Target. The Quarterly Journal of Economics. 100, 1169-1189. 7. SPILSBURY, R. (2012). Global economy. Chicago, Ill, Heinemann Library. Read More