What is Economics Issues Affecting The Economy As A Whole - Essay Example

?Running Head: ABBREVIATED OF YOUR CHOICE (all caps) and Section # of What is Economics What do you expect from class? This class has freshen up my basic economic concepts and helped in reformulating answers to key issues. It provides the distinction amongst the branches of Economics and highlights the key issues that prevail in the society that in return affect our economy as a whole. Certain broad issues in the economy also give a much broader and practical knowledge of the course. What is Economics? Economics is a part of our everyday life. It is about economizing which means making the most of what we have and use it in such a way that gives us more benefit or satisfaction. In economics the term satisfaction is termed as utility. For the individuals, it means giving one`s abilities and spending one`s income in such a way that gives us the most benefit and utility, and for the community as a whole it means using peoples skill, energy and abilities, the land, the building and other economic resources so as to obtain highest possible standards of living . The second part of economics deals with the problems rising in the global arena. Humans have unlimited wants but there are limited resources to produce it and when we say resources this is basically referred as the four factors of productions that are used in producing wants. Human race is like an ever hungry beast whose wants are unlimited but there are limited resources to produce it. This issue is referred as scarcity because these resources like oil, mineral, gases take millions of years to form and human beings consume it with a century. (McConnell, 2011) We all know that every human possess some basic needs and beyond these needs there are wants that is only demanded to gain pleasure or to derive satisfaction. Humans have no end to their wants but due to limited income we are forced to make choices as we cannot have whatever we want so we have to select the things we can afford and make sure that the thing we have selected gives us most benefit. When a choice is made one thing is given up in order to obtain what we have selected. The next best alternative that we gave up in order to obtain what we have selected is called opportunity cost. For example between a bike and an I-Phone 5 an individual chooses a bike in this case the I-Phone 5 is the opportunity cost. The concepts in economics can be factual or value based. Objective and fact based information is referred as Positive Economics while value based and subjective information is related to the Normative Economics. Positive economics could be tested and proved or disapproved while the Normative Economics are opinion based. (McConnell, 2011) Macroeconomics and Microeconomics Before we go into further analysis it is very important to discuss about the two major branches of economics and that is differentiating between Microeconomics and Macroeconomics. These two branches have many basic common ideas and methods in common, the difference lies in the level to which they are studied and the way they are perceived. Microeconomics focuses on individual consumers, workers and firms each of which is too small to have an impact on the national economy. Macroeconomics avoids this distinction among many different kinds of goods, firms and markets that exist in the economy and instead focus on aggregate. For example, in their analysis macroeconomists do not care whether consumers are buying VCRs or DVD players, beef or chicken, Pepsi or Coke. It focuses on summing up individual variables to obtain economic wide totals called aggregation. (McConnell, 2011) Issues affecting the economy as a whole Studying about the structure of the economy is a part of Macroeconomics that studies the performance of the national economy and helps in designing policies that government use to influence the economy. (McConnell, 2011) There are certain issues that affect the economy and the main ones are: Business Cycle Growth in an economy is never smooth, it has hills and valleys. The term business cycle is used to describe certain sharp contractions and expansions in the economy. The downward sloping phase of an economic activity is called recession and when it improves this is called a period of boom. (McConnell, 2011) For example greater fluctuations in economic activity was witnessed during the time of Great American Depression when the stock market prices fell so dramatically that America almost lost its control in the global arena. Long run economic growth This refers to the increase in the living standards of the economy because of prioritizing certain key factors. Develop countries tend to prosper because of increase in productivity, specializing, saving and investing that are the key determinants of the economic growth. (McConnell, 2011) For example in early 1900s income per capita was lower in Norway than Argentina but now Norway earns twice as much as Argentina. This comes from strong prospects. Unemployment This means that people are willing to work but are unable to find jobs because of lack of opportunities present. When people cannot afford their living this gives a rise to social and political instability. Unemployment occurs during the period of recession. When people cannot afford their living the economic growth is halted. (McConnell, 2011) For example in country like Pakistan there is an increase in social instability because people are unable to find jobs that force them to steal and use absurd measures to make money. Inflation This is defined as the period of rising prices when the value of money falls and commodities become relatively expensive. This affects the purchasing power of an individually and slowly the entire economy suffers, demand then falls down, production is halted and the economy suffers therefore the government of any economy will aim for a constant rate of inflation so that the purchasing power is not affected. (McConnell, 2011) For example in European Countries wealth inequalities rises because of inflation. Commodities are so expensive that it becomes impossible to purchase and the lower class suffers. What economic principles govern such situation? A nation’s economic performance depends on many factors and these factors then help the government to design the policies to deal with the issues. The major types of economic policies are Fiscal policy and the Monetary policy. Fiscal policy is determined at the national state and local levels and is related with government spending and taxation. Usually the more the government spends or the less government imposes taxes people will have more to spend. When government increases its spending in the form of providing basic necessities and also providing substitutes to the small firms this itself will increase the productivity of an economy. (McConnell, 2011) The other policy is the monetary policy that determines the rate of growth in nation’s money supply that is governed by the Central bank. If the bank offers loans at less interest rate there will be increase in investment and borrowing will increase. Similarly if less interest had to be paid the purchases on consumer durable goods will increase and hence the living standards will improve. This therefore promotes economic growth and boosts up its potentials. (McConnell, 2011) Conclusion Economics is therefore revolving around us. It is not limited to the individual level but as we proceed the course gets deeper and analysis also takes place in the practical world. This is a very broad concept that deals with specialization and productivity at different levels. It first concentrates on the individual performance and ultimately leads to increase in output because of improvement in living standards. It is very important for an economy to follow a stable rate of interest because this affects both investment and spending. When an individual has the ability to spend this raises demand, the productivity of the firm expands and growth occurs. References Book McConnell, C. Brue, S. Flynn,S. (2011) Microeconomics. 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