Current economic events
Economic growth is therefore vital for a countrys development. To start with, it ensures increase in the quantity of production of both goods and services in a society. Economic growth also brings forth new and better goods into the market therefore enhancing consumer satisfaction. This improves the general living standards of the people. Sustainability of such growth should therefore be ensured to increase the per capita income, improve health as well as education and finally improve the environment. Knowledge gained from economics studies is therefore important in the development of a country. Application of such skills helps improve a countrys living standards (Mankiw, 2008).
In order to determine a countrys economic growth, focus has to be directed to the whole market economy by considering broader perspective of inflation, recession as well as unemployment among other variables. These indicators guide the country in the proper management of scarce resources to improve productivity hence improving living standards. The macroeconomic performance of a country is therefore analyzed through studying the trends in Gross Domestic Product (GDP), Inflation as well as rate of employment.
The measure of value of goods and services that a country is able to produce in one year constitutes the Gross Domestic Product. This value may change in the market either as a result of changes in quantity or prices (Taylor, 2006). Changes in prices of goods and services have posed challenges while applying GDP as a measure of economic growth. Modern economists have therefore adopted a better method by utilizing real GDP. This method involves the adjustment of measure of production to encompass changes in prices of goods and services. Real GDP therefore provides an elaborate and accurate measure of how the economy is performing (Taylor, 2006). An increase in real GDP reflects a countrys expansion of economy and vice versa. In U.S for instance, there was about 2.4 percent decrease in real GDP in 2009 compared to an upward surge of 0.4 percent the previous year. The current U.S GDP (2009) is estimated to be about 14.2 trillion down from 14.3 trillion. This has been attributed to many factors among them reduction in the countys export, low non-residential fixed investment, increased consumer consumption expenditure as well as reduced private inventory investment (Arnold, 2007). Generally real GDP is affected by the rate of a countrys expenditure compared to its income.
Real GDP alone can not provide sufficient information on the economic performance and therefore other variables have to be considered as well. Inflation is one of the variables which have affected most countries in the world and its effects are still felt. It is basically a percentage increase in costs of goods and services calculated within a specified time period. It is associated with rise in prices as well as decline in money value. According to Mankiv (2008), inflation rate was higher in U.S during 1970s than expected. However, its rise has been witnessed more in the recent past. The rise in price means consumers are paying more for the goods and services. A strategy should therefore be put in place to counter the rise in prices (Arnold, 2007).
Economic growth of a country is reflected by the production capacity of that country. This relies directly on the countrys labor force. Unemployment therefore deprives a country of this important human resource. More employment means more labor force and therefore more quantity of goods and services a country can produce. It is therefore vivid that full employment of people in a country ensures a countrys economic growth. Rate of employment in many OECD countries for instance has increased in contrast to that of U.S. In 2007 OECD countries employment rate decreased to 1.5 percent compared 1.7 percent in the previous years. This has been followed by a steady increase in growth rate. Countries such as Russia and France recorded an employment growth rate of about 1percent in 2007 compared to Spain which recorded a decrease in employment growth rate by the same margin. The economic growth rate in U.S has been affected by the retarded economic activity in the country. Achievement of full employment is sometimes hard to achieve since certain extent of unemployment is unavoidable (Mankiw, 2008).
Macroeconomic performance of a country can only be valued against the set goals and objectives. The achievement of these targets would result in the improvement of living standards of people in a country. According to Keynesian economics theory, the performance of macro economy is greatly influenced by the private sector decisions. The model articulates the inefficiency of the performance outcome of many economies to poor decisions by the private sector. The theory therefore suggests stabilization of economic output by public sector as well as the governments intervention through adoption of regulatory policies. The model provides for government intervention through implementation of fiscal policy whereby the government influences the economy by use of its expenditure as well as revenue collection. The government therefore has the capability and the resources needed to increase the labor force hence realization of full employment (Taylor, 2007).
Expansionary fiscal policy increases a countrys economic output, income as well as employment. This policy is very useful to the government and can be used to move the government out of recession because increase in output means increase in income compared to expenditure and therefore reduction in deficit. However, the expansionary fiscal policy through increase in taxation, can lead to excess government spending excluding private sector from doing so hence increasing the budget deficit. This may increase government debt as well since the private sector has been eliminated from the borrowing arena. All these factors will make the macroeconomic goals unachievable (Carbaugh, 2006). These goals include full employment, economic growth as well as stability.
Full employment is only achievable after utilization of available resources to produce goods and services. Production of goods and services from the scarce resources therefore ensures satisfaction of wants and needs of a country. Employment of labor force is therefore paramount to realize this goal. Classical model stipulates that full employment can only be achieved in the absence of factors that regulate market demand and supply. This is possible when the price of product is assumed too (Carbaugh, 2006).
Economic growth on the other hand depends on the income per capita. Increase in production of goods and services directly increase the income of a country. This is measured by increase in GDP as well as other variables as earlier mentioned. Increase in rate of production is therefore a goal whose achievement will ensure general improvement of living standards (Tailor, 2007). Stability is another goal of macroeconomics only achieved when there is a steady growth rate and no fluctuations in prices, production as well as employment rates witnessed (Dodge, 2007).
The economy makers should adopt a strategy aimed at providing a suitable environment for both the government and the private sector to thrive in a manner that the macroeconomic goals can be achieved. Expansionary fiscal policy should be amended so that it limits the government ability to crowd out the private sector. However, cutting tax as implemented in the policy is a positive idea.
Conclusion
Different rates of economic growth have been witnessed in many parts of the world. This however, depends on varied economic policies guiding different countries as well as the management strategies employed. Comprehensive policies along with proper and transparent management style ensures steady and positive economic growth and vice versa. This therefore improves the living standards of a country. Unfortunately, the trend has been affected by the recently witnessed global inflation.