Reply to discussion | Economics homework help

Discussion 1:

Right off the bat I would agree with David Malpass based purely on economic data history.  Since 2014, when the article was published, the global GDP growth rate has increased (World Bank, 2019).  At least one of Malpass’ five suggestions has taken place, which he stated was all that was needed to increase global growth outlook (Malpass, 2014).  The Federal Reserve did raise interest rates above its lowest point in 2014 at 0.25% to 0.75% by the end of 2016 (Amadeo, 2019). 

A higher debt limit would only mean additional government spending.  In the short term this helps to improve the economy (Amadeo, 2019).  In the long term it could mean trouble.  The larger our national debt grows; the less confidence investors might have in our economy.  When investment confidence starts to fall it could unleash a domino effect sending our economy in to a downward spiral of events. 

If global growth were to decline, it would have an effect on the U.S. GDP, employment, and inflation rates.  Simply put, the U.S. economy does not operate in a bubble.  Any fluctuations taking place in the global market will have an impact on the U.S. economy.  The U.S. GDP is the sum of several variables: spending by households, investment spending by business, government spending, and spending by the foreign sector consisting of exports and imports (Amacher, 2019).  Global fluctuations would impact exports and imports directly, therefore, effecting GDP.  The negative global trend would also have a negative effect on U.S. inflation rate.  As global output declines, the price for all goods would rise globally, which equates to an increase in inflation.  As everything grows in price, it will cause workers to demand higher wages.  This would in turn affect the U.S. employment rates as well.  As higher wages are demanded, employers would respond by hiring fewer workers, and therefore, increasing unemployment.   

Amacher, R., & Pate, J. (2019). Principles of macroeconomics (2nd ed.). Retrieved from https://content.ashford.edu/

Amadeo, K. (2019, March 21). Fed Funds Rate History with Its Highs, Lows and Chart. The Balance. Links to an external site. Retrieved from https://www.thebalance.com/fed-funds-rate-history-highs-lows-3306135

Malpass, D. (2014, January 22). Five big steps toward faster global growth. Forbes. Links to an external site. Retrieved from http://www.forbes.com/sites/currentevents/2014/01/22/five-big-steps-toward-faster-global-growth/

The World Bank. (2019, April 12). GDP Growth (Annual %), World Bank national accounts data, and OECD National Accounts data files. Links to an external site. Retrieved from https://data.worldbank.org/indicator/ny.gdp.mktp.kd.zg?end=2017&start=2009&view=chart

   Reply 

 Discussion 2:

  • Would you agree or disagree with David Malpass’s suggestions? Why or why not?

While I concur that we need worldwide growth, I don’t agree with all the steps sketched out in the article. For instance, I don’t feel that we have to set a new debt limit. The U.S. debt ceiling does not imply that the legislature will naturally increase spending. The debt ceiling just sets up the maximum amount of remarkable government debt the U.S. government can acquire by law. A strong fiscal policy is more critical than reducing the debt ceiling. Spending can be better constrained by a strong fiscal policy and a sound federal budget. By bringing down the debt ceiling, the government won’t probably meet its outstanding obligations, for example, interest payments, fund programs like Social Security and Medicare. At the point when the government can’t pay for service and projects, a government shutdown may happen. At the point when this occurs, economic growth slows.

I likewise don’t agree with raising interest rates. At the point when interest rates rise, the cost of borrowing increases which results in buyers having less cash to spend which makes economic growth slows.

  • What challenges will the U.S. economy face give a higher debt limit for future economic growth?

A few challenges that the U.S. economy would confront whenever given a higher debt limit for future economic growth are that interest rates will go up, the growth rate of GDP will decline, joblessness rates will increase, price inflation will increment, and accordingly, private ventures may leave the nation. As the debt to-GDP ratio increases debts holders could request bigger interest payments as a result of perceived increased risk that they won’t be reimbursed, and this could prompt lower demand for U.S. Treasury bonds which would additionally increase interest rates. Accordingly, this would slow the economy.

  • Describe what would happen to GDP, the unemployment rate, and the inflation rate if global growth declines.

GDP:  If global growth declines, the GDP of the economy will drift descending as the purchasing intensity of the customers acquiring merchandise and ventures will decrease.

Unemployment  Rate: With a decline in global growth rate, job creation will decay and subsequently, the unemployment rate will increment.

Inflation Rate: Inflation alludes to increment in the cost of merchandise and services over some time. With a higher rate of inflation, fewer goods and services can be acquired with a similar amount of money in this manner diminishing the demand for the products and services and which thus impacts the development of the economy. A decline in global growth rate will cause the inflation rate to be higher.

references 

Amacher, R., & Pate, J. (2019). Principles of macroeconomics (2nd ed.). Retrieved from https://content.ashford.edu/

Malpass, D. (2014, January 22). Five big steps toward faster global growth. Forbes. Links to an external site. Retrieved from http://www.forbes.com/sites/currentevents/2014/01/22/five-big-steps-toward-faster-global-growth/ (Links to an external site.)Links to an external site.

Discussion 3:

The aggregate demand curve slopes downward because it is an inverse relationship between price level and real GDP (EconplusDal, 2017).  When mapped to a graph with the ‘Y’ axis representing price level, and the ‘X’ axis representing real GDP, the aggregate demand curve will slope downward as price level decreases and real GDP increases.

The aggregate supply (AS) & demand (AD) curves might shift on a graph for a number of reasons.  The AD curve will shift when there is a change in any one of the four variables used to calculate the total AD, but there is no change in price level (Regis University, n/d).  Another reason AD will shift will be to any shift in AS.  According to Say’s law, supply creates its own demand (Regis University, n/d), therefore, any shift in AS will shift AS.  AS will shift when there are changes to technology or a change in the amount of resources (Amacher, 2019).

Changes in AD & AS will affect the economy in multiple ways.   When the AD curve shits right the graphs will reflect increases in price levels and GDP, with the opposite happening to a left shift.  When AD shifts, prices and demand move in similar directions (Amacher, 2019).  Additionally, either shits to the AS curve will also affect price level and real GDP in a similar way.  When AS shifts left, there will be less supply at every price level, or the same real GDP at a higher price level (Amacher, 2019).  As real GDP falls and price levels rise is considered the worst economic scenarios (Amacher, 2019)

Classical economists emphasize AS because they believe the AS curve is vertical in the long run, with the long run equating to the time period in which the economy is normally at or near the full-employment level of output (Amacher, 2019).  Classical economists “expect that automatic market forces will always push real output toward the full-employment level.”  With a constant vertical AS curve, any shift in the AD curve would only change the price level (Amacher, 2019).

Keynesian economists emphasize the AD curve due to their focus on ‘demand shocks,’ or “changes in AD,” (Amacher, 2019).  Keynesians lean toward the concept that fluctuations in the AD curve correspond with the business cycle of the economy.  These fluctuations are meant to be monitored and regulated by the government in order to minimize impact, or as a means of ‘smoothing out’ the ups and downs (Amacher, 2019).   

Amacher, R., & Pate, J. (2019). Principles of macroeconomics (2nd ed.). Retrieved from https://content.ashford.edu/

EconplusDal. (2017, March 2). Y1/IB 18) Aggregate demand – shifts and the downward slope. Links to an external site. [Video file]. Retrieved from https://youtu.be/UnaQjVeTP6k

Regis University. (n.d). Aggregate Demand/Aggregate Supply Macro Model. Retrieved from https://www.youtube.com/watch?v=5D06HqwsVtM Links to an external site.

Discussion 4:

Discuss the reasons why the aggregate demand (AD) curve slopes downward.

The AD curve slope downward speaks to the negative connection between cost and output (Amacher R and Pate, Figure 6.1, 2019). At more expensive rate level shoppers have less disposable income resulting in less spending of potential or planned output.  Financial assets become a less alluring supplemental acquiring asset as wealth is seen or affected by high costs. Tax hikes and high-interest rates demoralize spending and borrowing of high prices.

What causes the AD curve and aggregate supply (AS) curve to shift, respectively?

The AD curve can move because of the absence of consumer demand, expectation and intere4st rates, the government buys, and net exports (Amacher &Pate, 2019). At the point when the AD curve shifts to the right side, the GDP increments. Upward movement on the AS curve identify with the correct development of the AD curve; when the AS curve moves upward, we can expect price level and output to increase (Amacher &Pate, 2019). Productivity increment and input prices falling promote a rightward movement to the AS curve provoking lower inflation and unemployment levels. The aggregate supply shifts in connection to changes in asset accessibility, technology, charge tax incentives, wars, seismic tremors, and other shocks. (Amacher &Pate, 2019).

How would a change in AD and AS affect the economy, respectively?

AD curve shift to the left side represents a decrease in  GDP and price levels, while shifts to the right speak to GDP and cost level increments. The “power of a dollar” is affected by purchaser practices amid these shifts, at the left movement, individuals will, in general, spend less at all price level. The shift to the right  describe an expansion in spending at all price levels

At the point when the AS right shifts, this shows actual output rises like this expanding the GDP while diminishing price levels. Leftward shifts to the AS will stigmatize real output growing price level prompting a lessening in GDP.

Why do Keynesian economists emphasize AD whereas classical economists emphasize AS?

Classical economist concepts are driven by market behaviors and minimal government policy recommendations (Amacher & Pate, 2019). The accentuation put on the AS is that the market will dependably adapt output towards full employment levels. At full employment levels, the vertical line speaks to the long run in close to full employment, where individuals’ instinctual blend of persistence and activity will work the market without the need for surplus policies — Keynesian financial expert estimates over business cycles, challenging the ideas of classical economist. Keynesian economist challenged classical views through proof of business instabilities. The emphasis placed on AD is spending and taxes. I am affecting government mediation activities amid rescissions.

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