Development Macroeconomics PDF

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Added on 2020-10-05

Development Macroeconomics PDF

Added on 2020-10-05

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Table of ContentsINTRODUCTION...........................................................................................................................1MAIN BODY...................................................................................................................................11.a) Dollar is always worth a dollar ............................................................................................1b) Real and nominal rate of interest.............................................................................................12.a) Recession and depression ....................................................................................................2b) Great depression people is having different propensity to save the money than other people23.a) Equilibrium price .................................................................................................................3b) Domestic quantities ................................................................................................................3c) Effects of domestic quantities..................................................................................................34. Types of unemployment..........................................................................................................4CONCLUSION................................................................................................................................4REFERENCES................................................................................................................................5

INTRODUCTIONMacroeconomics is a branch that deals with behaviour and performance of the economy.It includes unemployment, inflation, growth rate and gross domestic product (Agénor andMontiel, 2015) main objective of macroeconomics is to maximising national income andproviding economic growth of the country. Report will include real and nominal rate of interest and defines recession and depressionperiod that leads to economic downturn in the economy. Furthermore, it will include differencebetween the people who has experienced the great depression with that of only heard about thissituation and types of unemployment in the Australian labour market.MAIN BODY1.a) Dollar is always worth a dollar Dollar is the currency that is being used in many countries. Australian dollar wasintroduced on 14 February 1966. Price of dollar is lower down as compared to other currenciesin the market. As the present worth of the dollar is more as compared to its value in the future. Atthe time of inflation the price is increases that will decrease the value of money as the timechanges that will result in changing of general price level(Rachel and Smith, 2015) the value ofdollar gets decrease that will lead to decrease in the value of currency of Australia.If the dollar is having lower price in the economy then less foreign goods is beingpurchased. This will increase price of imports contributing to inflation in the economy. If theprice of the dollar is getting weak then it will help in increasing exports. This will help inboosting the economic growth that attract more foreign customers into Australia. b) Real and nominal rate of interestReal interest rate is the difference between nominal interest rate and inflation rate. Itstates that actual purchasing power of the money will account in increasing bank account overtime. Real rate on interest is considered to be predictive when the inflation rate is not known.The real interest rate provides information to the investor of real rate that they will receive afterinflation (McAndrews, 2015)is provides idea regarding the increase or decrease of price in theeconomy. These rates are determined from the nominal rate of interest. It can be represented as:Real Interest Rate= Nominal Interest rate- Inflation rateNominal Interest rate do not affect the inflation rate in the economy. This shows theactual price that is being paid by the lender without effect from inflation rate. This include nabl1

interest rates, loan interest etc. It cannot be negative. In this type of rate there is no adjustment ofinflation in the money. It will be calculated by considering monetary value. It can be representedas:Nominal Interest rate= Real interest rate+ inflation rate. Real rate of interest is more relevant to the economy.2.a) Recession and depression Recession is the condition in the economy that comes when the prices will declinesignificantly for shorter period of time i.e. for six months. It leads to drop in the factors such asretail, manufacturing, income employment and the GDP of the country. It is the phase in whichGDP is negative for two quarters. Recession comes first of all in manufacturing jobs. As whenthe manufacturing department stops hiring that will decrease the slow growth in other sector ofthe economy (Laubach and Williams, 2016).Begins when the economy reaches to its peak andthe economy start its expansion in other sector of the country. At the time of this periodpurchasing power of consumer will decrease as prices are high and everyone cannot afford thatprice. It causes loss of business and consumer confidence Depression refers to the economic condition that will lead to contraction in themarketplace for one year. It has a great impact on the economy regarding price of the country.Business cycle of the economy will get disturbed from the recession and depression stages ofcycle. This is the phase that will a great impact on economy as consumers are not purchasinggoods and services from the market. Market condition remains constant as there is no such priceexchange will be there.The great depression phase was takes place in 1929 and it was last up to 1930. It is themost widespread period of depression of the 20th century(Holston, Laubach and Williams,2017)As in 21st century also this depression will take place and is common in the worldwide.Another phase is of 2000s and 2010s in which depression period takes place.b) Great depression people is having different propensity to save the money than other peoplePeople who has experienced the period of depression and the people who is only seeingthis period of time is having different propensity to save the money. As at the time of depressionprices is getting down of goods and services that will an impact on economy. People who hasfaced this phase of depression will know that how to save money for the future. As depression isrun out for longer period of time so people have to save money for that period. The propensity of2

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