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Economics Assignment | Economic Analysis Report

Added on - 19 Sep 2019

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Contents
Introduction................................................................................................................2
Article 1......................................................................................................................2
Summary..............................................................................................................2
Definition of Economic concepts used..................................................................3
Economic analysis................................................................................................3
Conclusion............................................................................................................6
Article 2......................................................................................................................7
Summary..............................................................................................................7
Definition of Economic concepts used..................................................................7
Economic analysis................................................................................................8
Conclusion..........................................................................................................11
References:..............................................................................................................12
1
Introduction
The aim of this report is to summarize the key issues identified in the articles published in
newspapers and to identify the key economic definitions used in those articles. After this, the
report applies those concepts of economics to the key issues for determining the implications of
the issue and to identify the possible solutions for the same. Finally, the issue has been evaluated
in terms of applicability, usability and giving recommendations for solving that issue.
Article 1
Summary
Article 1 ("Job growth in US slows in December but wages climb", 2017): The first article talks
about the slowing down of the job growth in US and the climbing of wages. In December, the
employment in the US increased at the level which was less than expected but, the wages got
rebounded for sustaining the momentum in labor market.Thus, the economy of US was all set
up for the stronger growth and for the hike in rate of interest from the Federal Reserve. There
was increase in the non-farm payrolls and the gains are above the sufficient level which helps in
absorbing new entrants in the labor market. The numbers of jobs created in the past months were
more than that of the previous month and hence the average hourly earnings increased in the US.
The rise in the rate of wages has been largest since June 2009.For further lifting up the
growth, the expansionary fiscal policy is likely to get adopted but it will increase the budget
deficit of the country.The labor market is already expanding and along with that the
economic growth will become faster, but that will lead to Fed falling behind the curve on
the hike in the rate of interests.
2
Definition of Economic concepts used
The following economic concepts have been used here:
Expansionary fiscal policy:It is a policy by government which is adopted so that the money
supply in the economy gets increased and the rate of inflation is raised. This is done by
decreasing the rate of taxes, and increasing the expenditure of the government (Hansen, 2013).
Thus, this helps in fighting the recessionary pressures of the economy.When the taxes are
reduced, the disposable income of the people gets increased thus they spend more and consume
more. When the goods and services are invested into and the people spend more, the GDP of the
country gets improved.
Budget deficit: The financial health of the country is indicated by the budget deficit. The budget
deficit is said to have occurred when the expenditures exceed the revenue of government
(Moran, 2014).
Expansion in the labor market: The supply and demand for the labor is called as the labor market
where the supply of labor is provided by the employees and the employers create the demand for
labor (David, 2013). The labor market is the major component of any economy and it is tied up
with the capital market, and the market for goods and services. The labor market gets expanded
when the demand and the supply expands. This means that more people want to enter the market
and more people are required by the employers to work.
Full employment: It is a condition where all the people who can work and they are willing to
work are employed in the economy at a particular time (Beveridge, 2014).
Economic analysis
Application of the concepts and theories to the key issue
3
According to the first article, “But the proposed expansionary fiscal policy stance could increase
the budget deficit (refer to the diagram1 below). That, together with faster economic growth and
a labor market that is expected to hit full employment (refer to the diagram2 below). This year
could spark concerns about the Fed falling behind the curve on interest rate hikes (refer to the
diagram3 below).” ("Job growth in US slows in December but wages climb", 2017).
Diagram 1
In the above diagram, when the expansionary fiscal policy is adopted, the government reduces
the rate of taxes and r1 falls to r2. Thus the government was borrowing LF1 which increased to
LF2 and the supply curve shifted right. With the rise in the loanable funds borrowed by the
government, the budget deficit o the government will rise.
4
Diagram 2
In the above diagram, the full employment is reached E. at this point, the aggregate demand
curve and the short run supply of the labor meets at point E which is the equilibrium price and
GDP level. At point E, the full employment is depicted by long run aggregate supply curve being
a vertically straight line which shows that all the people in the economy are employed.
Diagram 3
5
In the above diagram the rate of interest rises from i* to i** which lead to shift in
thedemand for money curve to the right and demand curve shifts from D to D’.
this leads to rise in the demand for money from M* to M**.
Determination of price in the economy
In an economy, price of all the goods and services are determined by the intersection of
aggregate demand and aggregate supply.
In the above diagram, the prices of goods and services are determined at point ‘e’ when the
aggregate demand (AD) curve intersects aggregate demand (AS) curve. This is the level at which
the optimal level of price and output of the economy can be determined.
Factor affecting aggregate demand
6
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