Macroeconomics

Running head: MACROECONOMICS
Macroeconomics
Name of the Student
Name of the University
Course ID

MACROECONOMICS1
Table of Contents
Answer 1....................................................................................................................................2
Answer 2....................................................................................................................................3
Answer 3a...................................................................................................................................5
Answer 3b..................................................................................................................................6
References..................................................................................................................................8

MACROECONOMICS2
Answer 1
Wage rate shows the amount of an individual is earning from doing job. Higher the
wage rate higher will be the income. It is known from the economic theory that more income
induces the consumption and thereby with every unit, increase in income there is increase and
increase in marginal propensity to consume. Therefore, a weak wage growth influences the
economy like higher wage rate does but must be in adverse manner (Mishel, Gould and
Bivens 2015). Weak wage growth means there will be low increase in the income of the
people and thus increase in consumption of goods will face a slowdown. The slowdown in
the consumer market will reduce the demand for products in the economy. The weak wage
growth drives the economy into stagnation by affecting several economic factors by the fall
in demand. The fall in demand for the goods reduces the price of the goods and thereby
profitability of the producers and sellers. Witnessing the falling demand and perceiving the
reduction in profitability the producers will reduce their production. The cut in firm’s
investment and thereby production process reduces the demand for workers. It will affect the
employment and wage rate of the workers and thereby unemployment and growth rate of
wage will fall (Bell and Blanchflower 2018). Hence, there will be crunch in business sector
and fall in the economic condition. Therefore, productivity of the economy will fall. The
revenue of government will fall too due to this problem (Ullah 2016). Hence, overall income
the economy lowers and a stagnation occurs in the economy. The mechanism of the
occurrence of economic stagnation due to weak wage growth is shown in the diagram given
below.