Economics Assignment on Macroeconomic Objectives & Elasticity

Question

Task: Write a reflective journal on computer architecture assignment analysing the theoretical concepts captured from the weekly material.

Answer

Answer 1 (600)
Macroeconomics involve various issues, policies and objectives affecting the entire economy of a nation. The four major objectives of macroeconomic policy provided within the economics assignment are full or low unemployment, stability in prices, strong and stable economic growth and keeping the balance of payments in equilibrium (Coppockand Mateer, 2017). Economic policies such as monetary policy and fiscal policy are undertaken by the government for influencing these key macroeconomic factors. Monetary policy is under the purview of central banks that influence interest rates and money supply in the economies. This policy can be either expansionary or contractionary (Barro, Chu and Cozzi, 2017). Expansionary monetary policy is implemented during times of economic slump for encouraging economic growth. Here, the government purchase securities from the open market alongside easing research requirements for increasing the money supply in the economy and further lowering the interest rate target. Higher money supply in the economy further stimulates different business activities resulting in expansion of the job market and enhancing employment opportunities in the economy(Coppockand Mateer, 2017). Furthermore, price stability is ensured during economic booms and high inflation rates as they reduce purchasing power in the economies. In this regard, the government uses contractionary monetary policy for stabilizing prices by reducing inflation. This is done by decreasing money supply in the economy through increase in interest rates with the help of selling securities in the open market, raising the interest rate target and strengthening reserve requirements.Monetary policy also affects the balance of payments of a nation (Barro, Chu and Cozzi, 2017). An expansionary monetary policy disturbs the balance of payments as money supply increase in the economy results in outflow of capital, increase in imports and increasing price levels. However, contractionary monetary policy decreases the outflow of money as the money supply increases.

On the other hand, fiscal policy is implemented by the government through their spending and taxes for influencing infrastructure improvements and employment, thereby impacting money circulation. This can also be either expansionary or contractionary(Coppockand Mateer, 2017). While expansionary fiscal policy is undertaken for increasing inflation through money supply in the economy, which boosts economic growth, contractionary policy helps in decreasing spending by reducing money available to customers. During an economic slump, government undertakes this fiscal policy for cutting down taxes to spur economic growth. However, contractionary policy is implemented for reducing spending by raising taxes and decreasing inflation. Fiscal policy is often used for decreasing unemployment in the economy by increasing aggregate demand and the economic growth rate (Barro, Chu and Cozzi, 2017). Here, the government implements expansionary fiscal policy for reducing taxes and increasing its spending, leading to higher aggregate demand. This encourages firms to produce more, thereby increasing the need for workers and enhancing employment. The government also uses this tool of fiscal policy for ensuring price stability in the economy. Adjusting tax rates or government spending through this policy help in maintaining the prices of goods and services in the economy(Coppockand Mateer, 2017). This is accomplished through combatting either inflation or deflation for influencing the amount of money supply and value of money itself in the economy. Besides, fiscal policy is also used for influencing the balance of payments of a nation. Contractionary fiscal policy helps in slowing the spending of both government and consumers, thereby decreasing the cash flowing out of the countries and reducing the debit side of the balance of payments. However, expansionary policy decreases taxes and increases consumer spending, resulting in increased cash flow leaving the country (Barro, Chu and Cozzi, 2017). Thus, this helps in enhancing the debit side of the balance of payments.

Answer 2
In economics, elasticity is often used for measuring the responsiveness of one variable in comparison to another. It measures the response of the variable to a change in another one. This sensitivity is mainly measured for the alteration in amount demanded with respect to other factors like price (McEachern, 2016). Thus, the theory of elasticity in economics is referred to how supply and demand changes with the change in price of products and services or consumer income. There are different types of elasticity used for measuring the change in aggregate demand of goods or services with respect to their price movements (McEachern, 2016). Thus, it is considered as an important tool for both policymakers and firms in the economy. It is essential for the companies to understand the elasticity of their goods or services for ensuring the success (McEachern, 2016). This is because companies possessing high elasticity have the capacity to compete with other firms based on price and high volumes of sales transactions. Various types of elasticity are used by these policymakers and firms that include elasticity of demand, income elasticity, cross elasticity of demand and price elasticity of supply. The quantity of demanded good or service can change based on various factors like income, preference or price (Goodwin, et al., 2018). Thus, the change in these variables result in the change of quantity demanded. Here, price elasticity of demand refers to the measurement of responsive of a quantity required with respect to a price change. The two ways of measuring this elasticity are arc elasticity for measuring over a price ranger and point elasticity for measuring at one point (Goodwin, et al., 2018). Thus, firms and policy makers are able to categorize consumer goods into essential and non-essential products based on this elasticity type. Furthermore, income elasticity of demand is essentialfor understanding the sensitivity of the quantity demanded of good or service as compared to the change in real income of the customers buying such good or service (Goodwin, et al., 2018). This helps in determining whether customers consider a particular good as necessity or luxury. Here, the fractionof change in the quantity demanded is measured in comparison to the percentage change in income. This can be used by both the policy makers and firms.Besides, businesses can also use this income elasticity of demand of the goods or products for measuring the impact of business cycle on their product sales (McEachern, 2016). Another concept of elasticity includes the cross elasticity of demand calculating the fluctuation of the quantity demanded of one good or service when the price of other goods or services changes in the economy. It is measured by taking the change in percentage of the quantity demanded as compared to the percentage change in the price of another good (Goodwin, et al., 2018). It enables the firms in understanding how sensitive customers’ demand for a product can be to the changes in the prices of another product. Thus, these firms have the ability of selling goods with no substitutes at higher prices because they possess no cross elasticity of demand. Moreover, price elasticity of supply is often required for measuring the responsiveness of the supply of a particular good or service with respect to the change in its market price (McEachern, 2016).. This shows that the supply of this good increases with the increase in the market price. Companies undertake different actions for increasing this price elasticity of supply (Goodwin, et al., 2018). These consist of improving tools and technologies like upgrading software and equipment for enhancing efficiency that help in increasing the capacity to ensure higher price elasticity of supply. ?

Reference List
Barro, R.J., Chu, A.C. and Cozzi, G., 2017. Intermediate Macroeconomics. Cengage Learning EMEA. Coppock, L. and Mateer, D., 2017. Principles of macroeconomics (p. 720). WW Norton.

Goodwin, N., Harris, J.M., Nelson, J.A., Rajkarnikar, P.J., Roach, B. and Torras, M., 2018. Macroeconomics in context. Economics assignmentRoutledge.

McEachern, W.A., 2016. Economics: A contemporary introduction. Cengage Learning.