The Various Aspects of Macroeconomics
The present paper presents a comprehensive discussion of various aspects of macroeconomics. The discussion is presented in two parts; part A and Part B.
Three ways of usage of macroeconomic analysis
The macroeconomic analysis involves the application of the macroeconomic principles and factors, in the economy analysis. The various ways it can be used include:
Economic trend study: this would involve the study of how the economic factors are changing over time. For instance, the study of how the inflation is fluctuating over time, to ensure it is managed at a stable level, suitable for growth.Study of the government fiscal policies: it would involve analyzing the effects of the various policies adopted and implemented by the government. An example is an examination of the effects of the taxes and import duties on investment and general economic growth(Terra, 2015). Monetary policies application: it would involve the analysis of suitability and effects of various monetary policies on the economy (Terra, 2015). An example is the effects of an increase in interest rates on aggregate demand, investment and development of a nation.
Effects of disproportionate increase in factors of production
If the number of workers is added without an increase in the capital equipment, the number of yards that could be maintained in a day will decrease. One of the principles of this observation is that there exists an optimum combination of factors of production, which gives the maximum output. In this case, a certain number of workers could work with a particular number of capital equipment to maximize the output. The other factual principle is that an increase in the number of workers would amount disproportional increase in one factor of production-labor. It means that the yard maintenance business will be overpopulated, which will result in friction among the workers (Terra, 2015). The friction among the workers will reduce effectiveness in working, leading to a reduction in the numbers of yards that can be maintained in a day, as well as the overall income.
Effects of adverse technological shock on labor and output market
The Real Business Cycle (RBC) theory holds that in perfectly competitive economies, its cycles are associated with real technological shocks. These technological shocks imply the abrupt changes in the technology or productivity, which benefits or worsens the economic activity. One of the effects of the adverse technological shock is that it leads to unemployment. The reason is that the shock leads to the destruction of the workplaces, which then leads to some workers losing their jobs (Terra, 2015). The workers who lose their job become unemployed. Another effect of adverse technological shock is the decline in the real labor wages. This result from the decrease in the labor productivity, in terms of the output per hours, worked. The adverse technological shock leads to a decline in the output of goods and services offered on the market. The decline …