Intermediate Macroeconomic Theory

Macro Economics Essay
Name
Intermediate Macroeconomic Theory
ECON 2202-01
Date
When real GDP grows during the periods of economic expansion there are increased economic activities and firms are able to hire people. On the contrary when real GDP decreases during recessions, the firms reduce the number of workers and in extreme cases shut down. The economic performance fluctuates, but when there is expansion the business experience higher sales and profits and the stocks also perform well. Nonetheless, it is not possible to predict economic growth rates with precision. Maintaining economic stability is a necessary condition, when choosing the most effective economic policies and helps to achieve high rates of GDP growth that are sustained over time, and controlling inflation. Inflation is the sustained and widespread increase in the price level of goods and services, and measured as the rate of change between two periods of a price index, mostly the CPI or the GDP Deflator (Rittenberg & Tregarthen, 2012). Understanding how the different macroeconomic variables are linked to economic growth helps to support growth efforts.
Sometimes people confuse the business cycle with business fluctuation yet they are distinct and there are various components in a business cycle. The cycles reflect expansions and accumulated contractions over a long period of time including the economic activities and are reflected in different macroeconomic indicators such as ational income, employment, production, inflation and public debt. For instance, the boom and bust of oil towns in the US from 2008 to 2018 reflect the business cycles where the unemployment rates, debt levels and inflation have changed. Economic fluctuations reflect the changes in the rates of economic growth at specific moments and indicated the variation in the macroeconomic indicators either up or down. For instance, an increase in the GDP levels from the third quarter of 2018 to fourth quarter is an economic fluctuation.
The four distinct phases of a business cycle are expansion, peak, contraction, and trough. During the expansion phase there is prolonged growth of the main economic indicators when compared to the previous period. At the peak expansion the business cycle is that the maximum limit, and as the price of inputs increases the demand for products decreases gradually. Contraction is characterized by negative economic growth. It is also considered a recession when there is a significant decrease during two consecutive quarters and the global recession of 2008/2009 is one such scenario where the economy contracted and unemployment rates rose sharply. The trough is the lowest point after recession when the economic activities fall beyond the normal level and is characterized by a fall in the national income and expenditures. few debtors sett ether debts and inters rates decline, which results in less credit and as banks decrease lending unemployment further increases and there are fewer investments.
Fiscal, monetary and the exchange rate policies are the macroeconomic policies that are used to improve economic growth prospects where there are different decisions to allocate the resources more efficiently. Taking into considerations the actions of diff...