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Effect of Changes in Macroeconomic variables to the Economy

Describe the various components of fluctuations in economy activity over time. Because economic activity fluctuates, how is long-term growth possible?

Why do economists pay more attention to national economies than to state or provincial economies?

How did the September 11, 2001, terrorist attacks on the World Trade Center and the Pentagon affected short- and/or long-term productivity in the United States?

How do the aggregate demand and aggregate supply curves differ from the market curves?

How is the U.S. budget deficit related to the foreign trade deficit?

Why would the following investment expenditures increase as the interest rate declines?
a. Purchases of a new plant and equipment
b. Construction of new housing
c. Increased inventories

Explain why intermediate goods and services usually are not included directly in GDP. Are there any circumstances under which they would be included directly?

Solution Preview

Describe the various components of fluctuations in economy activity over time. Because economic activity fluctuates, how is long-term growth possible?

Fluctuations in the economy undergo ebbs and surges over time. Riley (2006) characterized these as a.) Economic Boom, when real GDP grows much faster than the trend growth rate such as high aggregate demand or a tightening of the labour market, high demand for imports and a wider trade deficit, strong company profits and investment, and a risk of a pick-up in inflation; b.) Economic Slowdown, when real GDP continues to expand but at a reduced pace; c.) Economic Recession, an actual fall in real national output and a contraction in employment, incomes and profits.
The rate of long-term economic growth is the salient measure of the nation's ability to steady advance its material living standard (Elwell, 2006).

To attain long-term growth, the government must create an environment of optimism.
To attain long-term economic growth, advances in technological innovation, not only employment of labor and capital, must be emphasized (Lau, 2002). This was echoed by Sachs and McArthur (2001) when they said that "a central finding of economics over the past fifty years has been that technological advancement is critical to long-term economic growth".
Why do economists pay more attention to national economies than to state or provincial economies?

The Gross National Product of a country is a summation of the state and provincial economies in terms of production of goods or services. Economies of countries in the world today are benchmarked by their national economies?how rich or poor they are.
It would be misleading and incompatible if we use state or provincial economies to compare with the economies of Canada or US.
The use of common denominator (national economies) ensures that accurate comparisons are made.
How did the September 11, 2001, terrorist attacks on the World Trade Center and ...

Solution Summary

The solution briefly discusses economic fluctuations, role of state and provincial economies, effect of 911 to the US economy, aggregate demand and aggregate supply curves, U.S. budget deficit related to the foreign trade deficit, and GDP.

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