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Economic fluctuations refer to the usual fluctuations that take place in the income level of a certain economy. These fluctuations reflect the growth or contraction of the economy. If the national income of a country is moving up that means the economy is on the growth path, whereas the fall in the national income states that the overall economy is witnessing contraction. The growth in the national income means that the people have more disposable income and they can afford appreciable living standards (Calderon et al, 2012). Fluctuations in an economy can sometimes take place as a metric of adjustment whereas in other instances it can be the after the result of the bad external impact from the global economy.
The circular flow of income and expenditure needs to be in balance with the economy. The reason is that the stability (though only theoretically) helps an economy run more smoothly. The circular flow allows the economist to see the clearer picture of the economy. It helps in assessing the efficiency of the economy and the government gains substantial insight that helps them formulate the policies in favor of the masses.
Employment is an important factor in macroeconomic policies. The rate of employment in an economy defines the level of effort that has to be made by the individuals in securing the desired job. Moreover, the people who are not employed will fail to pay the bills and they may orient towards crime or suicide as the final alternative. The employment rate is one of the most pressing concerns for most of the economists.
Another element, inflation rate, is also the important macroeconomic factor that calls for short and long term strategies every now and then. The inflation rate is driven by various factors within an economy or gets impacted by the external (global) economy. A higher rate of inflation reflects that the prices of the product will continuously rise reducing the affordability of the products and services for the masses (Damil and Frenkel, 2012). Moreover, it has been witnessed that the period of inflation mostly impacts the retired people as their savings losses value and they can’t purchase the same amount of products and services they could have fifty years ago with the same amount of money.
The productivity of an economy also reflects the way it is performing. Productivity refers to the average output per hour of work that is produced within a country. It combines all the goods and services. If the increase in the average productivity within an economy is fast, then it can be stated that the individuals living within that country will have to exert less effort in improving the standard of living. Moreover, it will lead to an increase in public infrastructures such as houses, hospitals, roads, and others, eventually improving the lives of the masses (De Grauwe, 2013). The economies where the productivity growth has stalled is referred to as being “zero-sum society” which means the growth rate is zero. It also means that if a person has received any good or service or wants to receive then it is obvious that someone else has to sacrifice that thing as there is no extra produce to fulfill the new demand.
Aggregate supply refers to the total supply of goods and services ready to go for the economy for selling. The total products or services made available from the public and private companies in the market at a certain price level refer to the aggregate supply. The consideration of expected aggregate supply based on the current and past records help the government make right decision in maintaining the overall supply and demand in the economy to ensure the wheel of the economy goes by smoothly (Knight, 2015). For example, if the government realizes that the demand in the local market will be less than the supply, then the government can take decision to divert the excess products into the foreign market thus earning revenue for the country. On the other hand, if the government assesses that the supply of products will be more than the demand, then it will be placing restriction on exports of goods and will try importing those goods into the market. These activities ensure that the prices of the products stay stable and the masses do not face an unnecessary issue.
In the end, it can be stated that there are various macroeconomic variables that impact the lives of the people in some way or the other. Therefore, having a clear understanding of these factors will not only increase the support to the economy by the masses, but they will also make informed decisions. The factors stated above seem to be referring to be individual domains, yet they are deeply interconnected with each other.
Arestis, P., & Sawyer, M. (2013). Economic and Monetary Union Macroeconomic Policies: Current Practices and Alternatives. Palgrave Macmillan.
Calderón, C., Duncan, R., & Schmidt-Hebbel, K. (2012). Do good institutions promote counter-cyclical macroeconomic policies?. Globalization and Monetary Policy Institute Working Paper, 118.
Damill, M., & Frenkel, R. (2012). Macroeconomic policies, growth, employment, and inequality in Latin America (No. 2012/23). WIDER Working Paper.
De Grauwe, P., & Ji, Y. (2013). From Panic?Driven Austerity to Symmetric Macroeconomic Policies in the Eurozone. JCMS: Journal of Common Market Studies, 51(S1), 31-41.
Knight, T. (2015). Macroeconomic Policies, Paradigms, and Constraints on Equality and Growth.