DQ 1. The Circular Flow in Economics
It is defined as the flow of payment in the economy in a circular motion where the end point goes back to the starting point in an infinite cycle. It can be demonstrated in several ways even with nature. Water cycle for instance works the same way. The water on land evaporates and brought up to the atmosphere forming clouds. As soon as the cloud gets heavy, the water vapor condenses and falls back to land in a form of either water or snow and the same cycle repeats throughout. In economics, the same cycle is composed of three market inputs such as demand, supply, and market equilibrium. In the given circular flow analogy; the input will be the water, while land, sunlight and the atmosphere can be considered as the input markets. The output is either the snow or the rain. These inputs are related to each other in a manner that the absence of one disrupts the normal cycle. In the water cycle example, land serves as the catch basin of the precipitating water. On the other hand, the heat from the sun collects the water back to the atmosphere through evaporation. Without the sun’s heat to evaporate the water, there will be no rain nor weather or climate will exist. In the context of economics, the absence of one input market also disrupts the cycle such as the absence of demand will render production into stop otherwise, no one will buy the product being produced and income and payment transaction ceasing to exist so as the economy as a whole.
DQ 2. Macroeconomics and Microeconomics: What's the difference?
The difference between micro and macroeconomics can be summed up into one word “scale”. Microeconomics basically focuses on studying business decisions, individuals and the activities that transpire within the scale of as small as the household. This also includes the decisions people made with regards to the allocation of goods, services, and resources. Macroeconomics on the other hand, is the field of economics that deals with the generally larger scale of things economic. This means looking into the factors that influence economy of nations and industries. The bottom line is, macroeconomics employs the top-down approach while microeconomics employs the bottoms-up approach. On a simpler analogy, microeconomics is the activity that happens within the business environment of the entre household. This includes the manner of how household income is being spent to what, how much, and how many. Macroeconomics on the other hand can be observed on how the financial industry shifts the economy with the concept of inflation and deflation of currency, which will determine how far the household income can be stretched due to the effect on the value of money. One example of a current event where the difference between macro and microeconomics was observed is with the implementation of Obama Care where the healthcare industry was ramped up by the demand for affordable healthcare, while the domestic level of expenditure was affected due to the increase on the price of regular plans, which takes up portions of the household income that could have been maximized for other expenses. The distinction between the two segments of economics is important for the reason that in order for economists to understand the activities and decision makings that will have a profound effect on the economy as a whole, the bottom activities should be first understood because both economics are interdependent.
DQ. 3 Macroeconomic Information; Macroeconomic Forecasts
- There are several sources of information where economic conditions can be learned and how they will affect the ordinary citizens. For example, the Internet offers several information websites that provides overview of the current economy including financial forecasts and analysis. Bloomberg, Yahoo Finance, Market Watch and other finance and economic oriented sites offer similar information. Social websites are also offering similar information and even YouTube hosts thousands of creative explanations regarding personal finance and decision-making videos. In terms of mainstream media, popular news channels such as BBC and CNN hosts finance-oriented segments that talks about finance, investment, and the economy.
- In terms of searching for information pertaining to GDP and forecasts, OECD.org is a recognized and reputable source of information that provides economic forecast and real GDP. The website posts demand and output forecasts that includes real GDP per region, industry, and year. For example, the economic outlook annex tables found in the website (oecd.org, 2012) provides 62 annex tables that shows real GDP, nominal, consumption expenditure and among others. The information was as segmented according to statistical annex such as demand and output, unemployment, inflation, saving and among others. These information contained in the annex tables are detrimental to an organization particularly for businesses that operates internationally. The effects of perceived differentials in the data from the annex tables may lead to either success or failure of the business since the differentials per se are considered as macroeconomic indicators.
DQ. 4 Are Unemployment and Inflation Related?
When economists analyzed inflation in relation to unemployment, they often see an inverse correlation. High unemployment indicates low inflation rate and vice versa as observed in the relationship principle in the Phillips curve (library.thinkquest.org, N.D.). In the latest figure from www.bls.gov, as of January 10 the unemployment rate dropped to 6.7%, which indicated an increase in employment due to the increase in retail and wholesale trade (bls.gov, 2014). Relatively, the size of the current US labor force stands at 58.7% in relation to the employment-population ratio. If the United States currently has a total population of 313.9 million, therefore, the labor force is composed of 184,259,300 people while unemployment rate is composed of 21,031,300 Americans. In relation to inflation, since the US reportedly had marginal improvement in unemployment rate, the inflation rate on the other hand accelerated to 1.2% in terms of prices (ilo.org, 2014). Measuring unemployment in relation to inflation considers the different types of unemployment such as frictional, and structural. Unemployment in general affects the economy in general in terms of income spent. If there are fewer people employed then there are less disposal income to be spent for investment. Meaning, one less person without a job is one less person to pay taxes and the unemployed to cutback on expenses, the more unemployed, and the less tax are collected, the bigger chance for the government to default. Historically, the relationship between inflation and unemployed stemmed from the events that has transpired from the great depression in 1837 when the economy crashed, in 1930 and another in 2008. These events led economists and the government to study the relationship between the two and how the change in one affects the other.
Bls.gov (2014). U.S. Bureau of Labor Statistics. Retrieved January 12, 2014, from http://www.bls.gov/
Ilo.org (2013). Recent US Labor Market Data. Retrieved January 12, 2014, from http://www.ilo.org/washington/ilo-and-the-united-states/spot-light-on-the-us-labor-market/recent-us-labor-market-data/lang--en/index.htm
Investopedia.com (n.d.). What's the difference between macroeconomics and microeconomics? Retrieved January 12, 2014, from http://www.investopedia.com/ask/answers/110.asp
Library.thinkquest.org (n.d.). Unemployment. Retrieved January 12, 2014, from http://library.thinkquest.org/C004323/low/macro4.html
Oecd.org (2014). Economic outlook, analysis and forecasts - Organisation for Economic Co-operation and Development. Retrieved January 12, 2014, from http://www.oecd.org/eco/outlook/economicoutlookannextables.htm