This paper has identified articles in www.munKNEE.com by, Lorimer Wilson. It has analyzed the same and presented out the findings. First it presents the general economic principles associated with the article; this is followed by identification of the macroeconomic indices which are also examined into details. A discussion of the indices is followed by possible decisions or forecast that could done under each scenarios.
According to www.munKNEE.com by Loimer, some of the general economic that would relate to the article include but not limited to;
a) The Phillips curve; the higher the rate of unemployment the higher is the rate of inflation. The article speaks a lot about unemployment and inflation thus gives a provision to the general principle of the Philips. The article talks of unemployment rate in USA, Euro and China and Japan.
b) The law of demand and supply; increase in demand while supply remains unchanged leads to a higher equilibrium price and quantity and a decrease in demand while supply remains constant leads to lower equilibrium price and quantity.
c) Supply; if supply increases while demand remains constant then it leads to lower equilibrium price and higher quantity and that a decrease in supply while demand remains constant leads to a higher price and lower quantity.
d) The relationship between inflation and interest rate is also mentioned within the article; this is attributed to the Fischer effect that analyses the relationship between nominal rate, real interest rate and rate of inflation.
The article has highlighted various macro economic indices, these ranges from unemployment, inflation rate, consumers’ price index, interest rate among other some of which are discussed as below;
These are statistics that show status of any given country at a particular date. These statistics indicators include GDP, CPI, Unemployment, Inflation, Interest rate among others. They indicate how well the economy in question is doing and how well the said economy is likely to perform in the future. Some of the indicators are discussed below;
Consumer Price Index
The Consumer Price Index (CPI) is a measure of rate of inflation. It generally represents the changes in the level of retail prices for the basic consumer basket as reflected in their purchasing power. Inflation can be both harmful and healthful to the general growth of an economy. For instance if an economy develops in a normal condition, with minimal rate of inflation, then, an increase in CPI can lead to an increase in basic interest rates. This, in turn, leads to an increase in the attractiveness of a currency.
Gross Domestic Product (GDP)
The GDP is the broadest measure of a country's economic growth and by definition it represents the total market value of all goods and services produced in a country during a given year that are considered to have been legally produced. Fluctuations in the general GDP represents a correspondent changes in economic welfare of a country’s citizens. The lower the GDP the worse the economic wellbeing of the people and the higher the GDP indicates a better economic wellbeing of the citizens.
It is another macroeconomic indicator; it refers to the general lending or borrowing rates chargeable by financial institution. It plays the most important role in determining the prices of currencies in the foreign exchange market. For any given country it is the responsibility of central bank to set and announce interest rates. Any change in interest rate by central banks causes the forex market to experience movement and volatility and that accurate speculation of central banks’ actions will facilitate the investor's chances for a successful trade.
This indicator tells how many people with qualification are unable to find jobs that match their qualification. This is achieved through analysis of the number of jobs created or destructed, what ratio of the work force is actively and how many new persons are claiming unemployment within a state. It has been unanimously agreed by economist that when GDP increases then unemployment rate also decreases. An explanation to that is that an increase in GDP translates to higher out put which implies more labors are needed to cope up with the production.
Discussion of the Indices
According to the article by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com, GDP indicator across the OECD countries is projected to go down from the current 1.9% this year to approximately 1.6% in 2012, and same is set to recover by going up to 2.3% in the year 2013. The implication on the general economy is that the rate of employment is set to fall come 2012 and same is expected to rise up come 2013.
An explanation to the above observation is that, with decrease in GDP, it implies that the rate of output will decrease consequently the productivity will also decrease. Any decrease in productivity will imply there is less labor force that is required thus loss of employment. However, according to the same article, unemployment rate in OECD will remain high for an extended period with jobless rate standing at 8% through the two years.
According to the same article USA’s GDP is set to rise by 2.0% in 2012 and by a further 2.5% in 2013, after an expected expansion of 1.7% this year, the implication here is that unemployment rate will reduce by some margin. An explanation to above is that because of increased GDP, there is more output and therefore there is need for more workforces to maintain the increased production. The same article predicts a fall in GDP in Euro area from 1.6% to 0.2% before picking up to 1.4% come 2013 while in China it is set to decrease to 8.5%, a drop of 0.8% from current growth before picking up to 9.3% come 2013.
According to another article by the same author, in October consumer price inflation showed some moderation and same is attributed to the declining energy prices. The fall in the prices of energies within USA has played a big role in moderating overall inflation. The higher the inflation the higher is the unemployment rates. This relationship is further extended to the GDP in the sense that with decrease in unemployment rate GDP is bound to increase.
Appropriate Evaluation, Decisions and Forecasts that could be made from the Information
Through the analysis and critical examination of the indices as provide within the article, the GDP of USA is set to increase the decision here is to ensure appropriate policies are made to monitor the current policies that has brought about the projected growth to ensure the GDP does not fall. A fall in the projected GDP will inturn affects the rate of unemployment which in turn affects the rate of inflation according the Philips curve relationship.
According to the article high Unemployment rate is set to be witnessed for 2012 and 2013 is in OECD, the decision here is to put into place policies that encourage productivity visible in terms of output; the higher the output will call for more workforce which will lead to reduction in unemployment rate.
The financial institution under the watch of Central Bank should avoid accommodative monetary policy which seeks to encourage more borrowing in case where excessive borrowing leads to economic crunch this is because excess borrowing could weaken confidence in the future values of different currencies.
Government’s intervention in terms of fiscal support is also required in cases where debt crises are witnessed. This will help strengthen fiscal frameworks to reassuring markets that public finances can be brought under control. It should also be able to come up with a wide range of structural measures to boost jobs and economic activity this will help to reduce the rate of unemployment. The government should also avoid bloated spending for to avoid making debt burdens.
The validity and reliability of any statistical instrument depends on its ability to capture and reproduce similar result at any given time. Whether these macro indices predictions are right or not is debatable however this should not be the subject of discussion instead approriate policies should be put into place within any economy to facilitate economic growth. Increase in GDP will mean the economy is progressing well and that issues like employment are appropriately addressed.
Inflation is not always harmful to economic growth therefore there should be no course of alarm to a mere general increase in prices of commodity for this could as a result of economic growth. Achieving full employment is an ideal situation; the implication of this is that at any given time there should be unemployment. Operating under debt is no harm to the growth of economy however much of it is a hindrance to the general growth.
Arthur M. Diamond, Jr. (2008), Science, economics of; The New Palgrave Dictionary of Economics, 2nd Edition, Basingstoke and New York: Palgrave Macmillan.
www.FinancialArticleSummariesToday.com and www.munKNEE.com viewed on 1st December 2011.