- Impact of the Great Depression on the way government set policy
Following the collapse of the stock market in October 1929, the government was forced to embark on various policies in a bid to rescue the collapsing enterprises and to prevent a further economic slump. For instance, the New Deal policies were instituted by President Roosevelt’s administration in order to deal directly with and rescue banks financial institutions which had been affected by the financial crisis leading to the great depression from collapsing (Rothbard, 2008). Further policies included the flexing of the trade barriers and the suspension what was regarded as the ‘gold standard’ which ensured that financial supply would not be dedicated to gold reserves any more. The New Deal policies were designed for reforming the economy through new economic approaches and these policies persist to date.
- An increase in the sale of new houses is often a sign that an economic expansion is coming.
An increase in the sale of new houses is considered an indicator for economic expansion because the owning a house is considered one of the most expensive ventures. As such, if many people are able to purchase homes then it means that more people are able to earn enough wages to enable them improve their standards of living such as improved diet and are courageous enough to save enough to afford better housing. More demand for houses drives the construction of more houses hence construction related jobs are subsequently generated thus creating more income opportunities. Consequently, the demand of building materials increases leading to more sales and more production. These aspects lead to increased flow of money thus intensifying economic growth.
- Why the aggregate demand curve slopes down.
There are various aspects that cause the aggregate demand curve to slope downward. One of the causes of the downward curve is the interest rate effect. When the price of goods increase, the supply of is decreased and the interest rates rise. As the interest rates rise spending on investments decrease due to the increased rate of borrowing to fund investments. When the investment expenditure decreases, the aggregate expenditure decreases leading to a decrease in real GDP.
- How the U.S. national economy different from those of other nations
The U.S. national economy differs from other economies in many aspects. In contrast with the third world countries, the highest number of workforce in the U.S. economy is absorbed in the tertiary sectors of development i.e. trade and industry. In third world countries the highest percentage of the workforce is tied up in the primary and secondary developmental sectors.
Further, the U.S. national economy is not as much regulated as in other nations. For instance, America has minimal regulations that affect contractual terms between employers and employees. Unlike the U.S., other developed countries tend to limit circumstances under which an employer may dismiss employees.
- Why it is difficult to test macroeconomic theories
It is difficult to test the macroeconomic theories because these concepts play out in the actual world hence it is difficult to reproduce the same in an experiment. Consequently, there are various disconcerting variables in the physical world (McEachern, 2012). This aspect distorts the underlying link between particular macroeconomic plans and the situations that the plan can cause. Several variables unite to create an economic situation hence it is difficult if not impossible to isolate the effect of any single variable in a macroeconomic experiment.
- How the law of diminishing marginal returns is related to the per-worker production function.
The law of diminishing returns relates with the per worker production function in the sense that the latter provides information regarding how much an employee can produce taking into consideration the various capital outputs in a person’s work. On the other hand, the law of diminishing returns calls for an evaluation of how much output can be generated considering the amount of capital in play. Hence, the law of diminishing returns evaluates the volume of labor and how the same affects output after investing a given capital while the per worker production function evaluates the manner in which a given capital affects the productivity of workers.
- "Quality (of capital) per worker” and how improvement in the quality of capital affects economic growth.
Quality of capital per worker refers to the rate of productivity of every employee. An improvement in the quality of capital intensifies the level of economic development. As a major factor of production, capital determines the rate of economic growth. When the generation of capital is very slow, this translates to a slow economic growth and vice versa.
- Four types of unemployment and how they differ in their effects on the economy and on the unemployed.
The four types of unemployment are frictional, seasonal, structural, and cyclical unemployment. Frictional unemployment arises when people are still seeking their first employment. This occurs when the people move from one job to another. Seasonal unemployment refers to situations where people are not working because their jobs only exist for some duration within a year. Structural unemployment occurs when certain skills are no longer required in a given economy. Cyclic unemployment on the other hand occurs when people lose their jobs because the economy has considerably slowed hence there is no demand for workers.
These types of unemployment affect the economy in that when very many people are affected by any of the four types of unemployment, there is no forthcoming income for such people and the rate of money circulation slows. Consequently no taxes are gotten from the nonexistent salaries hence the government is not able to collect enough taxes leading to cut-backs in other budgetary allocations in order to balance the budget. For the frictional unemployment, as people hop from one job to another they create opportunity for the unemployed to fill their last positions. However, seasonal, structural, and cyclic unemployment do not have much effect on the unemployed since it is the market that determines their employment.
- Difference between anticipated and unanticipated inflation. How they differ in their effects on economic agents and whether inflation has no effects on the economy if it is anticipated.
Anticipated inflation refers to as the people’s expectation of an inflation occurrence while unanticipated inflation refers to situations when people do not expect inflation but it comes about. Economic agents are not much affected by the anticipated inflation because they are able to plan ahead. However, when unanticipated inflation occurs, economic agents are faced with various challenges leading to abrupt changes which cause other agents such as banks to experience economic upset since they were unable to plan ahead.
Even the anticipated inflation hurts the economy but the impact not much. For instance, because monitory value is somewhat subjective little harm is experienced when certain small amounts are charged since people are made aware of possible variations. As such the inflation is largely contained and people still experience prosperity.
- Industrial policy and its strengths and weaknesses.
Industrial policy refers to the role that the national government plays in determining the manner in which natural resources are utilized for the good of the country. Among the strengths of the Industrial policy include the fact that government is at the forefront in influencing business operations. The policy also approves the formation of labor movements to safeguard the welfare of employees. As regards weaknesses, the industrial policy interferes with the dynamics of a free market by seeking to directly influence the market through dictating the way national resources are to be used. Such government intervention violates the very basic principles of a free market.
McEachern, W. A. (2012). ECON Macro 3 (3rd ed.). Mason, OH: South-Western.
Rothbard, M. N. (2008). America's Great Depression. The Ludwig Von Mises Institute.