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Macroeconomic Analysis and a Case StudyResearch Paper

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Macroeconomic Analysis

Cindy is making a consideration to investing in a new business consists of the installation of solar panels. In the current periods, this has been perceived as a profit making venture. This is for the reason that the world continues to shift more and more into renewable sources of energy of which solar power energy is one of the leading ones. Another reason is that the government has made incentives to the industry by giving out subsidies to the suppliers in this market so as to increase the number of solar panels being produced. Bearing this in mind, Cindy is necessitated to take two decisions. First of all, there is a need to review the probable or likely profit or loss that can come about in this business in the forthcoming by making an allowance for the impending prospects for this line of business. Cindy needs to take a keen look at the macroeconomic environment or the external environment in order for her to make a resolution. The second decision is to pick out whether to invest her own money and capital or instead opt to borrow the funds if she does decide on starting the business. For this particular aspect, there is no pertinent information that has been provided.

Article Information

In the year 2011, the United States Postal Service made considerations for layoffs a means of dealing with another consecutive year of huge losses. Officers with the Postal Service that is short of cash detailed that it would not have the capacity to make a $5.5 billion disbursement to its health care strategy devoid of cutting its losses. To add on to that, the organization has suggested reducing expenses by and reorganizing its member of staff retirement and health care plans, eradicating deliveries made on Saturday, and closing roughly 1/10 of its administrative centers. Postal administrators require consent from the Congress to go ahead with any of these activities, and substantial disapproval was anticipated from postal unions and some congressional members. The recession and a varying economy aid in elucidating the mounting losses at the U.S. Postal Service. Numerous businesses are distributing less ads and directories to impending consumers due to the recession. This decrease in mail marketing has had a direct consequence on postal revenues. Furthermore aside from the deterioration in advertisements, the Postal Service has experienced a sustained drop in the use of first-class mail, with a mounting number of customers making use of the Internet to direct and recompense bills and as a form of communication (Glenn and Patrick, 2012).

GDP growth rate

The Gross Domestic Product (GDP) can be defined as the entire monetary worth of goods and services developed within a state or a country. The term 'gross' implies that no deduction for the value of the expenditure goods for replacement purposes also known as depreciation is made. Since the income arising from the investments and possessions owned abroad is not included, only the value of the flow of goods and services produced in the country is estimated. Therefore, the GDP growth rate is the degree to which a country's GDP changes or alters or varies from one year to a different year (Mankiw, 2014). The GDP levels are steered on by the simple forces of demand and supply and therefore a rise in the level of demand brings about a higher GDP. These two aspects are interconnected for the reason that both of them are elements of macroeconomics which are employed to measure the current state of the economy. Okun's Law which is basically an equation asserts that for every one percent of GDP that goes above the trend line, there is an equivalent decrease in the rate of unemployment by 0.5%. With the nation continuing being in a recession, it implies that the GDP levels are decreasing or minimal at that and this as a result decreases the employment levels. This greatly impacts the U.S. postal service as it continues to experience a decrease in demand for its output. This as a result causes the agency to experience losses as the output becomes minimal compared to the input due to low levels of demand.

The Business Cycle

The business cycle can be defined as the interchanging or sporadic raises and reductions in economic endeavors over a period of time. A business cycle consists of four phases which as peak, recession, trough, and expansion. On the other hand, as is known, the unemployment levels of a nation's economy is attained by measuring the number of individuals seeking work opportunities but have not been able to find any (Mankiw, 2014).. These two features of the economy are fundamentally interconnected for the reason that both of them have to do with the preparedness and capability of companies or firms to increase their operations. With regards to the scenario at hand, the U.S. postal service is currently at the recession level of the business cycle. Due to the fact that at the recession phase, the economies continue to contract, business, for this case U.S. Postal service, experience and are forced to deal with decreased revenue and might in actual fact be forced to lay off their personnel as is perceived in this case. The business cycle can be shown in the diagram below:

Source: https://ndssbiz.wikispaces.com

The fluctuation and variation of the economy through the different phases of the business cycle also sheds light on particular economic relationships. As the growth rate of the economy continues to rise and fall in the business cycle through the different phases, there emanates an extended trend line that can be perceived in the long run. It can be said that when the growth rate of the economy rises above the trend line, then there is a decrease in the level of unemployment. In the same manner, when the growth rate of the economy falls below the trend line, then there is an increase in the level of unemployment. This relationship between the economic growth rate, unemployment and business cycles can be elucidated much further by Okun's Law which is basically an equation which asserts that for every one percent of GDP that goes above the trend line, there is an equivalent decrease in the rate of unemployment by 0.5%. This can be highlighted much further in the flowing diagram:

Fiscal Policy and Level of Unemployment

Fiscal policy can be defined as the utilization of state expenses and taxation to control economic endeavors. Unemployment on the other hand refers to a situation where factors of production are willing and capable of being employed at the ruling market wage rates but are involuntarily unutilized or under-utilized. The unemployment rate can be calculated as follows:

Number of unemployed / Total Workforce x 100

It is imperative to note that the unemployment rate only makes an attempt to measure unemployment that is involuntary (Mankiw, 2014). There are numerous kinds of employment such as structural unemployment, seasonal unemployment, and frictional unemployment and so on. However, in this particular case, the kind of unemployment that is perceived is demand-deficient or cyclical unemployment. This type of unemployment is associated with the trade cycle. During the recovery and boom phases of the trade cycle the demand for output and labor is high and unemployment is low. On the other hand, during the recession and depression years, the demand for output and labour falls and unemployment rises sharply. Demand-deficient unemployment can be relatively long-term in nature. Keynes directed his attention to this type of unemployment, which he believed could be eradicated by demand management policies (Pettinger, 2011).

In this particular case, the unemployment that is taking place is not structural unemployment or a natural rate of unemployment but it is unemployment that is caused by recession. Fiscal policies encompass demand side policies and supply side policies. In this particular scenario, since it is a case of demand-deficient unemployment, the demand side policies of fiscal policy are employed. Demand side policies are significant when there is a recession and increase in cyclical unemployment for instance in this case the economic market is still recovering from the 2008 recession (Pettinger, 2011).

Fiscal policy and unemployment greatly relate to this scenario. This is for the reason that fiscal; policy can decrease the level of unemployment by assisting to increase aggregate demand and therefore the rate of growth in the economy. The only way that this can be done is that the Federal government will have to implement expansionary fiscal policy. This encompasses reducing the taxation levels and increasing the level of government spending. This is for the reason that a decrease in the taxation levels will bring about an increase in the disposable income for majority of the households and as a result aid in increasing the level of consumption and therefore bringing about higher aggregate demand. As the Aggregate Demand increases, there will be a rise in the Real GDP. With more production from the firms, there will be a rise in demand for personnel and as a… [END OF PREVIEW]

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