The Great Recession: How a Market Economy Functions
This assignment covers the following course outcomes
Describe how a market economy functions and the relationships of its major subdivisions or aggregates, such as the government, households, and business sectors. Emphasis will be placed on the U.S. Economy and its linkages to the global economy (CO1)
Construct and interpret economic graphs (CO2)
Explain how macroeconomic issues relate to the government's policy decisions (CO3)
Identify the tools of fiscal and monetary policies (CO4)
Analyze economic policies and predict their effects, especially regarding relating theory to real world situations (CO5)
Review what you have learned about business cycles, GDP, unemployment, CPI, monetary policy, and fiscal policy and respond to the following:
How did GDP, unemployment, and the cost of living change during the last recession? Be sure to provide aggregate statistics from the appropriate government sources.
How was fiscal and monetary policy used to reduce the recessionary gap? Be sure to provide specific examples.
What were the expected benefits of the policies adopted? What were the potential costs of the policies adopted?
What phase of the business cycle is our economy currently in? Be sure to use current aggregate statistics to support your answer.
The paper must be typewritten in Microsoft Word. It must be double-line spaced and should not be longer than three pages.
Evaluation criteria
Review the SBT Textbook Activity (Weekly Assignment) Rubric located in the "Start Here" section of the course for more information on grading criteria. Keep the following points in mind:
Analysis of the economy during the last recession and currently is based upon macroeconomic data.
Examples of expansionary fiscal and monetary policies employed during the recession are accurate.
The potential costs and benefits of expansionary policies are based upon economic theory.
Schiller, Macro Economy Today:
Chapter 11: Fiscal Policy
Chapter 15: Monetary Policy
View the following videos:
Fiscal Policy [Video File 00:48 mins] From Title: Moyers & Company: Ending the Silence on Climate Change:
Government Spending, Jobs, and Unemployment [Video File 02:43 mins] From Title: Teaching Tools for Macroeconomics, Government, and International Trade:
The Great Recession
Name
Institutional Affiliation
The Great Recession
How a Market Economy Functions
Market economies function in a manner that is based on the supply and demand principles, allowing very little intervention and or interaction from government regulation. The theory that drives a market economy is the response that the market gives to the supply and demand changes, which through competition, product prices shift towards a certain equilibrium. In the United States and other governments whose economies are mixed, the government is charged with the responsibility of influencing the supply and demand of products through price controls and subsidiaries coupled with regulations (Schiller, 2011).
The Relationships Market Economy with its major subdivisions or aggregates
The interaction of a market economy and its market aggregates is reflected in the market's investment decisions as well as the allocation of the market's producer goods. Market economy aggregates interact to cooperate on the investment decisions affecting the market through negotiations. As business sectors interact to decide on the supply and production, households, on the other hand, converge and determine the price of commodities, bringing about the competition that pushes supply and demand to an equilibrium point, thus an equilibrium price is achieved. The government on its part, is charged with the responsibility of minimally regulating through the provision of subsidies and price controls (Schiller, 2011).
Construct and interpret economic graphs
Figure SEQ Figure \* ARABIC 1: Graph of demand and Supply of Gas
In a market economy graph shown above, when the quantity supplied increases Qs, the quantity demanded decreases Qd, and the intersection of the two bring about equilibrium quantity and equilibrium price. The equilibrium price and equilibrium quantity in this event can be seen to be $30 and 420 respectively.
How Macroeconomic Issues relate to the Government's Policy Decisions
The discipline of macroeconomics takes care of large-scale economic aspects, which are essential in influencing the overall population in an economy. Therefore, policy makers are responsible for coming up with macroeconomic decisions, which include interest rates as well as the balancing of a county's inflation rate with the aid of foreign exchange rate as well as the country's trade. Policy makers also find it useful making use of macroeconomics to establish financial conditions to facilitate as well as increase the investment within the private sector (Schiller, 2011).
Tools of Fiscal and Monetary Policies
Fiscal policy, as well as monetary policy, is essential in the pursuit of higher economic growth as well as the control of inflation. The tools of fiscal policy include the changing tax rates of and by the gove...