Short-Writing

  • Uncategorized

TheU.S. National Debt

Thenational debt of the U.S. refers to the amount that is owed by thefederal government of the country. The U.S. national debt is verylarge since it exceeds the gross domestic product. A significantamount of the debt emanates from the efforts of them governmentattempting to reduce the impacts of the financial crisis, an anemicrecovery, and recession. The national debt problem commenced early in1970 when the government decided to start increasing its spendingsubstantially without having a corresponding increase in the taxrevenue.

Accordingto Feldstein (2016), the U.S. economy is currently in decent shape.It is at full employment where the entire joblessness rate at 5% anda very low rate of unemployment amid college graduates which standsat 2.5%. Furthermore, the inflation rate is near zero but has beendisturbed by the sharp fall in energy prices. The progress of GDP in2016 may be narrowed by the lack of superfluous capacity in theeconomy instead of the absence of demand. However, looking at thelong-term view of the economy, the volatile growth of the federaldebt in the country poses the most serious debt in case no policiesto control the further growth of the national debt are considered.The proportion of the federal debt to that of the gross domesticproduct has doubled in the last 10 years from a point level less than40%, which dominated for some time before the current recession to75% of GDP.

Ithas been suggested by the Congressional Budget Office that thecurrent guidelines will make the ratio of national debt to GDP riseemanating from an increase in the deficit. One of the reasons forthe increase in the deficit in the future is that the standardizingof rates of interest will augment the charge of interest on thefederal debt (Feldstein, 2016). The Congressional Budget Office (CBO)projects that, the interest on the national budget is likely to risefrom 1.2% of GDP in 2015 to approximately 2.8% in 2025 a move thatwould raise the annual deficit by around 1.6 percentage points.Another motivation for the increasing level of the financial plandeficit emanates from the rising outlay of transfer payment toseniors in the middle-class. The CBO makes an estimation that thesocial security cost is likely to rise from the current 4.9% of GDPto about 5.7% of GDP in the following decade and to approximately6.2% of GDP by the year 2040. With the rising trend in deficit, thenational debt will also grow. The federal debt has been projected tobe 100% of GDP by 2039. However, it may even grow larger (Feldstein,2016).

Thesubstantial increase in the U.S. national debt emerges as a seriousproblem because servicing the debt requires an increase in taxes,which must bring efficiency outlays on the economy. Also, since morethan half of the federal debt is held overseas, paying interest onthe debt needs a lesser real value for the dollar. This would have aneffect of lowering the living standards in the U.S. and making termsof trade worse. Furthermore, the higher debt can crowd out privatecapital creation, thus lowering real incomes.

Althoughits growth is significantly high, the debt to GDP ratio can bemitigated through raising the future amount of GDP and reducing thesize of the anticipated government debt. A sustainable augment in theforthcoming GDP may be attained through adjustments in tax policies,regulations, and federal initiatives of training (Feldstein, 2016).

Trade

Tradehas necessitated the opening up of different areas of the globe.Without trade, it could have been difficult for countries to obtainservices or commodities that they do not have the ability to produce.In simple terms, trade is the exchange of commodities as well asservices between two or more nations (Baiynd, 2011). In production,one country may have certain resources required for the generation ofa given commodity however, it may lack some of the materials orservices for the development of the product. In such a scenario, thenation may opt to obtain the raw materials it does not have fromanother country through a trade agreement. In trade, comparative andabsolute advantages are very critical because they help countries touse resources efficiently and necessitate trade. Absolute advantagedescribes the ability of a country to produce superior commoditiesand services compared to others originating from its capacity.However, the notion of comparative advantage is grounded on theconcept of opportunity cost. In case the opportunity cost ofselecting to produce certain merchandise is lower for a countrycompared to that of others, then the nation is indicated to have acomparative advantage in the generation of the commodity. These twoconceptions drive global trade since countries tend to create goodswhich they possess a comparative advantage in generating and acquirethe rest from other countries.

Inthe exchange of commodities and services, tariffs, subsidies, quotas,and prohibitions have been applied by domestic countries as a way ofregulating trade. However, free trade does not protect or isolate acertain region from taking part in trade with one or more nations.There has been an argument, where some policymakers support the ideaof free trade while others have a differing opinion (Baiynd, 2011).Economists who support the idea claim that the application of tariffsand other restrictions tend to reduce the economic welfare ofcountries. Countries are better off with free trade compared to whenthere are policies that discourage or restrict trade. Allowing tradeis critical in influencing the income of a country as well as itswell-being. For instance, mitigation of trade barriers allows theexchange of ideas and spread of technology, which are vital to anation’s development agenda.

Tradecan be indicated to be beneficial because it helps countries inobtaining services and commodities that it could have otherwise notobtain due to their inability to produce them or lack of resources.Also, trade helps in encouraging competitiveness as countries engagein trade, they exchange ideas that aid them to improve their productsthat in turn enhance the competitiveness of the merchandise produced(Baiynd, 2011). Furthermore, it is important in economic progress asit helps a domestic country to obtain foreign currencies, which canbe used for development programs. In addition, trade is beneficial asit tends to encourage innovation.

Globalization

Globalizationis considered a multidimensional concept because it covers differentareas such as social, economic, and political (Ritzer, 2015).Economic globalization describes the growing interdependence ofinternational economies because of the mounting scale of cross-bordertrade of merchandise and services, the flow of global capital as wellas the broad and swift spread of expertise. It usually mirrors theprogressing growth and conjoint integration of market frontiers andis considered as a permanent tendency for economic progress in theentire globe. The main influencing forces of economic globalizationare marketization and rapid growth in information systems.Multinational corporations have become the primary transferors ofeconomic globalization. These firms shape production globally anddistribute resources based on the tenet of profit maximization. Theglobal expansion of the multinational organizations is reforming themacroeconomic elements of the process of the global economics.Globalization of the financial segment has emerged as the mostquickly growing and persuasive element of economic globalization. Thefield of global finance cannot be ignored since it has a criticalrole in serving the demands of the transnational trade as well asinvestment activities. The monetary market can be indicated as theonly one that has accomplished the real logic of globalization.

Nationsthat are developed have been deemed to play a significant duty in thepractice of economic globalization. These nations have been in aposition to support the idea of globalization through facilitatingforeign direct investment and huge exports. Furthermore, they take aleadership role in establishing policies for global economicexchanges. The developed nations take advantage of their role, whichenables them to support and control the progress of globalization.

Globalizationhas been considered an important part of economic growth. Infacilitating the process of growth, integration is a vital element.Integration is crucial since it promotes the flow of knowledge andideas across borders (Ritzer, 2015). It is through the use of theknowledge and ideas obtained from other countries that people in aneconomy are capable of producing quality products because they are ina position to apply new methods, materials, or even technology. Forinstance, due to integration, technology in different areas havespread to various countries, where they have been used in theproduction process to add value to commodities, which end up fetchingmore revenues that are used in enhancing the living standards. Also,integration has the ability to afford innovators a greater potentialmarket, despite exposing them to competition from foreign rivals.Although globalization leads to more competition to the domesticfirms, it brings about innovation that helps organizations to have abroad market potential since firms use the innovations to competeinternationally. This is vital for economic growth since countriesare likely to reap big from the multinationals. In addition,emanating from globalization, countries have been in a position toshare important ingredients of economic growth such as favorablepolicies and technology, which fully support the idea of economicgrowth (Ritzer, 2015). Moreover, globalization has promoted tradeamid countries, which has, in turn, resulted in countries obtainingforeign currencies that they utilize for economic development.

Despiteglobalization having positive impacts on the economies, it also hassome negative influences. Globalization has opened countries tothreats. As technology is spread from one place to another, it hasposed the threat of cyber terrorism. Furthermore, because ofglobalization, some firms, especially in the developing countries,have not been in a position to operate emanating from stiffcompetition that they face from the international companies. This hasacted as a threat to the existence of small firms operating in thedomestic markets.

MacroeconomicPolicies

Theseare set of government policies and guidelines that aid in the controlor stimulation of the aggregate indicators of an economy.Macroeconomic policies are usually implemented by two set of twotools, which are the monetary and fiscal policy. These two forms ofpolicies are discussed in the following paragraphs.

MonetaryPolicy

Thispolicy deals with the adjustment of the supply of money in an economyin an attempt to realize stabilization. In the long-run, the outputis fixed, which implies that any changes in the money supply wouldonly result in a price change (Hoover, 2012). However, in theshort-run, wages and prices do not adjust immediately this meansthat any modification in the money supply is likely to influence theactual production of commodities and services in an economy. Changingmonetary policy has significant impacts on aggregate demand, and thusinfluences both prices and outputs. When the central bank desires tochange the monetary policy, it uses open market operations. There aredifferent ways of transmitting policy actions to the real economy,but the most common is through the interest rate channel. Whenapplying the monetary policy, the central bank may tighten or loosenthe interest rates of borrowing resources is in order to increase ordecrease the money supply in an economy. Another way of applying thepolicy to the economy is through the exchange rate channel, whereexports may be made expensive and imports cheaper. The policy canalso be transmitted through the balance sheet and bank lendingchannel.

FiscalPolicy

Thispolicy deals with the application of taxation and government spendingto impact the economy (Hoover, 2012). In promoting strong andsustainable growth, as well as mitigating poverty, governments applyfiscal policy. Historically, the reputation of this policy as amacroeconomic instrument has decreased. During the Great Depressionand the stock market crash, policymakers used to push for a moreproactive role by the government. However, in recent years,policymakers have called for the use of the fiscal policy, especiallywith the financial crisis.

Inapplying the fiscal policy, governments impact the economy throughadjusting the degree and kinds of taxes, the level, and arrangementof spending, as well as the level and form of borrowing. Governmentshave the ability of directly and indirectly influencing the manner inwhich resources become utilized in an economy. Fiscal policy can beexpansionary or tight it is expansionary if it augments total demanddirectly through increasing government level of spending.Alternatively, the policy is tight if it decreases aggregate demandthrough decreasing government spending.

Inresponding to the financial crisis and its impacts, most countrieshave resulted to using the fiscal policy, where they focus onstabilizers and fiscal stimulus. Stabilizers usually act as taxrevenues while spending levels vary and do not rely on exact actions,but function according to the business cycle (Hoover, 2012).Automatic stabilizers are associated with the government size andtend to be vast in developed economies. Governments have to time theappropriate period to apply taxes or government spending to aneconomy so as to have the desired outcome. Although the use of thefiscal policy has been seen as effective in resolving the effects offinancial crisis, it has led to a situation of increasing public debtemanating from the increased spending without corresponding taxrevenue.

References

Baiynd,A.M. (2011). Thetrading book: A complete solution to mastering technical systems andtrading psychology.New York, NY: McGraw-Hill.

Feldstein,M. (2016). “Dealing with Long-Term Deficits”. AmericanEconomic Review: Papers &amp Proceedings,106(5): 35–38.

Hoover,K. D. (2012). Appliedintermediate macroeconomics.Cambridge: Cambridge University Press.

Ritzer,G. (2015). Globalization:A basic text.Chichester, West Sussex Malden, MA: John Wiley &amp Sons, Inc.

McDonald,B. 2009. “Why countries trade.” Finance and Development,December. PP 48-49.

Coughlin,C.C. 2002. The Controversy over Free Trade: The Gap betweenEconomists and the General Public”. Federal Reserve Bank of St.Louis.

Mankiw,N. Gregory. 2016. “Why Voters Don’t Buy it When Economists SayGlobal Trade is Good,” New York Times, 07/29/2016.

Grossman,Gene M. and Elhanan Helpman. 2015. “Globalization and Growth”.American Economic Review: Papers &amp Proceedings, 105(5): 100–104

Short writing

  • Uncategorized

Shortwriting

Duedate

  • Macroeconomic policies

Therole of macroeconomic policies during the great recession and theweak recovery.

Ithas been almost five years since the 2007-2009 brutal economicdownturn came to an end. However, the aftermath recovery has been sodispleasing since the economy has been underperforming consistentlyand the growth is far too sluggish to be able to lift theemployment-population ratio from the reduced levels to which itcollapsed during the great recession. The primary contributingfactors were inferior macroeconomic policies and the inability tobring about good policies over the past decades. Research indicatesthat all implemented policies (Monetary, fiscal and regulatorypolicies) were more discretionary, interventionist and lesspredictable when put into comparison with earlier policiesimplemented during past periods of an economic breakthrough. Anotherreason that contributed to weak recovery was the fact that therecession and the financial crises were so extreme (Tylor 2014).

Forinstance, according to research conducted by Tylor in 2014, aconsiderable shift in monetary policy commenced after the Federalbank held interest levels at very low rates as compared to pastdecades. Very low interest rates aggravated housing boom andencouraged risk taking which in return resulted to housing busts,defaults and put most financial institution into financial crisis. Asdemand for housing spiked, the house price inflation shoot up from 7%to nearly 14%. Although these policies led to growth spurts, theeffects were short-lived. They were followed by great retrenchmentswhich average to a slow economic performance.

Fromthe discussion above, it can be concluded that the inability toobserve past trends before putting across economic policies was theprimary reason for the great recession and the weak recovery. Themacroeconomic theory emphasizes the importance of keeping timeconsistency and the predictability of the system before implementingany policy. Also, the historical ordeal that occurred from 19970s to1990s should have been a lesson to the relevant federal authorities.In future, there is a need to put into place policies that are lessdiscretionary and interventionist.

Economicsversus Politics: Pitfalls of Policy Advice

Thebasic approach to policy formulation is waxed on the acknowledgmentof the existence of sources of market failure such as monopoly power,externalities, imperfect competition and public goods among others.Nonetheless, among all these factors, politics has been greatlyignored and neglected. This disregard of political influence inpolicy formulation has been justified via several means. First, isthe fact that politicians are only interested in promoting well-beingjust because socially effective policies is what maintains them inpower. Second, politics is viewed as an unneeded disruption in theprocesses of policy formulation. The third justification is theassumption that it is good economics that creates real politics andnot the vice versa (Acemoglu, James &amp Robinson, 2013).

Althougheconomic advisers tend to ignore politics based on the premise thatpoliticians are a threat to the commercial breakthrough, the truthis, there is a myriad of forces that convert good economics into badpolitics. The result is always catastrophic. The argument here isFrankfurt: political equilibria is not independent of market failure.Indeed, it solely rests upon it. For instance imagine a world ofeconomics deprived of politics or no linkage between the two forces.Policy choices in the first phase would be made without putting intoconsideration political equilibria. However, such decisions wouldautomatically strengthen one group of people at the expense of othergroups within the society. Thus, in the second phase of decisionmaking, it would necessitate the concern for political equilibria.The main idea here is that when formulating policies, economistsshould put considerable weight on the sources of market failure aswell as the political stability.

Economicinefficiency is deleterious and ought to be avoided at all cost evenif it means putting into consideration politics during policyformulation. My opinion would support the fact that sound economicpolicy formulation should be founded on a careful analysis ofpolitical economy which factors in influences of politicalequilibrium.

  • Trade

Nosingle country can claim to be self-sufficient and hence thisnecessitates trade between countries. Global trade occurs as a resultof uneven distribution of resources all over the world. By developingand exploiting the scarce resources, nations generate a surplus thatenables trade. International trade leads to efficiency utilization ofresources which makes the world better off (McDonald, 2009) .Forinstance, when an entity or a person purchases a product or a servicethat is generated cheaply overseas, the living standards of people inboth nations is enhanced.

  • Why countries trade

Economistssuch as David Ricardo and Adam Smith instituted the economic basisfor free trade. According to Ricardo, trade occurs due to thecomparative advantage. For instance, international trade allowsnations to specialize in what they perform best and attain the thingsthey have a comparative disadvantage. To illustrate, countries exportthose products they have an absolute advantage and import those theyhave an absolute disadvantage. Due to specialization, resources areutilized efficiently globally and domestically. Thus, theseefficiencies are reflected in the lower prices as well as economicgrowth. Some countries may lack absolute advantage in production invarious goods incomparable with its trading partners, but it willalways have a comparative advantage in the generation of particularproducts which enables it to gain from trade. To illustrate, incountry D, one hour of labor can generate either three barrels of oilor two dresses. On the other hand, in country F, one hour of laborcan make one barrel of oil or one dress. In this case, Country D ismore efficient in the production of both goods (McDonald, 2009). Ifcountry F trade with country D whereby it sells two dresses in returnof 3 barrel oil, to produce these two dresses country F will beforced to divert one hour of work from generating two dresses. Itutilizes that one hour to produces three extras barrel of oil. Ingeneral, the similar quantity of dresses is made. Country D generatestwo less dresses while country F generates two extras clothes.Nonetheless, the quantity of oil produced is more than beforecountry F decreases its original amount by two barrels. Theadditional quantity of oil indicates the gain that occurs due totrade.

Moreover,Swedish economist, Heckscher-Ohlin tries to explain the differencesin comparative advantage between nations. In his discussion, he usesthe role of labor and capital known as the factor endowments as thedeterminant. According to him, countries exports products whoseproduction results in the intensive utilization of relativelyabundant of factors of production. For instance, if a particularcountry is well endowed in capital goods such as machinery, it willexport these products whereas those who are labor intensive willexports labor. Trade has led to the introduction of policies that aredestined to protect the domestic industries from foreign competition.These include tariffs that are imposed on the country’s importssuch as the clothing, agricultural products among others (Coughlin,2002). Also, some nations have instituted barriers to trade inservices such as transportation communication as well as thefinancial sectors .Other countries has introduced policies thatwelcome a foreign trade.

Traderesults in transformation both within and across the industries.These adjustments, for example, increase the level of employment invarious countries which boosts the economic growth. Also, expansionleads to the new technologies as well as new products enabling thefirms to compete favorably globally due to a variety of the goods.Additionally, trade helps to eliminate the less efficient firmsthrough the global competition which adds more pressure on profitshence creates room for more effective organizations.

  • Globalization and growth

Theprimary concern here is analyzing how globalization has led to aneconomic breakthrough. In the early centuries, growth studiesconcentrated on capital accumulation. However, research has shownthat accumulation of capital stock at a rate higher that thepopulation growth rate results in diminishing marginal returns thatare a risk factor to realizing marginal product of capital that isbelow the limit at which incentive to invest disappear. Thisdiscovery made most of other great economists to pay attention to theaccumulation of knowledge which can be incarnated as &quottechnologyor human capital.&quot Various models of knowledge accumulation havehighlighted the existence of linkages among internationalintegration, interconnection and interdependence and economic growthand development. The former being what we refer today asglobalization. There are several ways in which the statedrelationships exist (Grossman, Gene &amp Elhanan, 2015).

Oneof the outstanding connection between growth and globalization existsin situations where knowledge generated in one nation can be used topromote research in another country. Developing countries havesubstantially gained from this aspect of globalization because theycan directly benefit from already innovated technologies withoutnecessarily undergoing through the stress of developing theirs.International knowledge spillovers can occur in various dimensions.First, it can be through sharing of ideas during internationalseminars and conferences. Second, knowledge can flow duringentrepreneurial transactions and finally expanding educationalcapabilities internationally could also cause diffusion of humanknowledge.

Secondly,globalization foster competition among nations as well as within anyparticular country. This is because interconnection among countriesoffer innovators extended untapped geographical reach as it subjectsthem to increased competition from foreign rival companies andindividuals. This has resulted in a considerable decrease in theprices of goods and services. On a similar line, in an attempt tomaintain competitiveness companies, tend to produce high-qualityproducts. When a nation embraces international trade, they remainopen to the growing number of competitors from the fast-growingstates which reduce the profitability rising from innovations.However, this facilitates aggravated research and development whichboost robust economic growth.

Third,globalization foster specialization to enable a particular country tomaintain a comparative advantage. Every nation is endowed withdifferent resources and minerals. It is not possible to produce allgoods and services domestically. There exist deficits and surplusesin various sectors which ought to be offset. Thus with nationalintegration, it has become possible for a given state to dispose oftheir surplus and acquire what they inadequately produce. In thatcase, there exist an equilibrium between the forces of demand andsupply and maintain efficiency within the markets. Stability withinmarkets fosters economic growth and development.

Finally,globalization allows technological diffusion. Once an innovation hasbeen established in one state, it is possible to acquire and use itin another country without necessarily undergoing the stress ofdeveloping one. This has resulted in robust growth mainly within thedeveloping nations.

Globalizationnot only foster growth, in some ways it has its negative impactswhich have not been discussed in this paper. However, when put into acomparison, the positive effects of international integration outdothe negative consequences. In that case, we need to concentrate muchon the opportunities that globalization open to us and help fight thenegative implications. All in all, globalization has been inexistence for a very long time. However, in the past decades, it hasbeen on the rise as a result of technological advancement.

  • Population aging

Populationaging also referred to as demographic aging is a summary that showsthe shifts in the age distribution such as age composition of apopulation towards older age. Studies indicate that over the next twodecades in the United States, the number of the individuals aged 65and above will rise from 14 percent to 21 percent. This aging of theAmerican population will undeniably be correlated with themacroeconomic adjustments. Consequently, lower consumption growthcoupled with the rise of labor input will be needed (Sheiner, 2014).These changes hence will affect the macroeconomic variables such asthe rate of return, wages, and capital.

Todemonstrate the determinant and probable degree of the demographicadjustment, the most utilized model is the consumption possibilitiesfrontier (CPF). The structure shows the level the consumption thatcan be sustained in the steady position for every point of capitalper employee. In the steady position, consumption per employeeequates to the output per the employee less the resources required tosustain the capital at its steady –state point. This is given by:Consumption per worker =g (K) –k (f+ δ). The δ is thedepreciation rate and f the increase rate of the labor force. Ourconcern variable is the consumption per the individual, c. Thesupport ratio is represented by α, which depicts the ratio of theemployees to the weighted indicated by the gauge of the consumptionrequirements of various persons of varying ages. Hence, we can writeConsumption per worker (CPF) as: c= α {g (K)) – k (f + δ)}.

  • Macroeconomic Consequences of Population Aging in the United States

InAmerica, population aging is attributed to the decline in thefertility as well as a decrease in mortality at older ages. These twocauses reduce the support ratio and the consumption productionfrontier. Also, decrease in the fertility rates reduces thedevelopment of the labor force which affects the consumptionproduction Frontier as demonstrated in the equation. The overallresult of these demographic adjustments from the now and 2050 areanticipated to lessen the CPF. The socio-economic and health effectsattributed to population aging include the rise in the relianceratio,straining of social insurance and decrease in the level of savings aswell as the lower labor-force participation (Lee,2014) .Besides,the older generation has the highest rates of the disability due tochronic diseases such as cancer and high blood pressure, hencerequires long-term care which devours public resources, decreasingthe country’s level of development

Sinceaging population is increasing at an alarming rate in most nations,more so America, the government needs to detect the scope of the newdemographic to enable adjustment of existing policies accordingly.The financial markets need to be innovative as well as flexible tomeets the needs of the aging population. They need to incorporatetechnology that is friendly to the older generation. Undoubtedly,aging population creates exciting opportunities necessitatingexpanding of a collection of financial tools to include a changingworld. Another approach of taking care of the aging populationincludes integrating the economic security for the older generationthis is done by increasing the contribution or tax rate on theindividuals. Payroll taxes raise revenues to the government enablingit to care for the elderly people. Besides, United States should putmeasures that facilitate the young immigrants of the working age.

References

Acemoglu,D., James, A. &amp Robinson. (2013).Economics versus Politics: Pitfalls of Policy Advice.Journal of Economic Perspectives, Volume 27(2):173-192.

Coughlin,C.C. (2002.) TheControversy over Free Trade: The Gap between Economists and theGeneral Public”. Federal Reserve Bank of St. Louis

Grossman,Gene M. &amp Elhanan, H. (2015). “Globalizationand Growth.&quotAmerican Economic Review: Papers &amp Proceedings, 105(5): 100–104.

Lee,R.D. (2014.) MacroeconomicConsequences of Population Aging in the United States:

Overviewof a National Academy Report.American Economic Review: Papers &amp Proceedings, 104(5): 234–239.

McDonald,B. (2009). “Whycountries trade.” Financeand Development,December. PP 48-49.

Sheiner,L. (2014). TheDeterminants of the Macroeconomic Implications of Aging. American

EconomicReview:Papers &amp Proceedings, 104(5): 218–223.

Taylor,J. (2014).“The Role of Policy in the Great Recession and the Weak Recovery.”AmericanEconomic Review: Papers &amp Proceedings, 104(5): 61–66.

Close Menu