Macroeconomic issues and policy recommendations of a recessed economy

Economic recession is a situation whereby an economy of a state, or country's faces a contractionary situation described by the decline in economic activity. It is based on a decline of economic indicators such as decreased real Gross Domestic Product, increased unemployment rates, high levels of inflation as well as the unfavorable balance of payments and exchange rates. For instance, the economic scenario described by the economy that has started rebounding from recession is described below.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Order now

The economy in the scenario is said to have rebounded from a recession. Therefore the three major issues that should be addressed to ensure that it continues to grow are the employment and unemployment levels, trade cycles as well as the balance of payments as the main macroeconomic issues.

The issues mentioned above are crucial to ensure that the economy continues to grow. Addressing unemployment leads to increased employment levels, hence will result in increased potential output or the Gross National Product. Regulating trade cycles will help in controlling the exports and imports of this economy. This may involve the integration of trade barriers to control the exports and imports from this economy. On the other hand, control of the balance of payments plays a key role in economic growth (Lawn and Philip, 931). The economy in the scenario needs to control transactions with other countries to discover its ability to produce enough economic output to pay for the imports and enhance their growth.

Recommendations

The above issues require stringent actions or recommendations to ensure that the economy described in the scenario continues to grow. The case of unemployment levels should be addressed through the application of different economic policies. For instance application of fiscal policy to increase the aggregate demand and the rate of economic growth in this economy. There is a need to pursue the expansionary fiscal policy that is based on the reduction of taxes to increase disposable income and increasing government spending. Monetary policy should be applied, that involves the reduction of interest rates to encourage borrowing. This will encourage people to spend and invest therefore increasing the aggregate demand and help reduce unemployment levels. Other policies that should be enforced are the provisions of subsidies to encourage firm investments, flexible labor markets and reducing minimum wages to decrease real wage unemployment. These recommendations will help reduce the levels of unemployment.

Trade cycles or trading activities will play a key role in the growth of this economy. The recommendations that should be undertaken include the improvement of supply-side economy performance based on the concept of boosting competitiveness in the trade environment. However, this may be a long-run technique. There should be the application of expenditure reducing policies that would be used to regulate demand and limit spending on the imports in this economy. This will lead to the rise of the private sector. Expenditure switching policies should be introduced to control the relative prices of imports and exports (Lawn and Philip, 934). This will turn imports spending on domestic spending. Furthermore, the government of this economy should stabilize the macroeconomy to make the country attract foreign investors who will boost the investment sector that will hence influence productivity and improve the capacity to export.

The recommendations to address the balance of payments includes the stimulation of exports and imports substitutes, whereby the government of this country should encourage exports by enhancing the production of high-quality products, increased production, and better marketing. The stimulation of exports can also be enhanced through the application of trade barriers on imports through import duties, fixations, quotas and government and procurement regulations on imports to limit the amount or the qualities of products imported, a concept of direct controls (Lawn and Philip 932). The government should also apply the policy of devaluation to raise the domestic price of imports and lower the foreign price of exports hence switching the expenditure from imported goods to domestic goods and services. More so, to stabilize the balance of payments to ensure it is favorable in this economy there should be the application of expenditure-reducing policies aimed at equalizing or stabilizing the expenditure and income to ensure that the expenditure does not exceed the income. For instance, in the economy described in the scenario, the increase in expenditure over income resulted in the country experiencing a financial deficit that made them borrow funds to boost their economic recession.

Conclusion

From the above discussion, we can conclude that the economy described in the scenario was faced by macroeconomic issues such as employment and unemployment levels, trade cycles as well as the balance of payments that needed to be addressed effectively to ensure that it continues to grow. The above policies recommendations would facilitate the improvement of the economy if they are emulated and effectively put into application.

Work cited

Lawn, Philip. "Facilitating the transition to a steady-state economy: Some macroeconomic fundamentals." Ecological Economics 69.5 (2010): 931-936.