The Key Concepts in Economics

Published: 2019-06-24 12:46:29
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In every day news, people read various economic issues relating to various parts of the world. The study of economics helps one get a better understanding of the news. In this paper, a news article is selected, and analyzed to find out the various economic issues that are raised in the article. Further analysis is done to make it better to understand what the issues mean to the economy. The discussion help understands how the issues discussed affect the US economy.

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The article discusses several points that inform the current state of the economy. First, the strengthening of the dollar against the other major currencies has harmed the US economy in that the exports have significantly reduced. The strong dollar has made the US products expensive, and the results have been poor performance of the economy in terms of growth since exports form a major part of the GDP. The second point is that the wage rates in the US have remained low, and this is affecting the growth of the economy. Companies are only willing to pay the minimum wage and not more than this, and the low wages lead to low demand hence less economic growth. The third point is that unemployment in the US remains a great problem since people only work for a few hours and their salaries have remained low as a result. The fourth point is that the inflation in the US economy is expected to decrease considering that the oil prices have significantly decreased.

All the factors discussed are all related to the GDP in an economy. First, the low wages in the economy means that the demand in the economy is low, then there is no motivation to invest, and the results are that production in the economy reduces. This is why the GDP in a year reduces. Secondly, the strong dollar hinders exports, and this means that the local producers will be discouraged from producing locally since there is a limited market. The limited market accompanied by reduced production of goods and services also mean that the output (GDP) in the economy reduces. Unemployment also influences GDP in that when people are unemployed, it means that the production in the economy is not maximized. This means less output in the economy. Inflation in the economy also influences the GDP of a country; inflation may encourage production of goods so as to benefit from the high price. The increased production has the effects of increasing GDP.

The GDP in the US can greatly affect the US economy. As already observed, the GDP is expected to shrink if the current situation continues. A shrinking GDP has the effect of reducing the living standards in the US. The reason is that less GDP means that the people in the economy have less access to the quantity and variety of goods and services that are availed to them. A limited choice of goods and services means lower living standards. Secondly, slowing GDP has the effects of reducing the employment in the economy (Lieberman, 2008). As exports reduce, companies have to lay off some employees so as to reduce costs and remain profitable in the industries that they operate. A low GDP also affects the government because it means that the tax revenues that the government is able to collect are less than what is expected. As a result, some government projects may have to be postponed.

The slowing GDP also means that there are fewer savings and investments in the economy, and this also means the goods in the market are available in limited quantities. As a result, the inflation occurs and the prices in the economy increase, making the costs of living in the US to increase.

I to a great extent agree with the arguments in the article from an economic point of view. The major message sent to the policy makers is that the wages in the US have remained low, and this has adverse effects in the economy. The US will grow if the wages in the economy rise. The reason is that when the wages are high, the power consumption increase and this result to increased demand in the economy. An increase in demand means that the prices increase in the economy, and the results are investments that are meant to bridge between demand and supply. In order to meet demand, more people have to be employed in the economic is witnessed because human resources are important inputs in the production process (Arnold, 2010).

The arguments in the article are only valid when certain assumptions are made. First, it is assumed that the rising wages will be accompanied by improved productivity of employees and that the company benefits in a way from the efforts of the employee. Another assumption is that when the salaries of the employees are raised, they do not save the increase, but instead allocate the same to consumption of goods and services in the economy. If these assumptions do not hold, then growth in GDP cannot be achieved.

References

Arnold, R. A. (2010). Economics. Australia: South-Western Cengage Learning.

Lieberman, M., & Hall, R. E. (2008). Principles and applications of macroeconomics. Australia: Thomson/South-Western.

The Economist. (2015, April 11). Careful now | The Economist. Retrieved from http://www.economist.com/news/finance-and-economics/21648022-unless-wages-grow-americas-economic-blip-could-become-trend-careful-now?fsrc=rss

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