Macroeconomic Essay

Fiscal and monetary policies are not the only tools that the government can used to influence the domestic economy. The government can also use import restrictions to influence the domestic economy. The government can empower the economy through several ways combining expanding spending or diminishing charges. In the short term, a build a government spending will consequence in fortifying the economy. The expansion in government spending is needed in the short run in a moderate economy (Harding, 2007, pp. 54). When a country utilizes protectionism to shield domestic producers from their particular wastefulness and ineptitude to contend with outside firms, they could establish quotas or tariffs. A quota is when there is a most extreme product of a great that might be foreign into the country, where imports that outstrip the utmost have either the gatherings arraigned for infringing upon the law or the products being dismissed. Tariffs are when the cost of imports is spuriously expanded with a tax, to make them less magnetic to customers that are cost touchy. The higher the quotas and tariffs, the higher the costs of those penalized products in the economy, which in turn will negatively alter aggregate demand (Groshen, 1991, pp. 350).

The increase in long-term unemployment has also influenced customer expectations. It is expected that the labor market of the United States would develop European hysterics. The rise in long-term unemployment can be explained by the collapse of aggregate demand in the country. There is an increase in the number of employees who are losing their jobs. A majority of downsized workers are low-skilled. It depicts the unemployment in the United States is expected to be long-term (Jackman, 1997).

Aggregate demand rests on an increase in stock prices and household debt. The mortgage refinancing and a decline in household saving rate have also influenced aggregate demand and supply. The stock market has historically remained at extremely high valuation levels. The increase in borrowing of customers can offset the problem of aggregate demand. There is an increase in the number of customers who are approaching debt ceilings. The rapid increase in borrowing is creating a consumer debt crisis. The saving rates are decreasing, and they are as low as zero.

It is an adage that in order to develop a mass-production economy, it is necessary to create mass-consumption markets. In other words, it can be said that the development of a mass-production economy depends on a healthy distribution of income. According to the Keynesian proposition, a market economy is prone to failure regarding aggregate demand. It depicts that the distribution of income really matters for aggregate demand.

High wages are not the only cause of unemployment. The difficulty in isolating variables is the problem with economies. If high wages result in unemployment, and it is because of powerful union then the decline in the power of union will result in a decrease in unemployment. It does not mean that high wages always result in unemployment. It is because it is not possible to isolate ...