Macroeconomics

Macroeconomics

A.

There are some distinct characteristics which distinguish the richer nations from the poor ones. These factors greatly influence countries' macroeconomic success and growth thereby playing an important role in deciding the economic fate of the country. First and foremost of these characteristics is that economically developed countries emphasize on high level of capital investment. The capital is usually made in the form of investment in physical capital which includes machineries, factories, modern technology and equipments, and secondly in human capital such as training of employees, health and education in order to promote long term economic growth and prosperity. During the last century, technological advancements and innovations have been a driving force behind socioeconomic growth closely followed by the nation's contribution towards physical and human capital. The richer countries are generally in a better position and willing to invest highly in human and physical capital whereas the poor and less developed countries have other opportunities to for investment. Since, lower levels of income in poor countries imply lower cost of labor and there is a possibility of transfer of technology from richer countries to poor countries in many cases. Economic free is also one of the determinants of a country's economic growth. Countries with high level of economic freedom are more likely to have higher growth rates (Feenstra, Robert & Hanson, 1996, pp. 240-245) (Feenstra, 1996,, 240).

There are many other factors that play a key role in the economic growth of the country such incentive to save and invest as there are examples of prosperous economies having institutions that systemically encourage saving and investment among the population which would result in higher future production, income and consumption. The role of stable and strong currency also cannot be denied in a successful economy. Stable currency and low rate of inflation encourages saving and investment and protects people from seeking ways to protect their assets from inflation. The high-income and richest countries encourage competitive market and free trade in order to exchange exports with other countries. The export exchange allows certain products to be produced at lower cost in other countries which leads to mass consumption of these products worldwide. Political stability and better law and order situation in richest countries also distinguish them from poor countries as the stability and certainty provide an environment conducive for foreign investment. Finally, there is view that natural resources have contributed to economic success and growth of many countries including the oil-rich Arab world, Middle East, South Africa and United States. But there are several examples of highly successful and rich countries like Singapore and Japan with relatively scarce natural resources. Whereas there are also countries like Russia and Nigeria that remain poor despite of having mass natural resources (Feenstra, 1996,, 240).

B.

There are several reasons why unemployment and inflation is higher in some countries. First of all, the lack of adequate national economic policy aimed at creating jobs contributes to the high rate of unemployment in most of the developing countries. This shortcoming can be ...