Macro Economics

                    Since we've discussed the consumer purchase price index, inflation and unemployment in the last guide, in this guide we'll discuss the monetary growth, of the business cycle and macroeconomics equilibrium in one country economy. This steps all output and income through a series of national accounts. Towards the end of their financial year, all money flow in and out is composed to ascertain the GDP.

                    Real Gross domestic product is the alteration for the distortion due to inflation by quantifying the fiscal output of services and goods in a given year against the costs of a foundation year while nominal Gross domestic product measures output with current year prices. The business cycle.A country economics moves in a comfortable pattern of four bicycles regeneration: slow down in growth or recession. Trough: bottom end of the cycle expansion: growth increases or retrieval of the economy. Peak: top end of the cycle. The normal business cycle experiences constant fluctuations with one cycle leading - regardless of how protracted - to another and the downturn is defined as two consecutive quarters of falling growth in real GDP. When the economics expands: unemployment decreases, inflation starts to increase and the real Gross domestic product rises. And on the flip side, when the economics contracts: unemployment increases, inflation declines as well as the real Gross domestic product falls.3.

                     Macroeconomics Equilibrium Instead of targeting any one cost or provide as in microeconomics the economist employ the dimensions against the cost level and output for the whole economy. This is achieved by adding up all of the totals for of the whole period. Aggregate demand curve The AD measures the association between the total quantity of all output that consumers are willing to buy and the cost level of the output. AD is the amount of what customers, governments, business as well as foreigners, through exports as well as imports spent in the country economy. Aggregate supply curve AC correlates the relationship between the total quantity of final goods and services all manufacturers plan to provide at a given price level. The two curves are utilized to predict changes in the real Gross domestic product and cost levels and the curves reflect what happens in macroeconomics measurement curves.
                 
                    Where this two curves crossover shows macroeconomics equilibrium.I hope this info will assist you to learn more about macroeconomics, if you need more info of the subject above, please visit my home page at: All rights reserved. Any reproducing of the article must have all of the links intact.

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Debt and Deflation

Contrary to today,deflation-prices falling from year to year instead of rising-wasn't perceiving as a threat every time.The alive Economies faced that phenomenon in stages before 20th century along several century.In fact, Milton Friedman has upholded that in theory that governments should endure a certain amount of deflation..

                  While the prices in market was falling slowly,this means every dollar and pound in your pocket,were getting value.Even if your income does not increase every year,your purchasing power increases.Like an economy with high inflation,you don't need to worry about that your money value falling.

                   Deflation and Crisis The innocent deflation left its place to bad experiences with in 20th century falling prices.This status was same in 1930's crisis too.Crisis followed the pretty rising prices of share(shares was being purchased with debts instead of savings money.) in 1920s.In 1929,the investors noticed the winnings does not based on reality,it based on more hope and speculation,and the stock market collapsed.Followed by US economy and the other national economies the most darkness years were lived.The banks were went bankrupt with heavy debts,and the real estate prices were fell,companies were shut down and millions people be unemployed.The basic of in crisis the most important problem was deflation.Prices began to fall when people understood that the era of economics, defined as "The Crazy Twenties," was artificially driven by greed and frenzy.Share and real estates prices fell,but the value of the debts that people took to buy them remained stable.So while prices are falling by 10 percent per year, the cost of borrowing at the cost of $ 100-the current purchasing power- was became $ 110.Millions of people in the digits, which are not directly affected by the collapse of the stock exchange,because of unexpectedly increment of the value of debt,defeated by inflation.

                  A Hard Spiral Deflation doesn't only debtors,it affects whole economy.As prices drop, people start stacking money because they know everything will be cheaper in a few months time.The money spend unwillingness reduce prices even more.Moreoever,companies notice the money cost rises because of people salaries arranging by legal contracts.The previous was $ 1000 salary,and now its value $ 1100.It is a kind of disaster for employers because even if the employer sell the goods and services more less,employer have to fulfill the same price cost.At first sight,even if it looks good for workers,practically,it does mean companies will fire many workers for carry on.At the same way, even if the banks will take more mortgage payment from some of debtors(compared to other prices in the economy),cannot collect any payment from the other debtors.

                   Some of this symptoms reminds like during the high inflation.Both of them contain in real prices uncontrollable rising in certain products.The difference is that while inflation increase the value of consumption goods, deflation contain inflating debt and other liabilities.One of the huge risks of deflation,in response to the steady decline in prices the companies who is in retrenchment, that their losses are getting bigger and that means pulling the prices further down.This creates a situation even more difficult than the inflation spiral,because in modern economies the mechanism of struggle against inflation has developed even more.

                    Diagnosis and Solutions The economic explaing of deflation,reduction of the money quantity in system or increase in the supply of goods and services.In that case,while a lot of money is in pursuit of little goods in inflation,this situation will the exact opposite in deflation.In the period of Great Depression,the cause of this in Japan 1990s and 2000s was the shortage of money.The reason for the benign inflation of the 19th century, on the contrary, was a surplus of supply that emerged more productively.

                   Generally,central bank checks the inflation with interest rates.Even so,they cannot fall below zero of that rate.That is mean they will apply more unusual methods while the prices down. So,they have to apply more unusual methods when prices are falling.Contrary to the inflation situation where the money in the economy is being kept constant,Central Banks start to cash transpose to system.It could make it in different ways;they buy assets such as bonds and shares or increase the money in the banks of commercial banks.To all this method called as "Quantitative Easing."
   
                At the end of the millennium,in Japan,kind of methods were used in USA and UK after 2008 crisis too.From debt-borne financial crises,tried to get out of like this way.

Main Message

Declining prices could damage the economy too.

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Inflation

Of the prices,to ensure increase to some extent as slowly and predictable,maybe these are the most important task of them who managing economy.But,the inflation has a bad tendency of getting uncontrolled.

               Inflation Levels Generally,inflation explained as a annual rate.So, 3% inflation rate, indicates that the prices in the economy are 3% higher than 12 months ago.

              Inflation, which is a fairly explanatory part of economic statistics,it gives knowledge about economy's health to us.If it very high,the economy may fall into inflation,so prices increase exponentially,also hyper-inflation can even happen.The difference between the two,it depends on the size of the price dimension.During the effect of Hyper-inflation in 1920s Germany and 21th century's first decade in Zimbabwe,at least 50% per month,most of the time was increasing more.While the gyper-inflation ceiled in 1923,in Weimar Germany there was printed banknotes from the value of 100 trillion marks.Even relatively low inflation rates of around 20% can be quite devastating.If the inflation come true,with a weak economy growth and recession at the same time,the situation may be quite bad.Stagflation is called when stagnant economic growth and high inflation are experienced at the same time.

              Causes and Results Inflation says to us about both social and economic status a something. We can understand how much the living expenditure of the country is compared with the increase of the income of the dwellings.If the inflation,getting increase more than families incomes,it means life standard is getting decreased:People can not buy as much as the old.But salaries,increase faster than inflation,when people spend,it means remain more than in their pockets,this indicating that the standard of living has increased.

               The salaries of employees are raised when the whole economy is growing rapidly,this mean spending more money on goods and services.Likewise, when the economy slows down, demand slows down, prices fall, or at least slower.

            The product prices doesn't only be affected from demand,also it does be affected the amount of money people have access to.When money supply increases,the same amount means that there will be a larger amount of money in the pursuit of the goods,this raises prices.

            Is there always inflation?  Whether the prices should always increase or not, the possibility of staying constant is also one of the frequently asked questions.In the past, prices have been seen to stop.In theory,inflastion doesn't necessary element for the economy to continueAlthough,during the last century,politicians has supported a little bit inflation at many kind of causes.

              Firstly,inflation,forces to people spending instead of saving; because the money in their pockets is losing value.This behavior is important for modern capitalist economies because in the long run companies encourage investing in new technologies.On the other hand,inflation erodes on debt.This one esspecially the debtor governments,to support inflation increasing,and like this way forces to devalue their debts.At the same time,generally inflation levels look like usury rates.People get used to positive(+) usury rates not negative(-) usury rates.In the past, there are a few examples in which the banks give debt to people and take money from of the people saving and to make debit them.In times of crisis,It is important to direct people to spend instead of saving.

             Finally,people are accustomed to increasing salary increases.It is the natura of human;they try to devolop themselves and at anytime don't take any salary rise-even though the prices at the stores were fixed at that time-,it is a difficult situation to accept.

           Inflation Spiral At the situation named as Prices Inflation Spiral may increase exponentially. As inflation increases,workers become unhappy because the standard of living falls.They want higher salary,if they succeed in raising their salaries,when they spend the extra money too, store owners will start to prices make higher.This situation make inflation increase,workers will want salary rising again.

          The problem in inflation and deflation,it is the ,can drag economies permanent instability.When people lost their trust to price ups and downs,it can stop savings and investments,so normal life can be interrupted.Therefore,governments and banks try to hold the price increases as in expected rates.If it succeed,as Ronald Reagan said ''The People expect an unpleasant experience.''

Different Inflation Measures

Consumer Price Index

Retail Price Index

Gross Domestic Product Deflator

Producer Prive Index

Other Indexes

Main Message

Allow the prices to increase slowly.

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