Essay on Fundamentals of Macroeconomics

Submitted By eddiekanejr101
Words: 1018
Pages: 5

Fundamentals of Macroeconomics
Michael Medley
June 11, 2012
David Euler

In order for people to understand macroeconomics they have to distinguish between individual effects on the economy and the whole economy. Macroeconomist concentrate on the economy as a whole. Fluctuations in activities associated with the market can have drastic ramifications on the economy because the changes affect how governments, households, and businesses deal with the fluctuations within the economy. The activities to be discussed are purchasing of goods, massive unemployment, and lowering of taxes, which are directly related to each other. By the time this paper is completed people should have a better understanding about macroeconomics and the complications that have an effect on the whole economy.
When the economy is not operating at full capacity many other functions of the economy can be affected. Depending on what type of fluctuations the economy is experiencing at any given time period. For instance, when organizations layoff employees for lack of work the government’s spending increases to compensate those displaced workers until they are able to obtain another job. In the employment act of 1946 government took on the responsibility of unemployment, which required organization to contribute a certain percentage into an insurance fund. The fund increased government expenses, however, had no effect on the country’s GDP. The government’s role in what type of goods we can purchase is essential in the open trade markets across the globe. Since there are many different producers of goods the local grocery store may have many vendors supplying the same product, however, the price for those goods can vary by a few cents or more depending on how the government controls the price levels for that year, and the producer of such goods. Government needs to implement policies that will allow the market to operate on an equal playing field. Their involvement supports the Keynesian theory that without government policy’s markets will operate freely, which will open the doors to more shady business deals because of self –interest characteristics. When it comes to lowering taxes governments are not to swift at coming to this decision because it decreases the amount of income taxes the government can collect from its citizens, which in turn reduces the amount the government has to spend. In the introduction a factor such as taxes is related to both unemployment and purchasing of goods. To illustrate, the government reduced taxes by 5% this reduction has a direct positive effect on purchasing and unemployment because less taxes means more disposable income that society has to purchase goods and the more money organizations have to produce more goods. Government uses fiscal policy like taxes to stimulate or shrink an economy and depending on the reasoning behind the policy the economy might be better off.
In today’s business world companies are always looking for a way to increase production while decreasing its spending. In order for this to happen in most organizations the cost of crude and intermediate supplies has to decrease, however, companies can achieve the same effect if the taxes that are paid to the government were deceased significantly, allowing for more production. The more production the less amount of workers unemployed, which means more income to stimulate the economy through purchases. Another benefit for lower taxes is shown in the spending habits of society. For example, if the grocery store has eggs on sale for $1.50 dozen, however, they also have 5 dozen for $4.99, which is the better choice? In addition, take into account the 3% tax deduction it is no debate which one to pick. When taxes are low people tend to spend more of their disposable income because it has more value than before the tax break. When businesses lay-off massive amounts of their employees the company is