Page 13 - DECO402_Macro Economics

Macroeconomic Theory

Notes found in nature of unemployment. In underdeveloped countries its nature is of chronic and its reason
is shortage in production potentialities. Just its contrary in developed countries its nature is cyclical
for that reason decrease in the demand of goods and services. Rather than an important problem of
macroeconomics is unemployment and it is related to all economies of world.

(3) Business cycle
In economic activities always have fluctuations nature of changing occurred in this is not always
steady. When economic activities go down then it is called stage of recession when it reaches to its
lowest position then it is called stage of great depression. When in this being improvement then it
called stage of recovery and when it reaches at its topmost position then it is called stage of boom.
Recession and great depression is the stage of low profit. In this condition marginal firms are close,
huge cut in quantity of investment and unemployment takes dreadful form. Just its contrary boom
condition is such a condition where profit is increasing in which quantity of investment and means
of production of demand increases continuously.
Business cycle is not limited to a special firm or a particular commercial activities. This is a macro
phenomena which is taken in his grip all production units of country. In fact, at times it is become
a global phenomena, as great depression 1930 decade. It is a matter of to pay attention that
macroeconomics’ a separate branch of study origin goes credit to 1930 decade great depression. During
this period, capitalist economics of world, particularly in U.K. excessive employment has found. In
U.K. economy unemployment level had reached at the rate of 25%. In such a time great economist of
world Lord Keynes had propagated theory of income and employment and deficiency of aggregate
demand, caused occurred problems of unemployment’s global remedy.
In fact, an economy’s cyclic circulation in it self a great macroeconomics related problem whose solution
is sought no only producer, but also government. Producer follows such a strategy by which recession
and boom’s condition can be faked. Government is to formulate such a policies by which effect of
business cycle can be minimal and economic growth’s fixed path can be made certain.

(4) Inflation

Inflation is called such a condition in which at general price level (Average cost of all goods and
services of economy) within a given period of time finds tendencies of continuously increasing. As
a result value of money decreases and people’s real purchase power is decreased. This is an also
macroeconomics related problem, whose to understand and their solution is very necessary.
Normal increment in price is helpful in economic growth. It causes increment in investment and whole
level of economic activities are initiates. But inflation sometimes takes the form of galloping inflation
of hyper inflation. In the condition of hyper inflation, factors of production becomes dear. Specially
in investments’ interest rate got tendency of heavy increment. As a result of this cost of production
increases much and business competitiveness is becoming less, specially in world market. When finds
the tendency of decrease in demand and rise in production cost then in production process clearly
occurs obstacles. In such a case economy move towards boom to recession and great depression.
Common people suffers seriously due to inflation. His purchasing power decreases and towards
government his rage increases. General dissatisfaction finally takes the form of social restlessness,
by that reason government stability in at stake. In fact, by price control doing charity has become a
part of election manifesto India like countries. As a result in mostly welfare states has given most
priority on inflation controlling strategies. In this time for government prevails major policy problem
is growth without inflation.

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