Foundations of the modern macroeconomics - Myassignmenthelp.Com

Question: Discuss about the Foundations of the modern macroeconomics. Answer: News Analysis The news article published by BBC News dated 24 January 2018 presents report on declining rate of unemployment as is evident from the official figures. Number of people engaged in work enhanced sharply and simultaneously wages increased at a faster rate while decline in real wages by 0.5% (UK unemployment falls to 1.44 million, 2018). Reports suggest that higher demand level have the need to be associated to low supply that can lead to higher price of labour. This leads to higher bargaining power of workers that can lead to raise wages and enhancement in real interest rate by Bank of England. Decrease in real wages was witnessed that continued to put pressure on consumer spending. Essentially, low wages can lead to low unemployment rather than low unemployment operating as a catalyst for better payment. The economic concepts and notions that can be associated to the current article is the trade off between wage, unemployment and inflation. The concepts of Phillips Curve show that there exists negative correlation between alteration in money wages of employees and unemployment (Uribe Schmitt-Groh, 2017). For instance, increase in unemployment was related to decreasing wage growth rate and vice versa. Essentially, an increase in aggregate demand leads to high level of real GDP, thus, the firm engages more number of workers and overall unemployment decreases. Nevertheless, an increase in inflationary pressure can be observed when the economy gets near full capacity (Mankiw, 2014). Again, with low level of unemployment, workers can necessarily ask for higher level of wages, whilst causing wage inflation (Bernanke et al., 2015). In addition to this, corporations can exert pressure owing to increase in demand. Again, as per opinion of monetarists regarding Phillips Curve, increase in overall aggregate demand can direct the workers to demand higher nominal wages. At the time when they accept higher level of nominal wages, they operate for longer hours as they believe that real wages have necessarily increased. In addition to this, this enhancement in aggregate demand directs the way towards inflation, thus, real wages remain at the same level (Heijdra, 2017). At the time when they get to know that real wages are at the same level, then individuals change their expectations regarding price and ceases to supply additional labour and the real output gets back to the original stage. Thus, unemployment stays unaltered and this leads to high rate of inflation. Viewpoints of monetarists regarding AD/AS reflects that enhancement in aggregate demand leads to temporary augmentation in real output (Mankiw, 2014). Therefore, there are certain implications and effects of event of decline in unemployment. Essentially, less number of individuals might have the time to discover a more rewarding job. Furthermore, reduction in the rate of unemployment might perhaps enhance the probability of demand pull as well as cost push inflation, thereby making the economy more unbalanced. Advantages of decreasing the rate of unemployment outweigh the overall costs. The effects of unemployment are said to be beneficial as this leads to enhancement in level of output and promotion of economic rate of growth that sequentially leads to augmentation in material living standard. Decline in the rate of unemployment in UK has various advantages namely optimal production level, easier accessibility to job, higher buying power of consumers and less borrowing by the government. The disadvantages of decline in unemployment in UK might lead to rise in the level of inflation. Again, acceleration in particularly wage inflation can lead to low level of unemployment that can sequentially dent profit. Essentially, unemployment issues are mainly for players of the community (counting labour, government as well as commerce). The decrease in unemployment can favourably affect labours as they can remain unemployed. The government spending can also decrease with decline in rate of unemployment. Additionally, decline in unemployment can lead to increase in consumer spending that in turn can increase the overall demand for output. Thus, both producers as well as consumers can get favourably affected by the decline in the rate of unemployment. References Bernanke, B., Antonovics, K., Frank, R. (2015).Principles of macroeconomics. McGraw-Hill Higher Education. Heijdra, B. J. (2017).Foundations of modern macroeconomics. Oxford university press. Mankiw, N. G. (2014).Principles of macroeconomics. Cengage Learning. UK unemployment falls to 1.44 million. (2018).BBC News. Retrieved 26 February 2018, from https://www.bbc.com/news/business-42802526 Uribe, M., Schmitt-Groh, S. (2017).Open economy macroeconomics. Princeton University Press.