Saving and Investment, Essay Example

Production and Growth

There are several measures used to determine the economic outcome of countries and regions. GDP is one of them, and productivity is the other. Productivity is one of the main indicators of living standards in a country. Public policies influence economic growth and productivity as well. Therefore, a country’s economic competitiveness depends on the priorities set by the government, such as encouraging investment or reducing unemployment. Countries that start from a lower position are likely to grow their economy more rapidly: this is called the catch-up effect. International trade agreements also influence the growth of individual countries’ economies.

Identifying and Understanding Unemployment

Unemployment is measured by the Bureau of Labor Statistics, based on the size of the labor force and those at work. Several patterns can be found by assessing labor force and unemployment statistics. As an example, women aged below 20 are less likely to be employed than those over 20. Today, women’s participation in the labor force is much higher  than in 1950, and the participation of men is lower. There are several reasons why unemployment exists, such as discouraged workers, structural unemployment (lower demand in the market than the number of skilled workers), and the time it takes to find a suitable position after leaving a job.

Savings and Investments, and their Impact on the Economy

The main financial institutions in the United States are the bond and stock markets, and their impact is manifested in the activity of intermediary institutions, such as banks and brokerages. The balance between loanable funds markets and savings should be maintained by the monetary policy, in order to help the economy to grow. Governments can create policies to provide incentives for savers, and they can also encourage borrowing.

The Monetary System

Money is a set of assets within the economy, acting as a medium of exchange. Money has monetary and intrinsic value. Money is kept in Federal Reserve and the Central Bank, set aside for budget. The Federal Reserve System regulates financial institutions and controls the supply of money. It also determines rates and discount rates.

The Cost of Living

The cost of living is measured by the consumer price index (CPI). It is based on the average customer’s spending patterns and takes into consideration various expenses, such as transportation, food, and housing. There are, however, several problems with measuring the cost of living, such as bias and new consumption patterns. GDP deflator measures the price of goods currently being produced by the economy, and provides more accurate data, according to some authors.

Chapter 31. Inflation

Inflation is used to describe a phenomenon when the value of money decreases, therefore, customers can purchase less goods with the same amount. It is influenced by the money supply and demand, as well as the rate of economic growth. Monetary injection can increase the amount of money available, and can trigger inflation. Monetary adjustments are necessary to stop or to maintain the healthy level of inflation. Some countries’ government use increasing the amount of money available to fund their spending by issuing government bonds, and this often results in hyperinflation.

Chapter 30. The Monetary System

Money is used as a unit to exchange value and services. It is a medium of exchange, unit of account, and a store of value. There are several forms of  money in economies, such as different currencies and demand deposits. Money supply within a country determines the growth of the economy, inflation rate, and interest rates available for businesses and individuals. The money multiplier is used to measure the money (profit) generated by the banking system on reserves.

Chapter 29. Unemployment

When measuring unemployment in an economy, three figures need to be considered: the number of people employed, unemployed, and not in the labor force. Some people are not actively looking for jobs, despite they are at a working age. Others might be disabled and unable to work. Industries’ demand, public and monetary policies influence unemployment rate. There is a natural rate of unemployment, based on the fluctuation of demand and supply of labor. Further, it is important to note that statistics also focus  on long term unemployment: how long the individual has been out of work. Job search usually takes weeks, creating a normal rate of unemployment.

Chapter 26. Saving, Investment, and the Financial System

Financial systems’ main role is matching one person’s savings with other people’s investment. They act as intermediaries. The difference between the demand and supply of money determines the rates of interest on savings and borrowing. However, monetary policies can adjust the balance, by creating more money available to borrow, or releasing government bonds to borrow from the public.

Chapter 25. Production and Growth

Production and growth is measured by GDP and physical capital per worker. The productivity of average workers is a main determinant of growth, however, human capital created in knowledge economies, as well as natural resources will have an impact on the country’s overall productivity. Public policies can determine the rate of economic growth by controlling savings and investments, as well as international trade.