In present era it is important to understand all different aspects of economy and their effects as well. In this report we will define the definitions of all important aspects and understand different concepts related to economics. We will also analyze their impact on economics with relevant examples.
1) GDP and its Relationship With Standards Of Living
Real GDP: It is the concept of macroeconomics which shows changes in final output due to modification in price. It shows real growth of an economy (Tribe, 2015.). Nominal value of GDP shows all goods and services produced in a country within one year. Nominal GDP can be increased due to inflation but final output remains constant, to calculate real GDP rate inflation must be subtracted from nominal GDP so that the country can measure its real growth.
Standard of living: In simple words standards of living can be say all material goods which helps to raise comfortable level of a person on particular social economic environment. . For economics, real GDP is divided by the total population of a country which is called as GDP per capita. This shows standard of living.
Real GDP might be not a good indicator to define the standard of living of country. GDP is measured on the basis of final goods and services which are produced in a country within the specific time (Davis,2013). It does not show the improvement in human life or environment conditions, education, pollution and especially in the underdevelopment countries. All theses factor also impact the standard of living of a country. Real GDP does not count on economic activities to measures standard of living.
2) Reasons of Unemployment
There are several factors which affect the employment rate. Unemployment is measured by total numbers of unemployed workers divided by total labor force. Factors which affect the unemployment rate are given below..
Technology: Rise in use of technology reduces the contribution of human efforts. For instance, use of robots in automotive industry replaces unskilled labor force. By using technology in the industry, it increases number of unemployed people.(Barberis, 2013) However, it also increases demand for the services labor but demand is comparatively low than supply so unemployment rises.
Globalization: There are lots of changes witnessed after globalization. Companies are expanding their business from their home town to another country (Tullock, 2013). This process allows the developing countries to exploit their natural resources and take advantages of competitive business environment. They also offer cheap labor cost to attract more export process. Like china who produced the cheapest labor products to world and other country become more dependable on china (Reich, 2014.). So other country reduced their home production and shifted to imported goods which increased unemployment in other country.
There are always some unemployment which are totally unavoidable because there are no relations of their employment and econmoic conditions of country For example, a fresh graduate individual who is searching for job does not qualify because of its low skills and knowledge. In some country, labor force may be higher but potential workers are very low like china where number of aged people is more than potential workers so this situation also increases unemployment. In that case it is better to avoid unemployment.
Inflation: Inflation is defined as increases in prices of goods and services in particular time. Inflation rate is directly related to rising prices. In economics where prices of goods and services are increases inflation is also increases but only rises in prices of household income or necessary goods (Bazilian, Onyeji. and Zhengrong, 2013.). When demand for general goods and services is increases then prices also increases due to this inflation is also arises. For example when prices of goods start rising people expecting more inflation in future so they increase their consumption for goods and prices goes up. If interests rate is decreases then in market money supply is also increases. This also enhance consumer purchasing power in market so inflation is also increases. There are mainly two type of inflation demand pull inflation and cost pull inhalations witch effect by the rises in general price level of goods and services.
Inflation is not only affect the rises in prices of goods and services. If prices of goods are remains same but supply of money is increases since increases of production of goods and services. If money supply is perfectly matched with increases production of goods then general prices level remains same and inflation will not increase.
Aggregate demand: Aggregate demand curve shows that total demand for goods and services in specific period. Aggregate demand curve shows all possible prices level of goods which can be purchased by the consumers.
In macroeconomics, fall in general -price level is called deflation. When prices of goods and services are decreasing then demand curve slope downwards. The reasons behind downwards sloping of demand curve are recession ( Meek, 2013). In recession, prices of goods and services are decrease continuously because of low purchasing power of consumers in the markets. For example, In UK during recession all retailers decrease prices of goods and services in their stores because of low sales in their stores . In order to increses sales of their stores . Sometimes, demand curve may be downward slope because of technology is enabled to produced low price products to consumers(de Bekker‐Grob, Ryan, and Gerard,, 2012.) . . Another reasons for downward sloping demand curve is import goods. Some country has low or more cheap labor power than other country like China who produces more low costs products as compare to other country so in importing country, competitions begins in local market to keep their prices low. It also causes downward sloping demand curve.
5) Long run and short-run supply curve
Long run aggregate supply curve: In long run supply curve, it is assumed that there are no fixed factors of productions and only capital, labor and technology can affect aggregate supply curve and at this point in economy everything assumed remains constant. In long run, supply curve can be changed if production quality will be changed.
Long run supply curve is vertical: In long run supply curve is not agffect by the small changes. . LAS is vertical because at this point it shows potential output of an industry(Eichholtz, Kok. and Quigley, 2013). For example, if in a country if there is rise in employment rate then the industry also raises its production even prices of inputs increases. Long run supply curve is vertical because of potential output is unaffected by prices level.
Short run aggregate supply curve: It shows relationships between price level and output. It shows actual production willingness of produce by an industry during specific period in a country.
Aggregate supply curve upward sloping: In short run, wage rate is fixed because higher prices of goods and services makes the output more profitable and industry get low price labor for their production so supply curve is becoming more upwards sloping(Stevenson, Balada-Llasat . and West, 2012.). At this point, industry hires low price products to increase their profits.
From above report we conclude all facts of economics and how does it affect economic of a country. We learn all important concept s about GDP and its relation with standards of living, long run and short run supply curve aggregate demand and its reasons of its downward sloping curve. From above report we also conclude about all important factors that can affect an economic.
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