Essay on Macroeconomic Concepts

Summary

This press release aims to apply the fundamental macroeconomic concepts and theory studied in addition to analyzing macroeconomic data to make an informed opinion on the future measures of the Bank of England Monetary Policy. First, the press release will investigate readings associated with macroeconomics. Second, it will research actual data on economic pointers like GDP growth rate, unemployment rate, inflation rate, and consumer or enterprise confidence measures. Third, the press release will focus on the Bank of England and analyze the transmission impact of tightening the monetary policy. Fourth, the press release will present an analysis based on step 3 and the present economic atmosphere disclosed within step 2, and examine whether the England Bank should augment, lower, or leave the same interest rate, given its two vital issues which include reduced and stable inflation and employment. Finally, the press release will present findings from steps two, three, and four.

Introduction

Macroeconomic factors are considered to be a monetary feature, trend, or situation that pertains to a wide facet of an economy like inflation, other than a specific population. Instead of impacting individuals, macroeconomic factors normally affect big populations and thus are observed by enterprises, consumers, and governments (Goodwin et al, 2018). Common quantifiers of macroeconomic factors include GDP growth rate, unemployment rate, inflation rate, and consumer or business confidence measures as shown in fig. 1

Step 1

The readings have disclosed that stock market fluctuations usually show the interaction of political and economic factors. This is one of the excellent demonstrations of the effect of external and domestic headwinds on economic action. Furthermore, the readings have explained that the stock market fluctuations were different in 2017, and in the current quarter of 2021 there is a comparative flatness in the market. The United States central bank’s program of increasing interest rates appears to be an antidote that aims at preventing inflationary tendency and economic overheating (Bai et al, 2017). On balance, there is much enthusiasm occurring in the American stock market. Some of the economic analysts have raised serious concerns about this behavior.

Step 2

Economic Indicators

GDP growth rate

The GDP determines the market worth of products and services generated over a set time frame. Macro-economists normally rely on actual GDP since this quantification depicts price transitions and puts into consideration inflation. The GDP is not 100 percent correct but provides approximates that investors and economists might utilize to assess business cycles which include periods between economic developments and recessions.

Unemployment rate

The unemployment rate discloses the number of individuals in the workforce who cannot get employment. When an economy perceives development the unemployment rates are normally reduced. With advancing Gross Domestic Product levels that are augmenting productivity, more employees are normally needed to support the augmented productivity. The new workers now have increased earnings and they spend more (Goodwin et al, 2018). This develops demand in parts of the economy and those business organizations need also to employ more personnel that in turn also contributes to a reduced unemployment rate. If the economy generates lower GDP it normally shows that a small number of workers are required. This impacts earnings and ultimately consumption.

Inflation

Inflation impacts the whole economy since it shows that the worth of the currency is lowering. This impacts every individual’s decisions regarding savings, consumption, and manufacturing scheduling. The inflation rate is quantified utilizing the Gross Domestic Product deflator or the CPI. The CPI provides a picture of the present costs of specific products and services, while the Gross Domestic Product deflator is explained as the ratio between the actual GDP and the nominal GDP.

Money supply

The money supply is a gauge of the quantity of money in circulation. The more economic activity there is, the more currency is needed to aid it (Goodwin et al, 2018). The money supply is evaluated as liquid tools that entail deposits and cash in a nation’s economy at a specific period.

Summary table

Step 3

The Bank of England cited the constant employment growth and other economic measures and indicated that it anticipates increasing interest rates more swiftly to prevent the economy from growing too swiftly. Most of the people are realizing the considerable development the economy has made and they anticipate that the economy will continue fairing on well (Laubach & Williams, 2016). The widely anticipated decision seems to move the Bank of England’s standard rate to a scope of 0.5% to 0.75% which appears to be low by historical benchmarks. The reduced rates will back up economic development by encouraging risk-taking and massive borrowing.

Step 4

Bank of England’s idea of raising the interest rates will effectively make the lives of people harder. In essence, faster growth is one of the main reasons why the Bank of England had to raise interest rates. This would result in higher inflation that would in turn affect people in different ways (Baker et al, 2016). The integration of constant growth and swift rate increases shows that some of the Fed members anticipate the central bank to stop the idea of offsetting a modest hike in fiscal stimulus. This means that transitions in fiscal policy or other drafted economic policies would greatly impact the economic outlook.

Step 5

In conclusion, consumption is primarily financed by individuals’ income. However, other factors also influence consumption and saving. Interest rates for instance make the first major influencing factor of consumption. Higher interest rates will end up increasing the rate of consumption. In terms of consumer confidence, the higher the confidence the higher the rate of consumption. Tax rates as well are an influencing factor. The lower the taxes mean that there will be a more disposable amount that the consumers will have at their disposal. The difficulty or ease to borrow money comes in as an influencing factor as well.

Appendix

Fig. 1

References

Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593-1636.

Bai, J., Philippon, T., & Savov, A. (2017). Have financial markets become more informative?. Journal of Financial Economics, 122(3), 625-654.

Goodwin, N., Harris, J. M., Nelson, J. A., Rajkarnikar, P. J., Roach, B., & Torras, M. (2018). Macroeconomics in context. Routledge.

Laubach, T., & Williams, J. C. (2016). Measuring the natural rate of interest redux. Business Economics, 51(2), 57-67.