Elements Of Macroeconomics

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1. Introduction

Macroeconomics is an analysis of a country’s economics structure and performance and the government’s policies in affecting its economic conditions. Economists define macroeconomics as a field of economics that studies the relationship between aggregate variables such as income, purchasing power, price and money. This means macroeconomics examines the function of the economy as a whole system, looking how demand and supply of products, services and resources are determined and factors that influence them. Macroeconomics is concerned primarily with the forecasting of national income, through the analysis of major economic factors that show predictable patterns and trends, and of their influence on one another. These factors
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Economic news – Depressing statistics about global and national economy will reduce confidence and encourage saving.

iii. Uncertainty – a major political / economic change can lead to uncertainty which reduces confidence. For example, major terrorist attack, referendum.

iv. Unemployment – The fear of rising unemployment will discourage consumers.

v. Inflation and real wages. High inflation will reduce confidence. Stagnant wages will make people pessimistic

vi. Economic growth – A recession will invariably be associated with a fall in consumer confidence; positive economic growth tends to improve consumer confidence.

vii. Expectations are largely based on the current economic situation and reported news. News of job losses and falling house prices are amongst the key factors which influence consumer confidence. Some economic indicators are subtle, nuanced or otherwise difficult to grasp straight off the page. Not so for consumer confidence. While economists and investors can debate just how significant this indicator is, most at least grudgingly agree that how consumers feel about the economy (and their personal financial situation) can be a self-fulfilling prophecy. Accordingly, investors should at least consider the trend of this indicator when it comes to investment decisions. This is particularly important for investors who rely on a robust consumer spending environment. (For more on the Index, read Understanding The Consumer Confidence
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POSITIVE IMPACT OF RECESSION
Abstract: Why consumer confidence matters?
Consumer spending is the foundation of most economies. The long boom of the mid to late 1990s was built on buoyant spending - especially in the developing countries, where service industries have long replaced manufacturing as the main economic motor. Policy-makers have queued up to urge consumers to get back to the market. To the average person, bamboozled by talk of current-account deficits, exchange rates and bond yields, consumer confidence seems the sort of economies anyone can grasp. Yet few indicators are potentially deceptive or economically crucial.
(Article extracted from : Assignment for BBEK4203 Principles of Macroeconomics.)

According to a classic economic view, recessions can play a painful but healthy role in the cycles of the economy. They wring inefficiencies, imbalances, and dangerous levels of risk out of the market. They can also shrink trade deficits, and they create a window to rebuild public infrastructure. They provide a chance to buy stock and real estate for those without the resources to make significant investments in boom times, and they offer a chance for workers to go back to
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