Macro12C Essay Example | Topics and Well Written Essays - 1000 words

Macro12C - Essay ExampleThe unemployment rate reached a minimum of 5.5% from 7.5% at the number 1 of term of President Reagan. The real median income for families change magnitude to nearly $41,000 at the end of term this was significantly higher than 10 years before and 10 years after President Reagans term. largeness touched a minimum of 2% in 1986 and ended at 5% in 1989 compargond to 11% at start of term in 1981. The growth of government spending was 1% during president Reagans term compared to 3.5% before him and 4.5% after him. Real income tax r pull downues join ond by 16.3% even after go on income tax rate had been reduced from 70% to 50% in 1983 and to 28% in 1986. The nominal federal revenues increased from $517 billion in 1981 to $1.031 trillion in 1989. On the downside, however, Reaganomics was used when US was at pause at the time, yet the guinea pig debt increased from 26.3% of GDP in 1981 to 42.3% in 1989. Secondly, the savings rate unload from 8% to 6.5% dur ing president Reagans term as a result of his economic policies. Thirdly, the rich got even richer and the poor got even poorer. Reaganomics largely believed that if more wealth was given to the rich, they would re-invest this money, which did not really happen. Given the optimistic and the negative outcomes of Reaganomics, it can be said that while Reaganomics did work well for the years it was in force, it wasnt a very sustainable economic policy as it relied mainly on increasing national debt to cover for the economic growth. Q2 Show graphically the effects on macro economy of a conniving rise in OPEC fossil oil colour prices in a. the short run. b. the long run. How do you account for the differences in your answers to separate a and b? A sharp increase in OPEC oil prices occurs due to a bring shock that is a sudden drop in supply of oil. Below figures show its effects in the short and long-run. Short-run effect of a sharp increase in oil price is illustrated in figure 1 be low Figure 1. Short-run effect of Sharp increase in oil prices In the short-run, the supply shock causes price levels to increase due to inflation caused by high oil prices not only on oil dependant industries but also on transportation of goods and services. This leads to a drop in total output as well as price levels have increased but the wages have not in the short-run leading to stagflation. Thus, the short-run effect is an increase in price levels and a simplification in total output. Figure 2. Long-run effect of a sharp increase in oil prices Due to increase in inflation in the short-run, unemployment starts to increase. reward start to decrease. This leads companies to start hiring people. Also, the short-run effects bring about economic policy changes by the governments that are targeted to increase the output and to reduce inflation which could be an increased government spending and/or decrease in interest rate. As the inflation comes under control, the real wages sta rt to increase. This leads to an increase in demand in the long-run and the net effect is that