Macroeconomic Theory and Macroeconomic Pedagogy - Free Samples

Question: Discuss about the Macroeconomic Theory and Macroeconomic Pedagogy. Answer: Introduction The purpose of this assignment is to elucidate on the concept of stable economic equilibrium. Stable equilibrium refers to the condition when any deviation from equilibrium automatically brings back to the initial equilibrium position. Free market equilibrium occurs when demand as well supply condition in market becomes equivalent. In this study, stable equilibrium is analyzed with the help of microeconomic as well as macroeconomic stability. In addition, stabilization in the Australian economy is assessed in the current period. The necessity of government intervention for stabilizing the economy is also explained in this study. Market equilibrium is a common example of stable economic equilibrium. The figure below explains market equilibrium. Now, market equilibrium occurs at the point when the demand curve (DD) meets the supply curve (SS), which is reflected by E. The equilibrium price (Pe) as well as the equilibrium quantity (Qe) is attained corresponding to this equilibrium point. Now, if change in price of the products creates movement from initial equilibrium point which in turn restores equilibrium without any external intervention, then this point is referred to as stable market equilibrium. According to the law of demands, increase in price level of commodities results in fall in demand for its quantity. Therefore, if the price of the commodity increases from Pe to P1 , then the customers decreases their demand as they cannot afford to purchase it (Garda and Ziemann, 2012). This leads to occurrence of excess supply of goods shown by AB. However, the retailers then decrease the product price for selling these manufactured goods. As a result, price declines and comes back to original equilibrium price Pe (Cournd et al., 2015). Similarly, if the price level of the good declines from Pe to P2, then its quantity demanded increases. Therefore, the retailers gains low profit owing to fall in price. As a result, they plans to reduce the commodities supply, which causes excess demand in the market indicated by DC. however, the retailers now strategizes to produce more goods for meeting the demand in the market. Thus, market adjustment process continues until the price restores i nitial equilibrium price Pe. This is termed as free market equilibrium in microeconomic stability. Macroeconomic stability illustrates the stability for the whole economy. It is usually measured by key economic indicators namely, GDP, fluctuation in level of product price, variation in unemployment level, balance of trade etc. Economic stability is also analyzed from the AD-AS model. AD represents aggregate demand while As signifies aggregate supply of the commodities in the nation. Both the national income and price level of commodities aids in measuring economic stability. Moreover, variation in AD and AS leads to fluctuation in price and real GDP of the economy. This is explained in the diagram given below: Assessing stable equilibrium in Australian economy Australian government takes economic decision based on the market operations as the economy is featured as market capitalization (Sutherland and Hoeller, 2012). Change in level of product price in Australian or international market. However, the retailers manufactures commodities and sets the price according to this signals sent to the producers. It has been opined by (Sutherland and Hoeller, 2012), GDP growth rate and rate of inflation facilitates the economist to assess whether Australian economy is at stable equilibrium. GDP is considered as one of the best macroeconomic indicators that help the economist in assessing health and stability in the economy. According to the data produced by Australian Bureau of Statistics (ABS) , it has been noted that GDP of Australia has shown stability for over the last few years(Fontana and Setterfield , 2016) Though slight fluctuation in its GDP occurs, it does not influence the Australian economy. The figure below denotes that GDP of Australia has recorded the highest in 2013 , which was $1567.18 billion. After this year, its GDP declines gradually but drastic situations is not recorded since now. Price level of commodities is evaluated by the consumer price index (CPI). Recent data also reflects that inflation rate in this nation is also stable like its GDP growth. The figure below reflects inflation rate of Australia for last few decades. Instrument adopted by the Australian government for stabilization Australian government adopts various stabilization policies that is monetary and fiscal policies by utilizing stabilization instruments. These instruments are: Automatic stabilizer Discretionary stabilizer The government of this nation uses this instrument for designing the tax structures or other purchases. Although federal policies implemented by Federal Bank are not directly affected, aggregate demand is influenced counter cyclically (Corsetti et al., 2013). Based on the present economic health of Australia, the government designs the budget accordingly. Tax receipts including GST, PAYTG and excise tax are used under this tool. It is also termed as structural stabilizer. The Australian government uses this instrument in order to introduce new tax or change the existing tax , declining government expenses in industries like defenses, housing etc. Moreover, it helps the government in implementing the policies that helps the economy in recovering from bad economic conditions. Conclusion It concludes from the above assignment that currently Australia has stable economic equilibrium. The GDP slightly expanded over the years and thus remains stable. On the other hand, inflation rate of Australia declined slightly but remained within the target level set by the Reserve bank of Australia (RBA). Still government intervenes in the market by implementing stabilization instrument in order to keep price level low and attain stable economic equilibrium. References Australia GDP | 1960-2017 | Data | Chart | Calendar | Forecast | News. (2017).Tradingeconomics.com. Retrieved 13 September 2017, from https://tradingeconomics.com/australia/gdp Corsetti, G., Kuester, K., Meier, A., Mller, G. J. (2013). Sovereign risk, fiscal policy, and macroeconomic stability.The Economic Journal,123(566). Cournde, B., Garda, P., Ziemann, V. (2015). Effects of Economic Policies on Microeconomic Stability. Fontana, G., Setterfield, M. (Eds.). (2016).Macroeconomic Theory and Macroeconomic Pedagogy. Springer. Garda, P., Ziemann, V. (2014). Economic Policies and Microeconomic Stability. Sutherland, D., Hoeller, P. (2012). Debt and macroeconomic stability: An overview of the literature and some empirics.