JACQUELINE HOWELL

AC 1011244

C11E - MACROECONOMICS

ASSIGNMENT 04

MAY 17th 2018

PART A

1. DESCRIBE THREE (3) WAYS WE CAN USE MACROECONOMIC ANALYSIS, WITH ONE (1)

ORIGINAL EXAMPLE FOR EACH WAY

Macroeconomic analysis is the process whereby economist and financial analysts are able to

make informed assessments of an economy by compiling information gathered on different

economic factors of the economy. These factors included the national income, unemployment,

government economic policies and general work on the economy. The investment into

macroeconomic analysis is beneficial to any economy as it makes it possible to predict future

trends which in turn can help in the growth of the economy.

One of the first uses of macroeconomic analysis is to understand how a national economy

works and to enable analysts to judge the relative progress of the economy to ensure continued

success. This would be done by using the economy’s Gross Domestic Product (GDP) to

determine the stability of the economy. If the GDP is stable that would mean that demand for
the product of the economy are higher than the supply and as such the economy can look to

reducing inflation and unemployment by increasing supply.

Another use of macroeconomic analysis is to understand and implement economic policies.

Without having the necessary information on the analysis of the economy, Governments would

be at a loss or make incorrect decisions which can be economically fatal to all. These policies,

monetary or fiscal, can have direct effects on the economy’s GDP. A simple example is of the

governments realizes that an increase in economy is needed, they could decide to implement a

monetary policy which would make the central bank increase the cash in the economy which

would in turn reduce interest rates which would allow business and persons to borrow more

which would increase disposable income and spending which would increase levels of

production, raising wages and reduce unemployment.

For businesses, macroeconomic analysis allows for making informed decisions on the economic

future. Business would have to ensure that they fully understand where the economy is

currently and where it is expected or reach in the near future. This understanding would ensure

that businesses do not accidentally increase prices when capital expenditure is low so as to add

to the pending increased inflation.

2. YOU ARE RUNNING A SMALL YARD MAINTENANCE BUSINESS FOR THE SUMMER. WHAT

DO YOU EXPECT TO HAPPEN TO THE NUMBER OF YARDS YOU CAN MAINTAIN IN A DAY AS
 YOU ADD WORKERS IF YOU DON’T PURCHASE MORE CAPITAL EQUIPMENT (LIKE MOWERS

AND LEAF BLOWERS)? PROVIDE AT LEAST TWO (2) SUPPORTING FACTS TO SUPPORT

YOUR RESPONSE.

For a small yard maintenance business, each worker, inclusive of myself, would be able to

provide a certain amount of output which would be used to maintain a fixed number of yards. If

more workers are added without the investment of more capital, The Law of Diminishing

Returns would start to take effect. The Law of Diminishing Returns is the concept whereby the

level of benefits gained by the increase of one input whilst all others remain constant would at

some point become progressively smaller.

By using this concept for my small yard maintenance, it would mean that if three workers can

complete six yards (2 yards each) the addition of fourth worker would mean that we can still

only complete six yards as the use of the equipment to complete each job is limited. This would

reduce the output to less than two yards per worker. It would also alleviate worker burnout as

due to the additional help received, the workers are allowed a rest period until equipment

needed is made available.

PART B

1. USING THE REAL BUSINESS CYCLE THEORY, EXPLAIN TWO (2) EFFECTS OF AN ADVERSE

TECHNOLOGY SHOCK ON THE LABOR MARKET AND ON THE OUTPUT MARKET.

The Real Business Cycle Theory (RBC Theory) is an evolution of the classical macroeconomic

models which believes that fluctuation in a business cycle, which are short term in nature, are

the result of the economic cycle responding to changes in the economic environment and are

natural occurrences in the life cycle of a business. These fluctuations have ripple effects that

cause changes in the labor and output market.

As is seen in all business, an increase in technology either though investment of capital or

upgrading of existing capital would cause a subsequent increase in production which increases

total output. Due to the increased revenue from the increased outputs of the business, further

investment can be made into increased wages. The ripple effect of the technological shock is

increased production and outputs and an increase in employment to properly manage said

output thus reducing the voluntary unemployment in the economy.

2. SUPPOSE YOU WERE INTERESTED IN INCREASING TECHNOLOGICAL PROGRESS IN YOUR

COUNTRY. SUGGEST TWO (2) WAYS TO DO THIS.

Technology is important for the advancement of any country. If I were able to champion the

cause for technological progress in my country my first focus would be the implementation of

the increased use of technology in schools which would have an effect on how much children

learn and how quickly the material is understood ,as most children now a days have a very

short attention span and are visual learners. As such by tailoring the means of sharing
knowledge would ensure that the children are able to fully understand, in their own way, what

is being taught. Which would in turn increase the number of persons qualified for positions

which would eventually cause an increase in output of businesses.

REFERENCES

 Wikipedia – www.wikipedia.com

 Economics: Principles, Applications and Tools, 8th Edition (O’Sullivan, Sheffrin & Perez)