...The Principles of Economics – Markets and the Economy * Explain how an increased federal budget deficit resulting from a recession can actually help stabilize an economy. Before I can explain how an increased federal budget deficit resulting from a recession can actually help stabilize an economy, I most first explain what a budget deficit is. Arthur O’Sullivan, Steven M. Sheffrin and Stephen J. Perez (2011), authors of Survey of Economics: Principles, Applications, and Tools explain that the federal government runs into a budget deficit “when it spends more than it receives in tax revenues in a given year.” A government’s deficit can be measured with or without including the interest it pays on its debt. So “the total deficit is spending, plus interest payments on the debt, minus tax revenues” (Wikipedia, 2011, para. 2). To better understand budget deficit, let’s look at an example. If the government puts a budget together wishing to spend $150 billion that year but only receives $140 billion from revenues, they must make up the difference. They make up the difference by selling public government bonds, which is an IOU from the government promising to pay the money back at a later date with interest. Budget deficits can help to stabilize the economy because the government must maintain normal operations even though its income has decreased. Government’s expenses have to increase to cover the increase in welfare and unemployment payments. Such automatic fluctuations...
Words: 1844 - Pages: 8
...Markets and the Economy The economy is determined by the dynamics of the labor market. Since economics is the study of choices, macroeconomics is the study of the overall economic environment. Through understanding how the market affects the economy, this paper will research: how an increased federal budget deficit can stabilize an economy; how adjustments in wages and prices move the economy from short to long-run equilibrium; how marketable pollution permits lead to less costly abatement; and, how the GDP should include additional factors to achieve a better measurement for well-being. When the federal government spends more than it receives, a budget deficit occurs. On the contrary, a surplus will occur when income surpasses spending. Both deficit and surpluses can help to stabilize an economy. An increased federal budget deficit resulting from a recession can actually help stabilize an economy. This can be done through increased unemployment payments, decreased unemployment taxes, corporate taxes and personal income taxes. Each of these channels provides countercyclical policy automatic stabilizers. They promote a budget deficit during recession. People are laid off during a recession causing the unemployment payments to increase. Since people are not working, business unemployment compensation taxes are decreased. The result is higher governmental spending and lower tax receipts. On the same token, the corporate tax receipts on profits are cyclical to the...
Words: 1219 - Pages: 5
...involved in a market economy, the government influences four main areas in the economy which are; enforcing antitrust laws, preserving property rights, providing a stable fiscal and monetary environment and preserving political stability. Also the report will cover why there can never be a truly ‘free market’ economy, where there is absolutely no government intervention. Market Economy In a market economy, the majority of a nation’s land, factories, and other economic resources are privately owned, either by individuals or businesses (Wild, Wild & Han 2010:151). It is also an economy in which prices of goods and services are freely set based on the laws of supply and demand which are unfettered by interference from a government or other outside bodies. A market economy at its basic is an economy run entirely by the market itself (McGuigan 2003:1). In contrast to a market economy is one which follows the Keynesian principals which is an economic theory which advocates government intervention, or demand side management of economy by increasing money supply or by actually buying things on the market itself, they believe that this will achieve full employment and stable prices (Web finance 2010:1). Market economy has come to be accepted as a norm across the world with many developing countries like India and China moving towards a full market oriented economy (economy watch 2010:1). The social democratic government of Australia adopted the principals of market economy after the financial...
Words: 1842 - Pages: 8
...if there is not enough competition. In a mixed market economy, the government helps prevent monopolies and to ensure competition (Economics, pg 39). With the competition, motivation is created to strive to be successful. The goals that a mixed market economy is trying to accomplish are economic freedom, economic efficiency, economic equity and economic security. Theses are all advantages for economic success. (Economics pgs 41-43) The advantages are very numerous. The biggest advantage is the economic freedom the citizens have. Buyers and sellers have the freedom of voluntary exchange. Buyers and sellers freely decide whether to complete transaction of not. Another advantage is the competition from other business. The competition between companies creates a variety of advantages from consumers. The prices get lowered and there is more variety. The competition between businesses creates economic efficiency. Using resources efficiently produces more products and fewer wastes creating a larger profit. Another advantage is economic equity; this prevents discrimination in the work place. Economic security is an advantage as well. This protects people with disabilities or retirees. Also, there is a high degree of costumer satisfaction because of the freedom of the citizens and the people can adapt to changes. (Economics pgs 37-38) The government in a mixed market economy is limited but not as much as that in a market...
Words: 977 - Pages: 4
...scarce resources. Explain how resources are allocated in a free market economy? Scarcity is the availability of resources in limited amounts relative to unlimited nature of human wants that the resources are meant to satisfy. According to Richard G Lipsey It is the basic economic problem that is arises because people have unlimited wants and limited resources. Because of scarcity the economic decision must be made to allocate resources efficiently. When we talk of scarcity within an economic contest, it refers to limited of resources not lack of riches. These resources are the inputs of production land, labour and capital. People must make choices between different items because resources necessary to fulfil their wants are limited. These decisions are given up on want to satisfy another. Market economy enables mutual beneficial between producers and consumers and relies on markets to solve the economic problem, is called market economies. In a free market economy, resources are allocated through the market of free and directed forces of markets. This means that what to produce is determined by the consumers, how to produce is determined by producers and who gets the product is determined by the purchasing power. Markets economies work by allowing the direct interaction of consumers and producers who are pursuing their own interest. The pursuit of self interest is at the hand of free market economy In a free market economy resource allocation is determined by the price mechanism....
Words: 1122 - Pages: 5
...Markets and the Economy Kizzy Teasley Principles of Economics Dr. Onipede According to Arthur O’Sullivan, Steven Shefferin, and Stephen Perez in their text Survey of Economics: Principles, Applications, and tools; economics provides a framework to diagnose all sorts of problems faced by society and studies the choices we make when there is scarcity. (2011) Explain how an increased federal budget deficit resulting from a recession can actually help stabilize an economy. Periods of high economic unrest, such as a recession are marked by micro and macroeconomic turmoil. Increased Federal budget deficits are synonymous with economic recession. When the terms budget and deficit are used together one usually only thinks of the negative contributors to the budget deficit. However, an increased federal budget deficit resulting from a recession can actually help stabilize an economy. During periods of recession we see high unemployment rates and decreased per capita income. In order to pump life into a stagnant economy the government puts money into government programs such as unemployment insurance. Also during a recession tax revenues are decreased due to decreased per capita income. (http://www.nd.edu/~cwilber/econ504/504book/prob14.html) Decreased tax revenues and increased expenditures equates to an increased budget deficit. Yet, the actions of the government actually work to...
Words: 988 - Pages: 4
...“The market economy” by Marge Piercy, is a free verse with no rhyme or rhythm, and has very few poetic technics. Piercy was born in 1936, and grew up during the rise of capitalism in the United States. This suggest to me that her intended speaker is a mother in search of work during this time. The speaker could also be Piercy herself. The tone of the poem is consistent throughout. Piercy’s subject matter along with her choice of blatant words create a gloomy, depressing, and disheartening tone. I feel that this tone reflects the attitude American society had just after the Great Depression: “You’ve been out of work for a year and they’re hiring at the plastic factory” (26-27). Even though the tone is consistent throughout, there is a contradiction from the first stanza to the second stanza. Piercy uses mostly denotative words in “The market economy”, which she intends to be used by the dictionary definition. The only connotative expression in the poem is “Smog City” (23), referencing negatively to a capitalist nation full of factories that produce harmful, hazardous waste. The short poem is broken up into two stanzas. The first stanza states the harsh truth about the various health affects the capitalist economy can have on society. She argues that capitalism is harmful by giving examples in a hypothetical manner, but in reality, these things she is talking about really do happen. The contradiction of the first stanza comes in the second stanza when she...
Words: 342 - Pages: 2
...In the Poem “The Market Economy” by Marge Piercy the author offers us a very bleak outlook on the overt commercialism of our modern society and of the toxic damage caused by modern manufacturing. In each small example the author provides we are at first sold, or offered something by an unseen, unnamed “peddler”. (1) Then we are shown the consequence of accepting the peddler’s wares, both to ourselves and to the natural world around us. The author is showing us the cost of all of our modern goods, and while the TV set might not reach out and grab your baby’s spine and twist it all up, the toxins created during its manufacture certainly will.(1-4) Just as the manufacturing of polyvinyl cups and polyester suits(5-8) emits dangerous toxins such as vinyl chloride, chlorinated di-benzo dioxins and hydrogen chloride.(EPA) All of which will cost you a lung and might also create cancer in humans. Even the nice new suburban house comes with a cost, you must work at a dangerous factory in order to pay for it, but then you “die at fifty-one when your kidneys turn off.” (19-20) the point the author is trying to make is that we are ultimately paying for all these new items with our lives. They are new, shiny and great, but they leave a wake of environmental devastation behind them. A wake that we all live in and are affected by whether or not we take part in the commerce that created it. The last verse it the authors attempt at telling us that the world is closing in around us. She...
Words: 716 - Pages: 3
...increase in federal budget deficit due to recession can stabilize the economy. A deficit means that the government spends more than it receives in tax revenues in a given year (O’Sullivan, Sheffrin, & Perez 2010, p. 374). The total deficit is spending, plus all the interest payments on top of the original debt, minus the total tax revenue (http://www.blurtit.com). There are three factors, known as automatic stabilizers, that affect and stabilize the economy, they are: 1) government purchases of goods and services, such as public safety, government transfer of payments, and unemployment insurance, 2) Medicaid or Medicare etc.,and 3) the collection of taxes. If the government cut taxes or increases transfer payments such as unemployment insurance and food stamps this helps to offset the decrease in household income. Additionally, when government cuts corporate taxes, it helps prevent businesses from cutting expenses as much as they would during a recession. Therefore, an increased federal budget deficit can help stabilize an economy for as households’ disposable income rises they will spend more. Fortunately, mechanisms such as automatic stabilizers are in place to neutralize the ups and downs of the economy without having to change laws (O’Sullivan, Sheffrin & Perez 2010, p. 375). How do adjustments in wages and prices take the economy from the short-run equilibrium to the long-run equilibrium? ...
Words: 1054 - Pages: 5
...Markets and the Economy 1. Explain how an increased federal budget deficit resulting from a recession can actually help stabilize an economy. 2. Describe how adjustments in wages and prices take the economy from the short-run equilibrium to the long-run equilibrium. 3. Explain why a system of marketable pollution permits leads to less costly pollution abatement and a higher concentration of polluted areas than a command-and-control system. 4. Although GDP per capita is the most commonly used measure of a country’s success, many economists believes it does not give an accurate measure of a nation’s economic well-being. Some studies have concluded that that GDP is not the best measure of well-being, and although it may be the best available on a timely basis, other factors need to be considered in addition to GDP to give a more accurate picture of economic well-being and the disparity of well-being between nations. Clearly identify at least three such factors that in your view should be included in the GDP calculations. Explain and illustrate how they will help to improve the GDP as a tool for measuring the well-being of a nation. Describe the impact of public goods and externalities on the functioning of an economy. • Use the dynamics of the labor market to anticipate wage rate and labor supply changes. • Analysis of the key macroeconomic phenomena: GDP, unemployment, inflation. • Use technology and information resources to research issues in economics Solution: 1) Explain...
Words: 1054 - Pages: 5
...Market Economy What would it be like if both US and Canada benefited from a market economy? I think it would be great. People could have a better working environment which means better work. Market economies doesnt have alot of government involvement and individuals can benefit very well. They could make their own decisions and help form their own economy. You get freedom of choice and you can own private property without the government breathing down your neck. The only bad things about a market economy are costs for individuals. Canada and US could have the same economy but they would benefit differently. Canada and US both have different governments, but if we had the same economy we could easily flow better. Government is good for showing...
Words: 889 - Pages: 4
...Competitive Markets Economy Competitive Markets Economy A market which converges all of below assumptions is called perfectly competitive market: ''Assumption 1. All the firms in the industry sell an identical or homogeneous product. Buyers of the product are well informed about the characteristics of the product being sold and the prices charged by each firm. Assumption2. The output of each firm, when it is producing at its minimum long-run average total cost, is a small fraction of the industry's total output. Assumption3. Each firm is a price-taker. This means that each firm can alter its output without significantly affecting the market price of its product. Assumption 4.Each firm must passively accept the existing market price, but it can sell as much as it wants at that price. Assumption5..There is freedom of entry and exit, which means that any new firm is free to enter the industry and start producing if it so wishes, and any existing firm is free to cease production and leave the industry. Marginal cost and marginal revenue in the perfectly competitive market where all firms operate under the same cost conditions, marginal cost is considered as the most important factor after price that affect the supply curve, and firms that cannot adopt the lowest cost methods of manufacturing are hard to maintain in this market. The goal therefore of all firms is to maximize their profits which increases as long as marginal revenue...
Words: 1367 - Pages: 6
...Market Driven Democracy The first fifty years of the 19th century set the terms of the United States' economic and democratic systems. The interweaving of politics, commerce, trade, and society began in this time and those first bonds formed still effect United States life today. This connection between economics and life is rooted in the emergence of the market economy, which served to establish the ideals of American “democracy” that we connect with now. This divergence from the former moral economy served to make the United States actually less democratic, forever establishing an upper class of owners and forming social roles about race, class, gender and family that encouraged inequality and persist today. This establishment of inequality is exemplified in the images of work attached to the prompt, and show how these roles were seen and formed within the culture. The image of the Erie Canal Workers shows the change from an earlier ideal of American life and labor, where ones labor was to be used to work and cultivate your own land to sustain your own living. This image of the Erie Canal workers shows the exact opposite of this self owned concept for labor. All of these men are essentially being used as machines, good for nothing but labor, to work and make use of the land owned by someone else, for someone else's profit. The fruits of their labor would not be actual fruits as they might previously have been, but a monetary amount, to be budgeted as best as possible to...
Words: 1807 - Pages: 8
...Proceedings No. 21 Of the Agricultural Policy Forum on Social Market Economy In the Context of National & International Challenges Prepared by Mrs. Nawal Nehme Info-Com Division Held in Damascus on 13 April 2006 With the support of Table of Contents Introduction ...................................................................................................................................... 3 Synthesis of The Presentation .......................................................................................................... 3 Summary of Discussion ...................................................................................................................12 Annex (1) List of Participants .......................................................................................................... 15 Annex (2) Slides of The Presentation ..............................................................................................18 Proceedings No. 21– Social Economy Market 1 2 Proceedings No. 21 – Social Economy Market Introduction The workshop “the Social Market Economy in the Context of National & International Challenges” was the first activity of the 2006 Agricultural Policy Forum series organized by the National Agricultural Policy Center (NAPC) with the support of the FAO Project GCP/SYR/006/ITA. Dr Isam El-Zaim, Director General of The Arab Center for Strategic Studies and Head of the Syrian Economic Scientific Association, presented...
Words: 7769 - Pages: 32
...The free market economy is defined as where the price of things is determined by supply and demand. The United States Government just has a few rules or regulations for companies producing products. Supply and demand is a huge factor in a free market economy it decides how much of something should be made, how much, who gets to buy the product or, how much to sell it for. When companies decide how to produce fans they look for the cheapest and best way to produce it so, they can make a profit when they sell it for a higher price than what it took to make it. Such as the labor and materials to make it. For example, if ice cream is in high demand then the prices for leather materials will most likely go up. They prices will both rise because...
Words: 512 - Pages: 3
