Economics
Most particularly, I discuss the economic concept of demand and supply and the determinants of both supply and demand. Further, I also discuss in significant detail the meaning of economic indicators as well as monetary and fiscal policy.
Demand and Supply
Supply and demand are considered some of economics’ most fundamental concepts. Indeed, they underlie almost every transaction in a market economy. In basic terms, demand according to Boyes and Melvin (2012), is “the amount of a product that people are willing and able to purchase at each possible price during a given period of time” On the other hand, supply as Boyes and Melvin (2012) point out can be described as “the amount of a good or service that producers are willing and able to offer for sale at each possible price during a period of time” It is the interrelation between these two important economic concepts that brings about the efficient allocation of resources. With that in mind, it would be prudent to come up with a concise definition of the law of demand as well as the law of supply.
The law of demand according to Boyes and Melvin (2012) points out that “the quantity of a or service that people are willing and able to purchase during a particular period of time decreases as the price of that good or service rises” The reverse is true. This essentially means that people are more likely to avoid purchasing a given good or service when the opportunity cost of purchasing the same is driven up by escalating prices. On the other hand, the law of supply in the opinion of Boyes and Melvin (2012) points out that “the quantity of a well-defined good or service that producers are willing and able to offer for sale during a particular period of time increases as the price of the good or service increases” In this case, the reverse is also true. One of the main reasons why producers of goods and services tend to pump more of their goods into the marketplace when the prices of the same are higher is because the high prices in this case enable them to rake in more revenues. The amount of goods buyers demand is determined by several factors which include but are not limited to the disposable income of buyers as well as their tastes, the prices of other goods that are related to the goods in question and future expectations regarding the price or scarcity of the goods in question (Boyes and Melvin 2012). The amount of a particular good supplied in a given market can also be determined by a number of things. These include but they are not limited to the prices of other goods that are related to the goods in question, the actual number of suppliers in the marketplace and the expectations of such suppliers in regard to the demand of the said goods going forward (Boyes and Melvin 2012).
Economic Indicators
In some cases, a turning point in economic activity is foreshadowed by certain events. In most scenarios, economists can anticipate a coming recession by of changes in economic indicators. Some of the things which can be indicators or signs of an imminent recession include but they are not limited to decreased activity in the stock market, depressed business activity, a significant decrease in consumer confidence etc. These are what are referred to as economic indicators.
According to Wessels (2006), the U.S. Department of Commerce every month puts together “a Series of economic indicators, including the , coincident, and lagging indicators.” In the opinion of Boyes and Melvin (2012), leading indicators are typically used in forecasting real output changes. On the other hand, coincident indicators typically change with changes in real output. Boyes and Melvin (2012) define the latter group of indicators as “variables that tend to change at the same time as real output changes.” Lastly, we have what are commonly referred to as lagging indicators. This group of indicators are typically not expected to change before changes in real output take place (Boyes and Melvin 2012). They hence tend to ‘lag’ behind as changes in real output take place.
Monetary and Fiscal Policy
To enhance the stability of the economy, the government uses a number of tools. Some of the tools at the disposal of the government in this case are the monetary and the fiscal policy. Prior to the great depression, the government did little to manage the economy. The approach that was adopted in this case was referred to as laissez faire. However, after being hit by one of the worst downturns in economic activity i.e. The great depression, the government started to adopt a number of measures in an attempt to enhance the stability of the economy.
In basic terms, fiscal policy has got to do with the attempt by the federal government to influence as well as monitor the economy of the nation by way of varying its spending level. On the other hand, monetary policy largely concerns itself with the control of money supply growth rate. The two components of fiscal policy according to Boyes and Melvin (2012) are automatic stabilizers and discretionally fiscal policy.
Conclusion
In conclusion, it can be noted that in regard to fiscal and monetary policy, the role the government plays in trying to maintain the stability of the economy cannot be overstated. This is more so the case given the need to ensure that the prices of goods and and employment is maintained at reasonable levels.
References
Boyes, W. & Melvin, M. (2012). Economics (9th ed.). Mason, OH: Cengage Learning.
Wessels, W.J. (2006). Economics (4th ed.). New York: Barron’s Educational Series.
