Saturday, November 1, 2008

Macroeconomics Discussion Board 1

1.       Discuss the differences between Microeconomics and Macroeconomics. Which one focuses on Monetary and Fiscal Policy? Explain.

Microeconomics studies how individual market participants make choices, and how they are influenced by market forces. Macroeconomics views the economy as a whole focusing on such things as business cycles, employment, consumption, growth, and inflation.  Of the two, macroeconomics focuses on monetary and fiscal policy. Policies such as this are created by the government, and aim to have effect on the economy as a whole. The usual purposes of such interventions would be to encourage growth, stem inflation, and work towards the goal of full employment. 

2.      What is the dual role of the household in the Circular Flow of Economic Activity? How does competition benefit the consumer? (Using Wal-Mart and Exxon-Mobil as examples, how do they affect consumers) Feel free to cite examples...hint: Wal-Mart vs. Mobil Exxon: compare their respective profits from last year

The role of the household in the Circular Flow of Economic Activity is to consume, feeding firms with consumer expenditures, and to provide productive resources to firms. Competition benefits the consumer because it yields better and more efficient goods and services, and it keeps prices lower.

Wal-mart and ExxonMobil are not good examples of competitive firms. Wal-Mart has very few competitors on the national scale, and even fewer on the local stage. Wal-mart has virtually eliminated all of its direct competition, particularly on the local level. It maintains steady profits and consumer expenditures because it keeps prices very low. Households are affected by having limited choices of venues to shop for low cost products. They are further affected when small businesses are forced to close their doors due to the inability to compete.

ExxonMobil is worse example of a competitive firm. ExxonMobil is part of cartel-esque system of oil companies that were formerly part of the Rockefeller controlled Standard Oil.  After the break-up Standard Oil of New Jersey became Exxon, and Standard Oil of New York became Mobil. Now they are back together again. In looking at their profits from last year, they did exactly what you would expect: made billions. As it relates to the consumer, ExxonMobil’s position is safe. They will continue to see a huge influx of consumer expenditures as demand for gasoline increases with few alternatives.

3.      Referring to the circular flow of economic activity from the lecture, discuss the various rewards paid to the productive resources. What are the productive resources? What happens if they are underpaid or overpaid?

The productive resources are labor, capital, land, and the entrepreneur. The rewards to productive resources are paid in the form of income. Income can be further classified as wages, interest, profit, and rent.  Wages to labor, interest to capital, rent to land, and profit to entrepreneurs.

What happens to productive resources if they are overpaid or underpaid depends on the situation. For example, if labor is underpaid, they may strike and agitate for higher wages. If they are overpaid, their jobs might wind up offshore to people willing to work for less. If rents are high (overpaid), people may choose not to rent land until the prices contract. If an entrepreneur is overpaid, he may reinvest his extra earnings in his business. If he is underpaid, he may not renew a contract.


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