İKTİSADA GİRİŞ II

There are three basic indicators related to health of an economy, thus within the field of macroeconomics: Unemployment rate, inflation rate and output growth rate. Each government should watch these indicators carefully. On the other hand, since these indicators closely affect our daily life, a large part of the society cares about them and also policies affecting them, especially the ones for controlling the unemployment and inflation rates at reasonable levels and enhancing the volume of production. However, while lower unemployment, lower inflation and rapid production growth rates are clear targets, it is not always possible to achieve them at the same time.

The unemployment type having the least negative effect is frictional (incidental) unemployment which is partial and temporary, and occurs when changing location and occupation. Most typical temporary but widespread unemployment types are cyclical and seasonal unemployment. Cyclical unemployment is the unemployment caused by the recessions occasionally occurred in economic life. In agricultural countries, most common type is seasonal unemployment. Two unemployment types which are partial but permanent are known as regional or sectoral unemployment and technological unemployment. As becoming not favorable anymore, a region or a sector faces with a contraction in production, thus causes unemployment. Switching to a capital-intensive technique in a region where a labor-intensive production method has been implemented for a long time makes the labor used unnecessary and this causes technological unemployment. Structural problems and long-lasting recessions cause both widespread and permanent types of unemployment. In periods when the economy with its whole sectors stays in a stagnation permanently, the structural unemployment occurs. When a developed economy is in economic recession, various reasons may cause many people to lose their jobs and income. This is the kind of unemployment as a result of permanent economic recession.

The unemployment type having the least negative effect is frictional (incidental) unemployment which is partial and temporary, and occurs when changing location and occupation. Most typical temporary but widespread unemployment types are cyclical and seasonal unemployment. Cyclical unemployment is the unemployment caused by the recessions occasionally occurred in economic life. In agricultural countries, most common type is seasonal unemployment. Two unemployment types which are partial but permanent are known as regional or sectoral unemployment and technological unemployment. As becoming not favorable anymore, a region or a sector faces with a contraction in production, thus causes unemployment. Switching to a capital-intensive technique in a region where a labor-intensive production method has been implemented for a long time makes the labor used unnecessary and this causes technological unemployment. Structural problems and long-lasting recessions cause both widespread and permanent types of unemployment. In periods when the economy with its whole sectors stays in a stagnation permanently, the structural unemployment occurs. When a developed economy is in economic recession, various reasons may cause many people to lose their jobs and income. This is the kind of unemployment as a result of permanent economic recession.

As widely seen in written and visual media, everybody has an idea about inflation more or less. Inflation is the general increase in all prices in the economy. However, it is necessary to separate the increase of a single good’s price from the increase of all goods’ prices (general price level). As you remember from microeconomics, the price of a single good may change due to fluctuations of that good’s supply and demand. If there is an increase in a single good’s price, it is not correct to consider this as inflation. If the prices of most of the goods and services in an economy (namely average price level) increase, then inflation occurs.

One of the basic indicators used in assessing the performance of an economy and the general economic conditions in a country is the country’s total production, more correctly the rate of change of this quantity according to the previous period. Total production is the total of all goods and services produced in an economy for a given period of time. The rise in the capacity of economy to produce goods and services is called as economic growth. On the other hand, economic growth can be defined as expansion of production possibilities of a country. In this case, economic growth can be considered as outward shift of the country’s production possibilities frontier.

One of the government’s tools to affect the economy is to collect taxes and to make expenditures, i.e. fiscal policy. A government collects taxes from households and businesses and uses these funds in a changing scale from producing weapons to building parks, from paying pensions to building highways. The scale and composition of these taxes and expenditures have a significant effect on the economy.

A government can affect the quantity of money in the economy via the central bank. One of the most discussed topics in macroeconomic theory is the role of monetary policy for ensuring economic stability and affecting the economic conditions. However, today many economists accept that the amount of money in an economy affects general price level, interest rate and exchange rate as well as its effects on unemployment and production. The points discussed are related with how the effects of monetary policy emerge and what the magnitudes of these effects are.

There are three appearances of gross domestic product as income created, earned and spent. These different approaches to GDP are like looking at the same object from different sides; however, eventually defined object is the same. As we mentioned in previous topic, while GDP indicates the monetary value of all goods and services produced in a period of time, it also indicates the total of wage, interest, profit and rent earnings paid for production factors participated to production of these goods and services. On the other hand, considering the earned income is somehow spent, total expenditures in an economy should be equal to the value of created production. According to summarized three different aspects of GDP, it can be calculated in three different ways:

The consumption expenditures consist of expenditures paid for goods and services which may directly meet the daily needs. Consumption expenditures can be categorized as expenditures for durable consumer goods, nondurable goods and services. In this sense, for example, your food and clothing expenditures, money you have paid for gasoline for your car and for dishwashing machine, repair payment for waterworks of your house are consumption expenditures.

Investment expenditures consists of expenditures of businesses and government for new equipment, tools and buildings, increase in stocks and expenditures of individuals for building new houses. However, the investment amount calculated by this way can be considered as gross investment. A part of current factory and equipment used in production period of this calculation are worn (i.e., amortization is the issue). Therefore, in order to calculate net investment amount in the country, amortizations should be subtracted from gross investment amount. The obtained net investment value is a very useful measure indicating how much the capital assets in the country increased. If net investments are positive, due to increase in capital stock, productive capacity will rise. If net investments are negative, due to decrease in capital stock, productive capacity will decrease.