Custom «Interpreting Macroeconomic Conditions» Essay Paper Sample

Interpreting Macroeconomic Conditions

In the analysis of the presented data, the income is increasing. Holding all factors constant it is assumed that, national output is equal to national expenditure which is also equal to national income. It is also held that a macroeconomic model has injections and leakages. An increase in income implies that the economy is getting more injections as opposed to leakages. In this context, injections are investment and tax among other factors that cause increment in the national income. On the other hand, leakages are savings among others. Looking at this situation form personal income view point, an increase income means that the wage rates are also increasing (Frumkin, 2005). The people in such an economy have money to spend on goods and services. Therefore, the consumer basket increases. Consumption thus increases in the short term which in turn increases the product sales.

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With reference to the data presented in this case, interest rates have experienced both increase and decrease. At the current level, the interest rates are predicted to decrease. Whenever money is guaranteed to be paid at a later date, a rate of repaying back is applied. This is what is known as an interest rate. In a capitalist society, this is central to financial operations between banks and other business. The deferment of payment in this context is covered by an interest rate (Tainer, 2006). In turn, the borrower ends up paying more than what he/she had borrowed. Since interest rates are crucial tools in devising monetary policies, they are major determinants of investment, unemployment and inflation in an economy. Since the interest rates are decreasing, the economy will experience a boost in the short term. However, this boost will be offset by inflation. Though the wage rates are increasing, consumers will be able to buy fewer good even with the increased income. Further, this implies that investors are at risk of losing if they invest and this will lower the national income as this is an injection to it.

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By looking at the consumer confidence, an economy can be seen as to move forward or backward. This is because consumer confidence is an economic indicator that assesses the level of optimism that the consumers in an economy feel with regard to the overall outlook of the economy as well as their individual financial position. Citizens of a country that promises a brighter future for them feel secure and they have no cautions to take when into comes to financial concerns. This confidence is seen in their manner of spending and saving. In cases where the economy has a high consumer confidence, its citizens show more spending behaviour than saving (Arnold, 2008). The impact of this in macroeconomic is that an economy experiences an economic expansion which can otherwise e termed as economic development.

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Therefore: Consumption > Savings. At equilibrium and at ceteris paribus, consumption should be equal to savings.

On the contrary, low consumer confidence shows that consumers are saving more than what they consume, hence the contraction of the economy. This implies that the economy experiences a negative rate of economic growth.

Therefore; Savings > Consumption

In addition, a decrease in consumer confidence shows that, the consumers have negative feelings towards the current economy. This is exactly what will happen to this economy as the consumer confidence is decreasing. It is cruel also to look at Consumer confidence Index which is abbreviated as CCI. It is used to evaluate the overall wellbeing of an economy and the consumer's confidence as well as the spending power of a country's population/consumers (Dornbusch, 2006).

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Although, a consumer price index (CPI) looks at the average price of consumers' basket, it also measures the level of inflation. It tries to estimate the price of the goods and the services that a house hold can buy. Additionally, it can be used to tell the living standards of people in an economy. It is through the living standards that are determined by the per capita income as well as the nature of income distribution that a country's economic well being can be defined. Following the data in this analysis, consumer price index is increasing. It also tells the purchasing power of a nation. Since it is increasing, it implies that in the short term, the people will be enough income to maintain their consumption regardless of the price of the commodities will increase or not.

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