Economic Policy and Personal Decisions Research Paper

Economic Policy and Personal Decisions - Research Paper ExampleIn the long run equilibrium, the economic growth is leechlike on three factors the growth in labour force, amount of capital available to the workforce, and the rate of technological advance. If we consider, an economy where the aggregate demand is due to an summation in spending, Cashell observes that this demand can be satisfied by either raising the prices or increasing real production. If the economy is operating at integral employment, and the stock is at full capacity then an increase in demand is met by an increase in the prices of available goods and services. Cashell states that, for a fully engaged economy, increased government spending does yield an increase in the nominal GDP (2005). Let us consider the wage. This forms a main element of damage in the economy of any country. A higher wage rate does translate into a higher cost this means a less benefit will be incurred at any given price. A squeezed prof it for any company means a cut back on production. A wage increase in any economy would mean a decrease in the number of goods and services supplied at a constant price. During a recession, the economy is a short-run equilibrium. In such an environment, it is difficult for the wages to be increased however, this can be counteracted by a fall in prices, and thus the recessional gap can be seen as shrinking. This led the economy to equilibrium at full employment. Cashell concludes that if wages and prices fall unusually late then it is possible for the economy to endure a prolonged period of production below potential GDP (2005).