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INTRODUCTION

In present era it is important to understand all different aspects of economy and their effects as well. In this report we will define the definitions of all important aspects and understand different concepts related to economics. We will also analyze their impact on economics with relevant examples.

1) GDP and its relationship with standards of living

Real GDP

It is the concept of macroeconomics which shows changes in final output due to modification in price. It shows real growth of an economy. Nominal value of GDP shows all goods and services produced in a country within one year. Nominal GDP can be increased due to inflation but final output remains constant, to calculate real GDP rate inflation must be subtracted from nominal GDP so that the country can measure its real growth.

Standard of living

In simple words standards of living can be say all material goods which helps to raise comfortable level of a person on particular social economic environment. For economics, real GDP is divided by the total population of a country which is called as GDP per capita. This shows standard of living.

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Real GDP might be not a good indicator to define the standard of living of country. GDP is measured on the basis of final goods and services which are produced in a country within the specific time. It does not show the improvement in human life or environment conditions, education, pollution and especially in the underdevelopment countries. All theses factor also impact the standard of living of a country. Real GDP does not count on economic activities to measures standard of living.

2) Reasons of unemployment  

There are several factors which affect the employment rate. Unemployment is measured by total numbers of unemployed  workers divided by total labor force. Factors which affect the unemployment   rate  are given below..

Technology

Rise in use of technology reduces the contribution of human efforts. For instance, use of robots in automotive industry replaces unskilled labor force. By using technology in the industry, it increases number of unemployed people. However, it also increases demand for the services labor but demand is comparatively low than supply so unemployment rises.  

Globalization

There are lots of changes witnessed  after globalization. Companies are expanding their business from their home town to another country. This process allows the developing countries to exploit their natural resources and take advantages of competitive business environment. They also offer cheap labor cost to attract more export process. Like china who produced the cheapest  labor products to world and other country become more dependable on china. So other country reduced their home production and shifted to imported goods which increased  unemployment in other country.  

There are always some unemployment which are totally unavoidable because there are no relations of their employment  and econmoic conditions of country For example, a fresh graduate individual who is searching for job does not qualify because of its low skills and knowledge. In some country, labor force may be higher but potential workers are very low like china where number of aged people is more than potential workers so this situation also increases unemployment. In that case it is better to avoid unemployment.

inflation

Inflation is defined as increases in prices of goods and services in particular time. Inflation rate is directly related to rising prices. In economics where prices of goods and services are increases inflation is also increases but only rises in prices of household income or necessary goods. When demand for general goods and services is increases then prices also increases due to this inflation is also arises. For example when prices of goods start rising people expecting more inflation in future so they increase their consumption for goods and prices goes up. If interests rate is decreases then in market money supply is also increases. This also enhance consumer purchasing power in market so inflation is also increases.  There are mainly two type of inflation  demand pull inflation and cost pull inhalations witch  effect  by the rises in general price level of goods and services.

Inflation is not only affect the rises in prices of goods and services. If prices of goods are remains same but supply of money is increases since increases of production of goods and services. If money supply is perfectly matched with increases production of goods then general prices level remains same and inflation will not increase.

aggregate demand

Aggregate demand curve shows that total demand for goods and services in specific period. Aggregate demand curve shows all possible prices level of goods which can be purchased by the consumers.  

In macroeconomics,fall in general -price level is called deflation.When prices of goods and services are decreasing then demand curve slope downwards. The reasons behind downwards sloping of demand curve are recession. In recession, prices of goods and services are decrease continuously because of low purchasing power of consumers in the markets. For example, In UK during recession all retailers decrease prices of goods and services in their stores because of low sales in their stores. In order to increses sales of their stores . Sometimes, demand curve may be downward slope  because of technology is enabled to produced low price products to consumers.  Another reasons for downward sloping demand curve is import goods. Some country has low or more cheap labor power than other country like China who produces more low costs products as compare to other country so in importing country, competitions begins in local market to keep their prices low. It also causes downward sloping demand curve. The aggregate demand curve is also effect by different factors  as given below.

Wealth effect

Wealth effect is based on psychological phenomenon that explains consumers  spending habits in which a consumer spend more money on with increases in its wealth. Consumers spending powers is changes according to its wealth increases or decreases. Demand for some goods is also decreases with increasing in wealth for example consumers stop buying cheap products when their wealth increases (Hubbard and et.al., 2015). The wealth factors also effect demand in an economics.

Interest rate

According to this  concept when prices of certain goods and services increases then large amount of money require but when prices of goods are decreases then less money require when less money require then consumers put his money in bank as currency in bank increases so supply of loan increases at low rate  so consumers focus more on saving. The low interest rate decreases demand for investment thus prices level of goods also decreases so aggregate demand curve becomes downward sloping.

3) International trade effect

As decreases in interest rate domestic investment is no more profitable for local people they invest their money in foreign country to earn profit on investmencurve is also effect by different factors  as given below.

Wealth effect

Wealth effect is based on psychological phenomenon that explains consumers  spending habits in which a consumer spend more money on with increases in its wealth. Consumers spending powers is changes according to its wealth increases or decreases. Demand for some goods is also decreases with increasing in wealth for example consumers stop buying cheap products when their wealth increases. The wealth factors also effect demand in an economics.

Interest rate

According to this  concept when prices of certain goods and services increases then large amount of money require but when prices of goods are decreases then less money require when less money require then consumers put his money in bank as currency in bank increases so supply of loan increases at low rate  so consumers focus more on saving. The low interest rate decreases demand for investment thus prices level of goods also decreases so aggregate demand curve becomes downward sloping.

International trade effect

As decreases in interest rate domestic investment is no more profitable for local people they invest their money in foreign country to earn profit on investment. A real rate of exchange is decreases as supply of dollars increases as exports of country is also increases thus price level drops and aggregate demand is increases. So demand curve become downward sloping.

A real rate of exchange is decreases as supply of dollars increases as exports of country is also increases thus price level drops and aggregate demand is increases. So demand curve become downward sloping.

4) Long run and short run supply curve

Long run aggregate supply curve

In long run supply curve, it is assumed that there are no fixed factors of productions and only capital, labor and technology can affect aggregate supply curve and at this point in economy everything assumed remains constant. In long run, supply curve can be changed if production quality will be changed.

Long run supply curve is vertical

In long run supply curve is not agffect by the small changes. . LAS is vertical because at this point it shows potential output of an industry. For example, if in a country if there is rise in employment rate then the industry also raises its production even prices of inputs increases. Long run supply curve is vertical because of potential output is unaffected by prices level.  

Short run aggregate supply curve

It shows relationships between price level and output. It shows actual production willingness of produce by an industry during specific period in a country.  
 

Aggregate supply curve upward sloping

In short run, wage rate is fixed because higher prices of goods and services makes the  output more profitable and industry get low price labor for their production so supply curve is becoming more upwards sloping. At this point, industry hires low price products to increase their profits.

Conclusion  

From above report we conclude the all facts of economics and how does it affect economic of a country. We learn all important concept s about GDP and its relation with standards of living, long run and short run supply curve aggregate demand and its reasons of its downward sloping curve. From above report we also conclude about all important factors that can affect an economic.   

References

 

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