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ECON309 S2 2019 RESEARCH ASSIGNMENT
Table of Contents
Issues    3
Analysis    3
Position    5
Critique    6
References    8
Issues
The business cycles in short term and economic growth in long term are explained by the most important aggregate indicators of macroeconomics such as unemployment rate, GDP, price index, interrelations and national income in various sectors of economy in order to have a better understanding of the development models of economy functions. According to Glazyev (2015), the stability of a country determines its economic growth and the lower coefficient of the variation of the real GDP growth. The better is the credibility of inflation target, better is the space for flexibility provided for the monetary authorities.
The capital inflow and outflow should be accelerated to ease the pressure on exchange rate produced from high commodity prices. The investment along with export and import are trading and accelerating in the domestic market, with domestic consumption being the vital part of GDP growth reflects the volatility of GDP. Increase in inflation affects the cost of doing business, the cost of living, mortgages, borrowing money and all the interlinked facets of economy. With controlled, lower inflation, consumer will have more buying capacity, which helps in the growth of the economy.
Every country has seen rising and decline in the inflation rate, which has either boosted or adversely affected the country on massive basis. The increase in globalisation has resulted in tremendous growth in inflationary trend. Due to the stability in inflation, investors try to invest more and growth in the business sector is seen growing rapidly. The stability in the unemployment rates also avoids the situation of increase in aggregate demand than supply, which would lead to increase in prices, and as companies looks to maximise profits, the company will have to increase in wages due to tight labour market.
The effect of inflation is not linear during increase in inflation, which results in increase in GDP, which is not positive for the country as it focuses on short run and the value of the money decreases. With decrease in inflation, the consumption reduces, which results in reduction in investment, the base rates in banks reduces due to lower repo rates and the lending rates thus reduces too as bank has the maximum cash present with them. This adversely affects the domestic business in the market.
Analysis
Due to the depreciation in the exchange currency rates, when nominal interest rates are often controlled, it discourages saving as the real rate of interest becomes negative, in this situation inflation could also hamper the economic growth and the real tax collection do not keep up with the inflation, which discourages the potential investors. As noted by Korkmaz (2015), the cross-country business has always been effected by the macroeconomic stability due to the variability in the exchange rates, which has resulted in the export and import of goods in the market.
Macroeconomic stability is very difficult to quantify as accordingly organisations can plan their marketing, borrowing, improvements, expansion strategies and recruitments. Inflation rate in fluctuations have always resulted in accelerating economic growth, debt problem and lifting wages. Inflation is standardly measured by the consumer price index, which consists of basket of elementary good and services, which consists of home as well as real estate business. As commented by Bernanke et al. (2018), the inflation rate until 6% have a positive impact in the economy and the inflation rate of 10% have negative impact in the growth.
The inflation and its variance has negative impact on growth that is, it is inversely proportional to the economic growth. The poor macroeconomic policy of a country is measured by the fiscal balance and real exchange rate volatility. Therefore, the inflation is major issues for most of the economies. There should be little inflation, which is sufficient to push the economy forward. However, the same should not exceed a benchmark as it may lead to collapse of the economy. The government should take steps like controlling the repo rate and other to control the inflation in an economy.
The economic growth largely depends on maintaining export competitiveness and...