Fundimentals of Economics

FUNDIMENTALS OF MACROECONOMICS

Bryan Scroggins

Sangeeta Bishop

ECO 372: Principles of Macroeconomics

There are many factors that influence the short and long run growth of the economy. Long run growth is established when there in an increase in production, quality of goods produced, and resources. The growth analysis focuses on supply and follows the theory of Say’s Law, which means supply creates its own demand. Short run growth is the potential output is fixed as economist try to get the economy running at its full potential.

There are many factors that affect the growth of a successful economy. Natural resources and the labor market are two that have the most influence. For example, consumers buy groceries and other resources from producers (farmers, breeders, etcetera). If the cattle farmer’s cattle get sick and his stock decreases then the price of beef and milk may go up. If the farmers who provide corn and other food items, have a bad crop or drought, this takes a big toll on the market. The price of the goods will increase and the average consumer may not buy as many groceries and spend less at more expensive grocery stores. Companies feel this change in the economy and may try to adjust to appeal to consumer (sales, discounts, coupons) to shop at their stores. Also, the price of oil has a big effect on how people react to the economy as well. The United States has a 727 million barrel oil reserve, the SPR (Strategic Petroleum Reserve) which can help regulate gas prices. The government tapped into those reserves during the gulf war and during Hurricane Katrina in 2005 (The New York Times). This could affect how much people travel during the year as the prices of fuel decrease, the more people are likely to travel more.

The labor market is another thing that affects the success of growth on the economy. The working force can cause an imbalance in a fast growing economy. If the aggregate demand is more than the supply, then prices...