Government and the Macroeconomy essays

Government and the Macroeconomy essays The countrys government plays a large role in the economy. Government policies on employment, taxes, and spending affect not only the economy of the nation, but also the economic stability of individuals and corporations. This report delves into these policies and how they may relate to a corporation. The corporation used in all comparisons is Domtar, Inc., a large producer of forest products, such as specialty and fine paper, in North America. Government Stabilization of the Economy The government, including the President of the United States, uses economists to aid in inventing a countercyclical policy, fiscal and/or monetary, to moderate the severity of the business cycle. These economists often arrive at different and conflicting conclusions and recommendations. Inflation and unemployment are the most demanding macroeconomic issues that these economists have to deal with. There are five basic schools of employment and inflation: Classical, Keynesian, Neo-Keynesian, Rational Expectations, and Supply Side. The classical economics school of thought emphasizes the natural tendency for an economy to move toward equilibrium at full employment without inflation and argues against government intervention. They believe that unemployment is temporary and is caused by wages above the equilibrium wage rate. For example, say the average worker makes $6/hr, and there are 10,000 available workers. Domtar offers $10/hr. At that rate, they can only afford to hire 6,000 workers, leaving 4,000 unemployed. If these 4,000 are willing to do the same work for only $6/hr, it would drive the pay rate down, and the company could hire more of the available workers. The end result: everyone who is willing to work at the equilibrium wage rate, will eventually find employment. Thus, no unemployment. However, Domtar is a union shop. Labor unions often use their power to increase wages. These increases can therefore actually cau...