Happy St. Nicholas Day, and also Happy International Volunteer Day for Economic and Social Development! Here’s something I wrote in my Economics class to celebrate the occasion:
Everyone wants the best for themselves
So says the economist, in a rational tone.
And so macroeconomics carries the results of these words
Onto a national scale, truly a world of its own.
As the world goes round, so does the money within
In a flow of income between households and firms,
With consumption and goods exchanged on one end
And wages for labour (on reasonable terms).
But there’s more! Injections like exports and investment
Equaling withdrawals like savings and tax.
Economists put it as Y = C + S + M + T
Or Y = C + I + G+ X.
With so much to take care of, what’re the key aims?
According to some there are four:
Economic growth, low unemployment, low but steady inflation
And a good balance of payments, but of that we’ll talk no more.
First up’s economic growth, more productive capacity,
Illustrated by a shift outwards on a PPC.
These changes are caused by more factors of production
Or better yet, factors of higher quality.
All this can be measured by the Gross Domestic Product -
The total value of all output over a certain interval.
It’s not completely accurate, though, neglecting inflation,
Unofficial work, or whether things are affordable.
It’s not always the end when GDP sags
The economic cycle may be the cause.
But whatever the reason, if there’s high unemployment
You bet the people will be flexing their claws.
It’s said it’s a recession when your neighbour loses his job
And a depression when you lose your own.
Either way, know that the government will be using
The Labour Force Survey and Claimant Count to make the numbers known.
It’s not one number, either: it can be divided into types
Be it frictional, seasonal, or demand-deficient.
Cyclical and structural unemployment are two other kinds
All displays of the economy being inefficient.
Which is why the government tries to solve this
Through demand management and supply-side policies,
Though firms may benefit through paying lower wages
And hiring workers with more attractive qualities.
The third, inflation, is a (low) sustained
Increase in the general level of prices,
Measured through changes in price of 600-odd goods
From clothes to watering cans and culinary spices. This is called the Consumer Price Index, used in the UK,
Or the Retail Price Index, if you throw property in too.
High inflation reduces investment, ups ‘menu costs’,
Harms trade, and makes the price mechanism fall through.
A low level is preferred to none at all,
With the UK’s target between one and three percent.
This is to reduce the risk of deflation,
A sure indicator of economic descent.
Inflation can be caused by surges in demand,
Higher costs, or increases in the monetary supply.
Which is why, to deal with continuous booms in prices
Governments can wish the excess goodbye.
So that’s it! The result of two months of helicopter-building,
Equations, discussions, and cake.
The journey is long yet, but it’s been a great ride
And now it’s time for a well-deserved break!