The recession in the euro zone has dramatically affected consumption and investment across Europe. Firstly, the companies have failed to increase their output due to fiscal austerities resulting in contraction of the market. Fewer supplies caused price changes and subsequent effect on consumer spending and consumption. For instance, as the companies reduced investment because of fear of strict government policies and failure of banks to provide financial support, they scale down their products in the market. Consumers, on the other hand, reduced their disposable income causing an economic crisis. The multiplier effect created by these changes has a significant impact on the real GDP of the affected European countries.
Another fundamental aspect is the impact of inflation and unemployment that was brought about by the crisis. As the government introduced unfavorable plans such as vendor rules that affect farmers, the producers were forced to reduce production and subsequently caused household debts to the producers. The banks on the other hand either increased their loan interest or fail to provide loans for investment due to these unfavorable occurrences. In turn, it resulted to rise of unemployment rates hence reducing income earners in the nations. Additionally, low output caused economic instability due to inflation that was brought about by an increase in prices of available goods and service. This crisis ultimately led to fall of GDPs across Europe.
Unkept Economic Promises
Failed economic promises are common aspects that negatively affects an economy. US had anticipated an era of economic prosperity characterized by the growth of trade, technology, and powerful central bank. However, the country faced economic recessions, technology collapse and financial crisis in a short period after 2000 consensus. Firstly, the projected economic model failed to adjust for the possibility of inflation that could have affected the country. The perceived markets in Asia for US products were unable to create jobs causing unemployment and then low wages. Ideally, unemployment causes reduced household incomes thus minimizing their consumption rates.
Secondly, the promise of balancing of inflation and growth by the central banks failed because of failure to study critical economic aspects. Monetary and fiscal policies were not well designed because of less return on investment. The workforce is another aspect that failed because the government had not created employment opportunities that could have increased workforce. Lastly, technological improvements had not been institutionalized in important institutions. Regarding promise of rising incomes and prosperity from technical changes, the officials did not plan for the possible loss of jobs. Unemployment rates increased because of replacement of workers with machines and tremendously impacted on workforce productivity thus causing slowed output and productivity growth. Finally, the failures of trade with China extremely hurt the economy because of their effect on US workforce. Import competition was a major hurting factor since the import of cheaper goods ultimately resulted to shooting unemployment rates.
The End of High Growth
The US economy has been growing at a slower rate after the boom of second world war. A significant factor that contributed to this trend is economic depressions characterized by decreasing levels of national output and productivity. The wars caused economic chaos by making countries introduce wage controls, strikes, and trade barriers thus being an obstacle to economies. Investment in agricultural and industrial products reduced significantly. With this minimal investment, the available factories cut their workforce causing substantial unemployment rates. Additionally, low productivity resulted in the loss of full employment and the country faced low household wages.
Unreliable productivity gave rise to rural-urban migration because of little wages in the agricultural sector. This move further paralyzed innovation in the agricultural industry, and the countrys productivity stagnated for an extended period. Final goods in the country remarkably reduced hence leading to slowing economic growth over the years. Another aspect is ineffective monetary policies. The government implemented mechanisms such as privatization, lowering tax rates, and balancing budgets but were unsuccessfully in boosting productivity. The US government should enhance pro-growth economic policies to improve economic growth.
These three events have numerous similarities and differences. First similarity is that they are caused by misprediction of microeconomic aspects facing a country. Policy makers have to fully understand and take into account possibilities of inflation, unemployment, fiscal and monetary policies as well as investment and consumption when designing government plans. US economy in the US has experienced ups and downs since afterward of second world war because of economic conflicts between countries that caused high inflations and unemployment rates. Moreover, all the crisis seems to be politically instigated without proper analysis of long-term economic aspects that drive economic growths.
However, there are some differences due to the events and happenings that led to the crisis. For instance, the economic projection failures that became critical in 2016 US elections was mainly because of misbalance of economic growth with inflation and workforce. The country failed to meet economic targets primarily because of short-term political strategies. On the Europe crisis, unemployment was a major factor that contributed to the euro-zone debt crisis and extended to impact the investment and consumption of various countries. Lastly, the end of high growth was largely caused by economic wars that are based on investment failures mainly in agricultural sector thus causing decreasing productivity.
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