Commercial Cycles and Global Indication †MyAssignmenthelp.com

Question: Discuss about the Commercial Cycles and Global Indication. Answer: Introduction: It occurs when workers lose their work as a result of the downturns that exist in the business cycle. The gross domestic product is used to tell the time when business contracts. Given that the economy contracts for at least two quarters, then it is said to be in a recession. When the economy goes back to the phase of expansion in the business cycle management, those who are not employed or were laid off will reenter the job market. Cyclical employment is temporary since it depends on the contraction length. A recession is typical if it lasts for 18 months. A depression on the other side can last for even ten years (Layard et al, 2013 pg. 71). Frictional unemployment It occurs when workers abandon their work to search for improved ones.in most occasions, this kind of unemployment happens on a voluntary basis, but in other cases, it can be as a result of the termination of a job with a given cause. The term friction is used to show the time, effort and the expenditure that is employed by a worker to find some new job positions (Layard et al, 2013 pg. 81). In most cases, friction is not avoidable since worker have to look for new opportunities, attend interviews and have to move even before establishing new job opportunities. However, frictional unemployment is in most cases a short term form of unemployment. This kind of unemployment refers to the mismatch that exists between the jobs that are available compared to the skills.it is not caused by the forces of business cycle management like the cyclical unemployment but by other forces. It happens in the cases whereby the shifts in the economy makes it hard for some given groups of people to find jobs. This kind of unemployment can keep the rate of unemployment high even after the recession is gone (Layard et al, 2013 pg. 112). This refers to a working contract whereby a worker is employed for a given period in a year, and when the contract expires, then the worker remains unemployed. Examples, where demand, production, and employment are seasonal, include tourism and leisure and retailing (Layard et al, 2013 pg. 121). The demand curve is downward: The first reason for the downward sloping curve is with effect with the Pigous wealth effect. From the basic knowledge, we know that the nominal value for money is fixed. However, the real value is mainly depended on the level of prices. This because a lower price level makes the purchasing power to increase in each currency. When the price level goes down, then the consumers tend to become wealthier and hence the consumer spending increases. Hence a drop in the price level makes the users spend more thereby increasing the aggregate demand (Layard et al, 2013 pg. 140). The second reasoning is concerning Keynes rates of interest that the quantity value of money that is required is subject to the level of prices. High level of prices means that it will take the consumer a lot of money to purchase the large quantities. This means that the consumers could buy more supplies if the prices were low. This makes the customers keep significant amounts of money at the bank. The massive quantities in the bank make the bank to increase the loans and thereby to decrease the interest rates. A drop in price thus causes a reduction in the interest rate and then causes an increase in the investment and finally raise the level of aggregate demand (Layard et al, 2013 pg. 154). Increase in the rates of interest reduces the consumer spending and also the investment and finally leading to the aggregate fall in demand for the Australian dollar. When the aggregate demand goes down, then the supply also tends to go down. Lower aggregate demand will cause: A negative economic growth commonly known as the recession Higher rates of unemployment Reduction in the expenditure on imports and increased competition on the level of exports. The diagram below shows the effects of interest rates on aggregate demand (Layard et al, 2013 pg. 167). Autonomy in the monetary policy Under category, states can implement the autonomous fiscal policies so that they can address problems of inflation and also output. Since the economic policies affect the rates of inflation, governments have the right to resolve on their long run rate of inflation which do not have to acquire inflation rates from the other countries, a case that is witnessed under the fixed exchange rate (Baxter Stockman, 2012 pg. 188). The need for the maintenance of both the interior and exterior balance in a metallic standard is based on an argument that the latter causes fixed rate of exchange rate. Given that the prices of money are fixed and that any regions production and the other variables in the economy are altered, the exchange rate cannot therefore change. The latter leads to friction in the economic system as a whole (Baxter Stockman, 2012 pg. 165). This is the primary weakness. The alterations in the exchange rates are more evident compared to the implication laid down by the fundamentals (Baxter Stockman, 2012 pg. 185). Extended use for the case of monetary policy The disadvantage of the ability to use conduct the so called independent fiscal policies management is the capability of creating higher rates of inflation. The expansionary or contractionary financial strategies can give a discourse to the recessionary or the inflationary weights (Baxter Stockman, 2012 pg. 190). The stability in prices indicates that there are minimal changes in prices and they are expected. The factor that in most cases affects the stability of prices is the fiscal policy. The short run fluctuations in any country can be diminished by the metallic standards and are also called business cycle. The reasoning behind the decrease in the vitality in the products may be lying in the stability of prices. The central banks are required to have in store, enough amount of reserves under the metallic standard for them to maintain their parity in gold and also be in possession of extra gold to intervene for the exchange rates (Baxter Stockman, 2012 pg. 145). Manufacturers of the metal that is in the metallic standards influence the macroeconomic conditions in the countries that have the metallic standard (Baxter Stockman, 2012 pg. 165). Work cited Baxter, M. and Stockman, 2012. Commercial cycles and the exchange-rate rgime: some global Indication.Periodical of financial Economics,15(5), p 456-497. Layard, P, Layard, Nickell and Jackman, 2013. Joblessness: macro economic enactment meant and the labor market. Oxford University Press on Demand.