Fundamentals of Macroeconomics Paper
Dana Galasso

ECO 372
University of Phoenix
Professor Kirk

The economy of our country is split into three different categories. These three categories are household, business, and government. Each of these three categories are separate, but yet connected. These categories are not only interconnected amongst themselves, but they also help connect the United States economy to the rest of the world economies. There is a constant among all people in the United States and worldwide that connects them all in a special way. The one constant is that every person requires food to survive. The usual way that people obtain food is by going to the grocery store and purchasing groceries. When an individual purchases groceries, he or she is providing nutrition for their family, but not only that they are contributing to the economy. A person walks into their local market and picks up items to cook for dinner. He or she then pays their bill at the register. Included in the price of the groceries is a small mark up that allows the store owner to make payroll, purchase more groceries and supplies, pay rent, and pay the utility bills. It may seem that one person shopping for a few items may not make a difference, but when there are masses of people shopping for groceries then the result of monies trickling from the consumer, to store owner to employees and suppliers multiplies by tenfold. Using the example of the homeowner purchasing groceries for his or her home, we can expand how this affects the rest of the economy. When the economy is good, people tend to buy more groceries or products than they need. The consumer may even start to replace items more frequently than they need to; instead of waiting until an item breaks to replace it, they may replace it with a newer model when it comes out. When consumers purchase more finished goods or groceries as the example may be, there is more money flowing into the economy. As stated above, groceries and finished products have a small mark up that allows the store owner to distribute monies to the suppliers and his or her employees. As the suppliers or employees generate income, they too start spending more money and thus more money is pumped into the economy. However, when there is an issue with the economy or there is a type of crisis, people will want to save their money. When people stop spending there money there is less money to go around in the economy, which in turn will lead to lay offs. When someone is laid off they live on a type of fixed income for a while until they either obtain another job or their unemployment runs out. In either case the individual will be more thrifty than before, causing even less money to be poured into the economy. The most recent layoff’s in our country occurred around 2007-2008. As Colander puts it our nation was going through a period of structural stagnation. “Structural stagnation is a time of slow growth and recovery that does not generate a large number of jobs” (Colander, 2013). It seemed as if industries were capped and were laying off high earning employees. Employees that found themselves laid off, were for the most part unwilling to accept work that was paying less than their old income. The other factor that hurt our country’s economy was the world supply curve. “The world supply curve sets a price ceiling for U.S. goods, and all U.S. producers of tradable goods must match the world price” (Colander, 2013). What this means is country B can make a desk for $50.00, then a manufacturer in the United States must make and sell a desk for no more than $50.00. This is so that the seller can sell his supply of desks, if his price is more than the world curve or price ceiling then he will not be able to sell off his stock. If the seller can’t sell his stock of desks then he can’t make payroll. If he can’t make payroll then he must lay off employees. It was the lack of job growth and inability to sell items at a higher price that hurt the economy. Through stagnation and fixed price ceilings sellers found it hard to make a profit and to make payroll. The lack of payroll meant more people were unemployed and thus spending less money.
If there is a decrease in taxes, people are able take home more income from their paycheck. When people have more money in their pocket they tend to purchase more groceries or finished goods. Some people may still set aside some money for savings, but they may not be as thrifty. A decrease in taxation will also inspire a growth in new industry and businesses through a tax break or incentive. This will allow the business to generate more revenue and to hire more employees and make payroll. With the more employees that are working, the greater the supply of finished goods they can offer for sale. As their sales increase, over time more money is sent flowing into the economy. When there is more money flowing into the economy, the government is able to fund programs without raising taxes.
Even though our country’s economy may only seem that it is affected and only affects people living in the United States, it is really connected to the rest of the world. When one country is experiencing a fiscal crisis, it affects all of the world banks interest rates and economies. If country C is having a fiscal crisis, they may require another country to step in and bail them out because they don’t have the funds available for their companies to make payroll for their citizens. If their citizens are not making any income they are not buying finished goods. Some of these finished goods are imported from other countries. There are industries that rely heavily on exporting their finished goods to other countries for sale. If they are not making these sales, then they will fail to make their payroll. If they fail to make their payroll they will have no choice but to lay off workers. When there are laid off workers, there is less spending. So that is how one country’s fiscal crisis trickles down to include multiple countries. Something like this happened in Greece not to long ago when their banking system almost collapsed and needed to be bailed out.

References:
Colander, D.C. (2013). Macroeconomics (9th ed.). Boston, MA: McGraw-Hill/Irwin