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Economic Principles and Decision Making

Executive Summary of The Global Macroeconomic Impacts of Covid-19

There are two main branches of economics microeconomics and macroeconomics. In this paper, both the branches are being discussed in detail. The aim of this paper is to present how sound knowledge of macroeconomic and microeconomics concepts helps to make an informed decision. Moreover, the study of economics is not just limited to books but can be applied in the real world is elucidated. The emphasis is on analyzing and successfully applying the concepts of economics and the role of each participant by analyzing the assignments done earlier. It is a reflective study and provides details of how the microeconomics and macroeconomics assignments helped me in better understanding of the economic concepts.

Table of Contents

Introduction.

Microeconomics.

Microeconomic Concepts.

The housing market of Australia.

Macroeconomics.

Macroeconomic concepts

Role of government policies.

Conclusion.

References

Introduction to The Global Macroeconomic Impacts of Covid-19 

In this dynamic world, individuals, organizations, government, and various other stakeholders need to have a sound understanding of the economic environment in order to remain competitive and fulfill their respective objectives. The economic environment can be divided into two categories, microeconomic, andmacroeconomic. Macroeconomics is a broader concept as compared to microeconomics, it includes the decisions made by the government and the central banks while microeconomics entails to decision making by the individuals, businesses as well as households (Tsai, 2019). The study of the Australian economy as a whole is a part of macroeconomic and the study of the Housing market of Australia, which is a part of the Australian economy, is associated with Microeconomics study. The aim of this paper is to indicate how the microeconomic and macroeconomic concepts are useful in understanding the real-time environment. Moreover, how these concepts have helped in understanding the volatility of the business environment and promote effective decision-making isbeing discussed.

Microeconomics

Microeconomics can be understood as the study of the behavior, the structure, and the performance of individuals, firms, and households (Salim, 2018). It includes all those elements that impact the economic performance of individual units; these are the pricing of products and various factors of production as well as resource allocation. It deals in economic efficiency, efficiency in production, distribution as well as allocative efficiency (Salim, 2018). The microeconomic assignment helped me to understand how the COVID-19 has impacted the housing market of Australia, also how changes in the consumption patterns and purchasing power of individuals, the supply and demand of the housing, and the relative price elasticity of demand in the housing market. Moreover, the effects of subsidies and grants resulted in changes in the supply and demand in the housing market enhanced my knowledge in this area.

Microeconomic Concepts

My understanding of microeconomics was limited; however, through these assignments I could easily relate more on how microeconomics is a part of my everyday life decision making. Microeconomics is associated with the choice that individuals make since there is a scarcity of resources and how their decision influences the product market by impacting factors such as price, supply, and demand (Peng, 2019). Microeconomics study helps to determine the relative prices of goods and efficiently allocate resources to attain equilibrium in the market, keeping in mind, that resources have alternative uses. The concepts of scarcity and choices and the opportunity cost significantly impact the decision making of the individuals (Peng, 2019). Opportunity cost can be understood as the cost that is associated with what needs to be given up in order to make the choice. We have to choose between various goods and services, opportunity cost deals with giving up the next best alternative (The Library of Economics and Liberty, n.d.).

The Housing Market of Australia

As per the study by Francke and Korevaar (2020), the earlier outbreaks have caused a significant decrease in house prices, however, the decrease in the rent price was comparatively less. Also, the decline was majorly in the areas that were impacted more by the crisis (Francke and Korevaar, 2020). The results are true even in the case of the Coronavirus. The Coronavirus caused the house values to decrease and Melbourne and Perth saw the highest fall in the property (Janda, 2020).

In the first quarter of March 2020, the house price increased by 1.6 percent, this can be attributed to the rising demand for houses as compared to the supply of the houses (Australian Bureau of Statistics, 2020a). Since the supply of houses is relatively fixed, the rise in demand puts upward pressure on the prices of houses. The important thing to understand here is that the rise in prices was seen because the restrictions and containment measures were imposed at the end of March and did not impact the housing market by March. (Australian Bureau of Statistics, 2020a). The microeconomic model associated with the urban theory helped to understand the dynamics of the housing location choices and indicates how the household behavior is a function of imitations (Lopez-Ospina, Martinez, & Cortes, 2016).

Macroeconomics

Macroeconomics can be understood as the study of the framework as well as the performance of the economy as a whole (Tsai, 2019). It includes all those elements that impact the economic performance of a nation, these are economic activities, employment, inflation, international trade, government policies, etc. (Tsai, 2019). The sound understanding of macroeconomics helped me in understanding and answering these questions in a better manner. These questions entail to what causes fluctuations in the economic activities, unemployment, and factors impacting it, which causes changes in the overall price levels (Tsai, 2019). Moreover, how the pandemic, the Coronavirus impacted the economic systems across the globe, what policy measures were and are still being taken by the government to reduce the negative economic impacts of the COVID-19 crisis in order to bring the economies out of the economic depression. In the macroeconomic assignment, I understood the economic indicators such as Gross Domestic Product (GDP), the rate of unemployment, price indices, consumption and savings, aggregate demand, aggregate supply, and the interrelatedness of various sectors (Maiti, 2019). How all these were influenced by the crisis and how these impacted the overall economic performance of the nation.

Macroeconomic Concepts

Through the understanding of macroeconomic concepts, I could easily relate how the global markets are interrelated and how the outbreak in China impacted the global supply chain and impacted the world economies, the negative impact of globalization ( McKibbin& Fernando, 2020). Furthermore, considering the internal market how the labor, housing, and financial markets are all related and together impacts the overall performance of the economy as a whole.

The study of macroeconomic indicators of the economy provided a comprehensive understanding of not only the key indicators of economic performance but also helped me to relate the macroeconomic theories and their applicability in the real world. The volatility of the business environment influences the stock prices and thereby impacting the development of the stock market, the GDP, and the rate of unemployment. In a study by Abosedra, Arayssi, Ben Sita & Mutshinda (2020), the high-income economies are transmitters of volatility while the low-income economies are the recipients of the growth volatility. In Australia, the volatile finances and uncertainty have resulted in the lowering of business investments (Organization for Economic Cooperation and Development, 2020).It was interesting to see that Economic growth can have positive, negative, or no effect on the inflation rate (Ruzima & Veerachamy, 2016).

Role of Government Policies

Through these assignments, I could better understand the role of government and policy measures adopted by them to fight the economic depression, causing the GDP of Australia. The economy contracted by 0.3% in seasonally adjusted chain column terms in the March quarter of 2020 (Australian Bureau of Statistics, 2020b). 

I found it challenging how the monetary policy and fiscal policy could impact the entire economy. It was fascinating to see how small changes in economy lead to bigger and resulted in multiplier effect. Monetary policies are those policies by which the central monetary authority of a country, Reserve Bank of Australia controls the money supply in the economy. The monetary policy centers on money supply and interest rates (Mathai, 2020). The objective of monetary policy is to promote maximum employment, ensure price stability, and maintain moderate long term interest rates (Mathai, 2020). The Reserve Bank of Australia has adopted easing monetary policy to improve the economic conditions, in this method, the increase the liquidity in the market by altering the size of bank rates, open market operations(Reserve Bank of Australia, n.d.). However, with an increase in the money supply, the price will also rise as rising aggregate demand will put upward pressure on the input cost, specifically wages. When the income of workers will rise, they will buy purchase more goods and services as a result, the aggregate output will expand along with a rise in the inflation rate (Mathai, 2020).

Similarly, in the case of fiscal policy; the Fiscal policy is the revenue and expenditure policy of the government. The government tries to achieve its objective of growth and stability of the economy through fiscal policy by altering the size and composition of taxes and spending. The government of Australia adopted expansionary fiscal policy by providing various subsidies and grants and allowing for tax deferrals (Australian Government, 2020). The influx of money in the market will increase the purchasing power of people, thereby, stimulating aggregate demand (Symoom, 2018).

Conclusion on The Global Macroeconomic Impacts of Covid-19 

Microeconomics and macroeconomics are an important concept in economics. A comprehensive understanding of microeconomic models enables the individuals, households as well as business to make better and well-informed decisions. Moreover, the sound understanding of macroeconomic conditions enables better decision making of the central bank and the government of the country about issues impacting the entire economy. The thorough understanding of these concepts helped me to look things from a different perspective. Earlier, I never considered the opportunity cost, this concept made me realize the actual cost my decision. Furthermore, just reading about the changes in bank rate and other subsidy programs by the government used to be a normal routine, now I know how these changes have multiplier effect in the economy and causes rise in aggregate output.

References for The Global Macroeconomic Impacts of Covid-19 

Abosedra, S., Arayssi, M., Ben Sita, B. &Mutshinda C. (2020). Exploring GDP growth volatility spillover across countries. Economic Modeling, 89, 577-589. https://doi.org/10.1016/j.econmod.2019.11.015

Australian Bureau of Statistics. (2020a). Property price rose 1.6 percent in March quarter 2020. Retrieved from https://www.abs.gov.au/ausstats/abs%40.nsf/mediareleasesbyCatalogue/6496B4739650C270CA2581F3000E3B4D?OpenDocument#:~:text=Residential%20property%20prices%20rose%201.6,Bureau%20of%20Statistics%20(ABS).&text=Through%20the%20year%20to%20the,cities%20except%20Perth%20and%20Darwin.

Australian Bureau of Statistics. (2020b). Australian national accounts: National income, expenditure, and product, Mar 2020. Retrieved from https://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0

Australian Government .(2020). Economic response to the coronavirus. Retrieved from https://treasury.gov.au/sites/default/files/2020-03/Overview-Economic_Response_to_the_Coronavirus_2.pdf

Francke, M. &Korevaar, M. (2020). Housing markets in a pandemic: Evidence from historical outbreaks. SSRN Electronic Journal. DOI: 10.2139/ssrn.3566909

Janda, M. (2020).Coronavirus house price slide worsens, but the first Home Loan deposit scheme attracts new buyers. Retrieved from https://www.abc.net.au/news/2020-07-01/house-price-slide-accelerates-as-coronavirus-pandemic-drags-on/12409166

Lopez-Ospina, A. H. , Martinez, J. F. & Cortes, E. C. (2016). Microeconomic model of residential location incorporating life cycle and social expectations. Journal of computers, environment, and Urban Systems, 55, 33-43.https://doi.org/10.1016/j.compenvurbsys.2015.09.008

Maiti, M. (2019). Macroeconomics simplified: Understanding Keynesian and neoclassical macroeconomics systems. South Asian Journal of Management, 26(1), 170-173. Retrieved from https://search.proquest.com/docview/2251594282?accountid=31551

Mathai, K. (2020). Monetary policy: Stabilizing prices and output. International Monetary Fund. Retrieved from https://www.imf.org/external/pubs/ft/fandd/basics/monpol.htmhttps://www.imf.org/external/pubs/ft/fandd/basics/monpol.htm

McKibbin, W. & Fernando, R. (2020). The global macroeconomic impacts of COVID-19: Seven scenarios. https://www.brookings.edu/wp-content/uploads/2020/03/20200302_COVID19.pdf

Organization for Economic Cooperation and Development. (2020). Australia Economic snapshot- June 2020. Retrieved from http://www.oecd.org/economy/australia-economic-snapshot/

Peng, Y. (2019). Introductory discussion on microeconomics.International Journal of Tax Economics and Management, 2(8), 43-53.DOI: 10.35935/tax/24.5343

Reserve Bank of Australia. (n.d.).Supporting the economy and financial system in response to COVID-19.Retrieved from https://www.rba.gov.au/covid-19/

Ruzima, M. &Veerachamy, P. (2016). Impact of inflation on economic growth: A survey of literature review. International Multidisciplinary Research Journal, 5 (10).https://www.researchgate.net/publication/324829545_IMPACT_OF_INFLATION_ON_ECONOMIC_GROWTH_A_SURVEY_OF_LITERATURE_REVIEW

Salim, Ar. (2018). Macroeconomics and microeconomics: An overview. International Journal of Research in Humanities, Arts and Literature, 6(8), 119-24. http://oaji.net/articles/2017/488-1537502871.pdf

Symoom, T. (2018). The impact of fiscal policy on economic growth: Empirical evidence from four South Asian Countries. Eastern Illinois University. https://thekeep.eiu.edu/cgi/viewcontent.cgi?article=4556&context=theses

The Library of Economics and Liberty. (n.d.).Opportunity cost. Retrieved from. https://www.econlib.org/library/Topics/College/opportunitycost.html

Tsai, F. (2019). An overview of macroeconomics: ideas, approaches, and importance. International Journal of Tax Economics and Management, 2(3), 21-31. DOI: 10.35935/tax/23.3121

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