Fundamentals of macroeconomics paper

Fundamentals of macroeconomics paper

Fundamentals of macroeconomics paper

Macroeconomics is a field of economics dealing with the structure, performance, behavior and the decision-making in an economy rather than that of individual markets. Here, firms and households interact in two markets, the factors and the goods market. In the goods market, firms produce goods which the households purchase. In the factors market, households sell factors of production to the firms.

The government lies somehow in the middle, firms and households pay taxes to it while it provides public amenities. This is according to Mankiw (2012). From this brief introduction, this paper will discuss what various scenarios will mean for the three parties in this economy, the government, the firms and the households. The scenarios or economic activities are a decrease in taxes, purchasing groceries and massive layoff of employees.

Mankiw (2012) explains that if decrease in taxes should occur in an economy, it means that the government income would reduce. The government functions to provide public amenities that benefit both the firms and the households would become a challenge. They make roads, drainage systems and also subsidize some form activities.

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Based on the above discussion, it is clear that the fundamental elements of macroeconomics are interdependent. All the three economic activates affect all three elements. The paper is left to conclude that no element in the hypothetical system that is the perfect economy, no element can exist in its optimal form without the existence of one or both of the other two elements.

Boyes, W.J., & Melvin, M. (2012). Fundamentals of economics. Mason, Ohio: South-Western/ Cengage Learning.

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