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Macroeconomic Concepts and International Trade Simulation Essay


Unemployment, Gross Domestic Product, and Inflation

Types of Unemployment

Unemployment can be identified as a condition in the economy where those who are actively seeking jobs remain without jobs because jobs are not available for them. Unemployment can be categorized into three types, which include: structural, frictional, and cyclical.

Structural unemployment results from low demand for the available workers. This can be caused by two reasons, which are changes in technology and changes in tastes.

Frictional unemployment is what results when people move jobs, careers, and locations. It also includes people who are rendered jobless due to change in interest hence careers. Also, when they shift to new localities and on arrival, they are unemployed. Cyclical employment is when the economy is said to be under its full capacity, for example, recession. This leads the firms to absorb a few workers than expected due to productivity (Pettinger, N.D, 1).

Understatement of Unemployment

Mostly unemployment is understated due to various reasons, which include the inclusion of part-time employees in the category of full-time workers. The ‘discourage effect’ also leads to an understatement of unemployment. This is when people really desire to work, but they are convinced there are no jobs available; they, therefore, make no effort to look for jobs. These people are counted among the ‘not in the labor force’. Therefore the figures given for unemployment may be greatly understated. Understatement of unemployment may lead to unfair distribution of a nation’s resources, which may adversely affect the economy due to unexpected low gross domestic productivity (Schenk, 1997, 1).

Gross Domestic Product

The gross domestic product is the total value of all goods and services produced within the economy within its boundaries. It is obtained as the value of the services and goods that a country produces in a given year within its boundaries. It is positively related to the standards of living, so it can be used to determine people’s happiness. It is used as a measure of living standards (QuickMBA, 2009, 1).

When the gross domestic product is high, the standard of living is high because the per capita income is also higher. When the per capita income is high, it means that the level of production per individual in the economy is also high. To some extent, it can indicate people’s satisfaction because when production per person is high, they have enough to satisfy their needs and wants.

Inflation

Inflation causes the buyers to change their spending habits as they keep up with the threshold in purchasing power. The producers, in return, suffer and are forced to cut their output. Hyperinflation is rapid inflation, which mostly has gone out of control; during this time, the cost of goods rises at an extremely high rate. Hyperinflation is common in the small third world countries, which have less currency stability. Deflation raises the alarm because the prices are very low; the customers are not willing to spend. The biggest investment that people make at this is sitting on their money.

International Trade Simulation

Absolute and Comparative Advantage

The comparative advantage arises where one country produces goods or services at a relatively cheaper way compared to other countries in the same industry producing similar products. The country enjoying comparative advantage is able to produce a certain commodity more efficiently than others. This is referred to as the relative advantage of a country to produce a given product. When a country produces a product at absolutely lower costs than other countries in the same industry, this is termed as the absolute advantage. Under comparative advantage, a country may choose to import a commodity from a country that is able to produce it more efficiently. Though the two countries have the capacity to produce the product, it is cheaper for one country to import from the other one than produce for itself.

Free Trade

Free trade is the absence of restrictions on international trade. Free trade opens up a wider market, both domestically and internationally. It allows a standardized way of selling and buying goods for everyone has equal access to the goods both internationally and domestic. Free trade reduces the tariff barriers that which helps lower the prices of products. There is increased exports and competition making trade more favorable for all. Having in mind that trade is a tool of growth, the economies benefit a lot from free trade.

Protectionism

Protectionism can be simply said to be the policy of protecting domestic businesses and industries against foreign competition. They mostly work by raising the prices of imported goods to create increased demand for domestic goods. It leads to a rise in custom barriers in the effort to protect the locally made goods in the market. It is also said to help prevent dumping by the developed countries. The government can increase the import duty in order to discourage imports so as to boost the local industries. Consumers will shift to consuming local products because imports have become expensive. The government may also choose to Ban the importation of some products.

Concept of simulation

This is a way of creating a model of a proposed system to identify and comprehend the factors which control and predict the future behavior of the system. Simulations can be dynamic or static. In the static stimulation, change in the system is not determined by change time. Dynamic simulation systems change with time; therefore, the modeling will help you predict the future behavior of the system. It also gives an option to determine how to influence those future behaviors. Dynamic simulation is a prediction of how businesses mobilize their operations as enabled by evolving systems as they respond to the surrounding. This enables the business to function in a logical manner as the evolving systems are closely manned and improved.

World Trade Organization

The World Trade Organization is a global organization that governs trade between nations trough enforcing trade rules and regulations. The aim of the organization is to allow the inter-country trade for goods and services. According to the World Trade Organization, trade is likely to grow by approximately 15% this year. This provides a means of recovering from economic recession and creates jobs for the people.

The services offered by the WTO are called to as the General Agreement on Trade in Services (GATS) and enable the countries to conduct trade services effectively. They also regulate financial services and telecommunications that are aimed at facilitating trade between nations. Nations are harmonized through services offered at WTO, and trade between them is well organized.

Reference List

Pettinger, R (2010). . Web.

QuickMBA (2009). . Web.

Schenk, R (1997). . Web.

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1. IvyPanda. "Macroeconomic Concepts and International Trade Simulation." January 1, 2021. https://ivypanda.com/essays/macroeconomic-concepts-and-international-trade-simulation/.


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IvyPanda. "Macroeconomic Concepts and International Trade Simulation." January 1, 2021. https://ivypanda.com/essays/macroeconomic-concepts-and-international-trade-simulation/.

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IvyPanda. 2021. "Macroeconomic Concepts and International Trade Simulation." January 1, 2021. https://ivypanda.com/essays/macroeconomic-concepts-and-international-trade-simulation/.

References

IvyPanda. (2021) 'Macroeconomic Concepts and International Trade Simulation'. 1 January.

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