TEAM OS

ESSAY
Indicators of Successful and Decline
Economy
User
/2015

Indicators of Successful & Decline Economy

The study of Macroeconomics helps the economist to evaluate and forecast the economic
conditions of various countries and provide professional judgments or recommendations to
governments and Multinational Companies. These recommendations will be very helpful for
Multinational Companies and Governments to improve Balance of payment and other economic
factors of the organization or country. The Government uses the macroeconomic analysis in
order to make their annual budgets, enforcing new taxes and other economic policy decisions in
the country. In this essay Im discussing the important Economic indicators or factors that
indicate the economic conditions of the Country. If these indicators are positive then they reflect
the successful economic situation in the society. However, if these indicators are negative then
the economy of the country will go to recession.

Major Economic Indicators

There are many economic indicators which determine the economic conditions of the Country.
However, in this Essay Im only discuss the major economic indicators which are necessary to
determine a successful and thriving Economy.1

Gross Domestic Product

Inflation
Unemployment
Real Interest Rates
Exchange Rates
Balance of Payments

1Stutely, R. (2011). The Economist Guide to Economic Indicators. London: Profile Books.

The Gross Domestic Product is the market value of all the goods, products, and services which
are produced within a country during a selected time normally in the countrys financial year.
The GDP is the most significant factor in the study of macroeconomics to evaluate the Economic
conditions of the Country. The results of countrys GDP indicate the economic growth rate by
taking the effect of inflation. The GDP is used in decision making process because it measures
the current country productions output at a market level. If the GDP rate is higher than the
country will more grows economically.2

The GDP per capita is considered as an indicator of a country's standard of living and it is not a
measure of personal income. GDP does not include products and services that are produced by
the nation in other countries. Hence, This Graph indicates 39% GDP of United States of America
that means the standard of living in USA is much better than the other countries and the
2Guide to Economic Indicators: Making Sense of Economics. (2006) (6th Ed.). New York.

economic conditions of Unites States is much successful as compared to other industrial

countries.
Inflation is a persistent and continuous increase in the general price level. If the inflation is high
then it means that money does not keep its value, because for purchasing a good tomorrow will
require more money than today. It has been implied that inflation can be a bad thing for an
economy, especially if it reaches the levels of high or even hyperinflation. Moreover there are
two noticeable impacts of inflation are (i) a redistribution of wealth which will be different
amongst social classes. (ii) Distortions in the relative prices and output of different goods,
industries, and even employment in the economy as a whole.3
Costs of High Inflation
Higher inflation can have a regressive effect on lower income families, and elderly
people in society.
To tackle the inflation if wages are cut then this means that real incomes have reduced.
If the savings interest rate is lower than inflation, than those who rely on savings as their
income will become poorer.
In response to high inflation the governments may increase the interest rates. This will
increase the cost of businesses getting a loan, which may stifle investment.
If prices in one country are higher than another, then when selling comparable goods, the
country with lower inflation will have a lower price and therefore have much better
international competitiveness.
The Unemployment rate is often used as a proxy for the health of the economy. When an
economy is in recession or a period of low growth, aggregate demand may be deficient to meet
the potential output in an economy is called demand deficit unemployment. The classical
3Graham, J. (2015). The Big Three Economic Indicators. Discoveroptions.com. Retrieved 14 November 2015, from
https://discoveroptions.com/mixed/content/education/articles/bigthreeeconomicindicators.html

unemployment, occurs when wages are kept artificially high through powerful trade unions. A
higher minimum wage means that the demand for labor is less, because firms cannot afford to
employ that many people. Macroeconomics helps the government to reduce the rate of
unemployment and increase the economic growth by efficiently setting the Phillips Curve.
Phillips Curve

The Phillips curve shows the inverse relationship between the unemployment rates and the
inflation rates that result in an economy. If the rate of inflation increases then rate of
unemployment will decreases and vice versa. Therefore there will always be a level of
unemployment in the economy which is unavoidable. In the long run, people would adjust their
expectations to account for higher inflation, and a new SRPC curve would form. In the below
Graph, the economy begins in equilibrium at A. There is an increase in government spending to

boost Annual demand, decreasing unemployment and taking the economy to point B where
inflation is 6% A point B, firms costs and individuals wage demands increase, meaning output
falls, unemployment rises, and hence SRPC1 shifts to SRPC2. Hence, in the long run, it is not
possible to expand beyond the LRPC4
Real interest rate is an interest rate which is received by the investor after adjusting the inflation
that is calculated by the GDP deflator. The terms and conditions attached to the interest rates are
different with respect to countries, however, limiting their comparability. The high real interest
rate will increase the cost of borrowing, interest payment of government debt and finally affect
both the firms and consumers.
The Balance of payments (BOP) includes visible and invisible goods.5 The balance of
payments indicates whether a country has enough savings, or other service transactions to pay
for the complete consumption of their imports. It is an indicator also of whether a country can
produce enough output, to sustain its growth. If a country has a balance of payments deficit, this
is probably owing to them importing more goods and services than it exports. This can be a
useful strategy for fuelling economic growth; however it is not sustainable in the long term. In
order to redress the imbalance, a country may have to sell off assets and other natural resources,
in order to pay for its consumption. A country in this position is likely to export much of their
production. Additionally, the individuals and government within the country are likely to be high
savers, in order to provide enough capital to finance production, and lend to other countries. This
4 Wikipedia. (2015). Phillips curve. Retrieved 14 November 2015, from
https://en.wikipedia.org/wiki/Phillips_curve
5Stein, H. (2015). Balance of Payments: The Concise Encyclopedia of Economics | Library of Economics and
Liberty. Econlib.org. Retrieved 14 November 2015, from
http://www.econlib.org/library/Enc/BalanceofPayments.html

scenario works for short term economic growth; however for longer term prosperity, individuals
need to increase domestic consumption, by switching from saving.
Impact of Foreign Direct Investment& Exchange rate in Balance of Payment
The Foreign direct investment can influence and lead the country's growth, employment; trade
pattern and industrial structure are more effectively than any other flows of wealth. Moreover,
the FDI can significantly improve and affect and improve the trade of a country and output level
and also speed up and accelerate its development and growth. Additionally, FDI plays a
paramount and vital role in achieving the country's economic targets and objectives.6
The exchange rate is the price of one currency expressed in terms of another currency. A high
exchange rate means that a currency is worth more of the foreign currency compared to a time
when it is worth less of the same foreign currency. The net impact of higher exchange rates will
make imports cheaper and make exports more expensive. The central bank of every Company
has control over a countrys foreign currency, and gold reserves. Hence the higher exchange rate
will be helpful for improving the deficit balance of payments.
These are the factors which cause economies to surpass others yet eventually decline.
Decrease in prices and sales of Non-Current Assets in the Country
The Stock Market suddenly Collapse due to decrease in investors confidence towards

market.
High Inflation &Unemployment rates
High interest rates
Bad Economic, political and Law & Order Situation in the Country
Low GDP per Capita
Inappropriate Fiscal & Monetary Policy

6UKEssays, (2015). Foreign direct investment and balance of payments. Retrieved 14 November 2015, from
http://www.ukessays.com/essays/economics/foreign-direct-investment-and-balance-of-payments-economicsessay.php

 In appropriate Trade Policies

The Powerful economy always indicates a prosperous society for most everyone. The educated
people, High GDP and Free market are the key factors of Countrys powerful economy. Hence,
by controlling the economic indicators the nation can increase investment in other countries and
can generates or earn high revenue.7 The Charles Wheelan in his book Naked Economics
defenses the philosophy of freemarket. Again, in the current scenario when the markets are
accuse of performing all types of evil deeds the books like explaining all the benefits of the
market economy. The Charles Wheelan is clear, objective and tries to finds the fault with the
market that he becomes sloppy. Moreover, to explain the externalities that the market produces
the Wheelan simply states that there is no solution in market because the market is the problem.
According to Wheelan there is no perfect economic system in the market [p. 44]) and he offers
the clear solution about externalities to the government.8Additionally, Wheelan is in favor that
the government is creating barrier to a higher standard of living. The main message of Wheelan
is beyond the doubt; he is in favor of capitalistic market whether people trade domestically or
internationally because every people have fundamental right to live better. At the end of his book
the Wheelan describes that the economics offers approaching into gender relations, wealth, the
environment, poverty, discrimination and politics. (p. 236)

References
Guide to Economic Indicators: Making Sense of Economics. (2006) (6th Ed.). New York.
Tainer, E. (1993). Using economic indicators to improve investment analysis. New York: Wiley.
7 Tainer, E. (1993). Using economic indicators to improve investment analysis. New York: Wiley.
8Wheelan, C. (2002). Naked Economics. New York: Norton.

Stutely, R. (2011). The Economist Guide to Economic Indicators. London: Profile Books.
Wheelan, C. (2002). Naked Economics. New York: Norton.
Barnes, R. (2003). Economic Indicators: Gross Domestic Product (GDP) | Investopedia.
Retrieved 14 November 2015, from
http://www.investopedia.com/university/releases/gdp.asp
Graham, J. (2015). The Big Three Economic Indicators. Discoveroptions.com. Retrieved 14
November 2015, from
https://discoveroptions.com/mixed/content/education/articles/bigthreeeconomicindicators.ht
ml
UKEssays, (2015). Foreign direct investment and balance of payments. Retrieved 14 November
2015, from http://www.ukessays.com/essays/economics/foreign-direct-investment-andbalance-of-payments-economics-essay.php
Stein, H. (2015). Balance of Payments: The Concise Encyclopedia of Economics | Library of
Economics and Liberty. Econlib.org. Retrieved 14 November 2015, from
http://www.econlib.org/library/Enc/BalanceofPayments.html