7 Clarifications On Z In Macroeconomics | z in macroeconomics

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The z is for zillion, infinity and omitting, or in macroeconomics the missing z is called zero. In macro there are many things that have to be valued such as the price of a product, the utility of a good or service and of course the effect of government policies on the national economy. So how does zero factor in to macro? The zero essentially represents the void in the economy.

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The z is for zillion, infinity and omitting, or in macroeconomics the missing z is called zero. In macro there are many things that have to be valued such as the price of a product, the utility of a good or service and of course the effect of government policies on the national economy. So how does zero factor in to macro? The zero essentially represents the void in the economy.

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One way to think about it is that without money people would not trade and businesses would not earn profits. Money on the other hand is the means by which people can trade and obtain what they need in order to produce more goods. With no money people can not buy goods and businesses cannot earn profits. It is the concept that has underlined the foundation of central banks; they are the ones who control the supply of money in the economy and the level of interest rates.

Central banks influence the level of interest rates by controlling the amount of money that is available in the economy through their various interventions in the market. They do this either by changing the rate of interest they charge on loans or they promise to keep interest rates low for a certain period of time. These changes however have a profound impact on the total economy. The amount of money available is directly related to the amount of goods and services produced by the industry. Therefore, when interest rates are reduced, for instance, more goods and services are buying making the total economic activity more profitable.

However, it is important to note that changes in interest rates have a far reaching impact on macroeconomics. The indirect effects of lower interest rates may create problems with the stability of the business sector. For instance, if the banks do not feel that there is enough cash in the market to support the operations of all the small businesses then they will not be prepared to extend credit. Since businesses have to pay interest on the money they have borrowed, they will find it difficult to pay their debts. When this happens, the economy faces difficulties in its production process. If no action is taken to control the situation, the economy is bound to suffer.

Businesses tend to expand in order to take advantage of new opportunities that present themselves in the market. However, expanding means increasing the number of goods that are produced in a given area. When too many goods are produced at the same rate, the economy tends to suffer from a glut. A . . . . . . glut basically means that there is not enough of something being produced at a particular rate to meet the demands of the market. When this happens, the economy suffers because there is not enough money circulating in the economy.

In addition, a country's balance of payments affects its currency in the international market. A country's foreign trade increases the money supply, which, in turn, depreciates the value of the country's currency. When this happens, a country's trade deficit increases causing the z-scored interest rate to rise. This is one of the major drivers of inflation. It can cause a recession in a country when the z-scored interest rate is high. Understanding what causes inflation is a key element of learning more about macroeconomics.

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