The History of 7 Macroeconomic Problems | 7 macroeconomic problems

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The two macroeconomic problems that the US is facing at the moment are stagflation and deflation. Let's talk a bit about each of them, how they affect the economy, and what measures can be taken to counteract them. First of all, let me give you my definition of macroeconomics, which means “a study of the national economy over a period of time.” Now, there are different types of macroeconomic indicators, but for this article I'm just going to use the popular ones that most people understand.

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The two macroeconomic problems that the US is facing at the moment are stagflation and deflation. Let's talk a bit about each of them, how they affect the economy, and what measures can be taken to counteract them. First of all, let me give you my definition of macroeconomics, which means “a study of the national economy over a period of time.” Now, there are different types of macroeconomic indicators, but for this article I'm just going to use the popular ones that most people understand.

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Stagflation – When there is an increase in overall demand (and also) when there is an increase in the supply of goods and services. Essentially, prices go up, while production goes down. When the economy is depressed, the supply of goods and services will decrease – leading to an increase in inflation. In other words, money is printing so fast that the dollars are rising in price. The future is uncertain, and nobody knows where the economy is going to go from here.

deflation – When money rates are lowered in order to get more spending power for the economy. Basically, when there is too much money being spent, the economy starts to suffer. When inflation hits, it's because the price of goods and services has increased, but the economy hasn't yet experienced the increase in sales that are needed to make up for the inflation. This is called deflation.

Now, let's take a look at how each of these problems might play out over the course of the US economy. Let's say that both inflation and deflation were the main macro economic indicators. If only one of them was happening, that would mean that we were in good shape. And if inflation was the main problem, then we'd have relatively low interest rates and plenty of consumer spending. And if both inflation and deflation were the main problems, then we'd need to do something really quickly to turn things around in the US economy.

That is exactly what has been occurring over the last couple of years. It's been a difficult time for many American families, but they've also been hit with the unexpected expenses of the global crisis. As a result, the consumer spending dried up for several months, which pushed prices up. Then when the economy started to rebound, inflation became an issue again . . . . . . because the cost of goods and services became so high. Now, we are finally seeing the trickle-down effects of all of that consumer spending, but it still isn't close to fast enough to truly make up for all of those short-term problems.

In addition to the above, the big macroeconomic problem facing us right now is a broken system that doesn't address the long-term liabilities of the financial system, which is called crony capitalism. When money flows through the banking system, it's given to people who have direct investments, like stockholders. But when it flows through the financial system in general, it's given out to people like you and me in the form of loans, etc. The problem is that this type of lending isn't really creating jobs, and most of the money has to come from interest rates that are artificially high.

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