Macroeconomics

MACROECONOMICS 3

Kenyais a country that is on the African continent and falls under thecategory of developing economies. This report will discuss theeconomic growth of the country for the last 2-3 years and establishwhether the nation is on a noble course of economic growth.

Thegross domestic per capita for the country has been growing. In 2013,the GDP per capita was US$ 1073.5 while in 2014 and 2015 was US$1101.23 and US$ 1133.46 respectively. According to World Bank, thepopulation growth in Kenya was last measured in 2014 and stood at2.64% annually (The World Bank Group, 2016). The Kenyan economy is anopen economy since it is in a trade with outside regions. Comparingthe unemployment rate in Kenya with that of the United States, it isevident that the U.S. rate is lower compared to that of Kenya.However, the two countries have a commonality in that their rates ofyouth unemployment are high. The percentage of GDP that comes fromexports for Kenya was 15.8%, 16.9%, and 18.1% in 2015, 2014, and 2013respectively. Alternatively, the percentage of GDP from imports for2013, 2014, and 2015 was 33.1%, 34.2%, and 29% respectively (TheWorld Bank Group, 2016). The major export for Kenya is horticulturalproducts while the chief import for the country is machinery andtransport equipment. The type of economy of the developed country isa mixed economy. In the past one year, the country’s currencycompared to the U.S. dollar has changed since its rate of exchangehas strengthened, but by a small margin.

Fromthe analysis of the different economic indicators, I believe thecountry is on a good course of economic growth. The macroeconomicpolicies put in place can be indicated to play a role in realizingthe growth that the nation is experiencing.

References

TheWorld Bank Group (2016). WorldBank Data.Retrieved fromhttp://data.worldbank.org/data-catalog/world-development-indicators

Macroeconomics

Thereare times when a country may be faced with many economic crises thatneed urgent measures. Such disasters include low growth rate, highinflation rates, massive debts, high unemployment rates and others.In such a situation, immediate policies should be put across byparties such as the president and the Fed to help stabilize theeconomy.

Asthe leader of a country facing such issues, I would introduce a Taxcut policy. This system would assist in improving the economy byboosting public spending. Through this system, the personal incometax revenue will substantially increase. High tax rates lead totaxpayers` withdrawal of their capital from productive business andinstead invest in the securities that are exempted from tax or findother legal methods of evading realization of taxable income (Evans &ampHonkapohja, 2012). However, this policy may lead to the growth of taxrevenues causing the wealthy tax payers to pay high tax when themarginal tax rates come down. Also, this system may benefit only theaffluent since it reduces government services that are highly reliedon by the lower income people (Evans &amp Honkapohja, 2012).

Increasingthe government spending is the other policy that I would encouragesince this will increase people’s personal income indirectlyboosting the economic growth. However, this may complicate theattempt to implement pro-growth policies. More government spendingcreates new consumption as well as new tax revenues that increase themoney in circulation. Government spending multiplier leads to a risein GDP which plays a role economic growth (Evans &amp Honkapohja,2012). The government should regulate the amount they release forpublic spending to avoid the side effects.

Beingthe Fed chairperson, I would propose for a monitory policy that willstabilize prices to reduce inflation. Such a policy would bedecreasing the money supply, such that there is less money incirculation since the workers will not have high amounts of money tospend. However, with low inflation, the question of Philips curvecomes in on the issue of the trade-off between unemployment andinflation. Do we choose low inflation or low unemployment since thetwo cannot go together?

Lowinflation may lead to high unemployment, and that is the downside ofthe policy. I would also establish interest rates targets that wouldstabilize the economy. Also, I would ensure that through the setinterest rates, maximum employment, stable economic growth, and pricestability are achieved. Therefore, to reduce inflation, I would raisethe interest rates. Conversely, I would ease the rates to spur thegrowth of the economy. Increasing the interest rates may negativelyaffect the poor since only the rich will be in a position to borrowmoney (Evans &amp Honkapohja, 2012).

Ahigh debt to GDP ratio harms the economic growth and may make it hardfor a country to pay back their external debt, and the creditors mayseek higher lending interest rates. When a country is not in aposition to pay their debts, it defaults, and that may cause panic inboth domestic and international markets (Evans &amp Honkapohja,2012). A high debt also causes a budget deficit, and that may weakenthe economy of a country since it is not able to cater for all thesectors of their economy. A high debt weakens the economy hencecutting tax will weaken the economy more since some of the money usedto pay debts comes from tax.

References

Evans,G. W., &amp Honkapohja, S. (2012). Learningand expectations in macroeconomics. Princeton University Press.