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The United States: How our Economic System and Government Combine to Enhance and Stabilize our Markets and Influence the World around UsIntroductionMacroeconomics is very important in the United States because it looks at the economy as a whole dealing with inflation, price levels, rate of growth, national income, GDP, and the unemployment rate (“The Economic Times”). Because the United States uses a free market economy, it needs to have strong social institutions, which means having “a system of behavioral and relationship patterns that are densely interwoven and enduring and function across an entire society (Verwiebe).” The definition of social institution claims that in order for an economy to be strong and successful, all parts of society must be intertwined from the consumer to the producer and up to the federal government. If all three of these institutions are working together in a capitalist market then the overall macroeconomics of a country should be successful. Macroeconomics and the relationships between social institutions and a societySocial institutions and society work together in the big picture to create a Capitalistic system. The term "society" is clearly defined as a group of people living together in an orderly fashion. On the other hand, we have no exact definition of a social institution other than what was mentioned in the previous paragraph dealing with behavioral and relationship patterns working together. Nevertheless, there is proof that without social institutions in an economy the society will not function properly. For example, a society's consumers, also known as buyers, must purchase goods and services from the producers.Looking at the macroeconomics of the United States in reference to both social institutions and society shows that they both are a part of the capitalism. In this sense, we as the people are the ones that control the free market, although there is still some government involvement to help with regulations. One of the main goals of a capitalistic system is to guarantee individuals their freedom, which includes the right to private ownership (Tucker). The last key piece of capitalism is free enterprise. This is what gives private businesses the right to operate and compete freely in the market system (“Free Enterprise”). Supply and demand are also very important in a capitalist society because of their impact on the free market system. An economy can be described as good when consumers generate a high demand for products. Conversely, a lack of demand can create an excess supply which leads to what might be called a bad economy. Conversely, if there is an excess supply of goods from the producers, then there is less of a demand meaning that the consumers are not willing to buy as much. In the latter scenario, the producer's company might consider a new product or new marketing strategy to entice consumers to purchase goods from the company. Companies can do whatever they want, but the consumer actually controls the supply and demand curve. If the consumers decide that they do not want to buy a specific product, the consumers could potentially put the company out of business and cause them to go bankrupt. The last important aspect of the free market system is competition. Companies compete daily in the free market to try and entice customers into buying their products. Sometimes their tactics include having a sale one week or the ways in which they brand their products. Coke and Pepsi are two good examples of competing companies. These two companies are in competition with each other which means that since they sell very similar products their prices are very similar. That also means that Pepsi can't randomly decide that it wants to raise the price of its 2 liter from $1.50 to $3.50. Chances are the consumers will decide to start buying the Coke products because they are suddenly cheaper. Some consumers that will refuse to buy coke because they do not prefer the taste or have brand loyalty, but the majority will be more cost conscious and go with the cheaper option. This Coke versus Pepsi rivalry is a prime example of how competition is very important balancing factor in a free market, and exemplifies the power consumers hold over producers.Macroeconomics and the relationship of social institutions to societal problemsFrom a macroeconomics standpoint, many good things come from having a Capitalistic market. However, capitalistic markets have their problems like any other system. In the United States, the government helps with regulations and try to ensure fairness. This is a good and bad problem. According to the laissez-faire philosophy, also known as the invisible hand, if the government stays out of the free market, then businesses and the whole free enterprise system will work better and will solve problems on its own. Over the past 50 years we have departed more and more from this philosophy, especially in terms of government regulations and too much government involvement (U.S. Department of State). In the modern United States, the government manipulates the market, rather than letting the invisible hand do its job. Because of this manipulation, businesses and the government now work together almost as one rather than as separate entities(U.S. Department of State). This situation is problematic because too much government involvement can harm the economy. There are two policies that the United States government has put in place to help the economy. The two policies are monetary policy and fiscal policy. Monetary policy is the help with inflation and interest rates in relation to banks and the federal reserve who controls interest rates(Investopedia, 2003). This is used in two different cases for the United States economy. One type of monetary policy is the contractionary policy. If the United States economy is inflating quickly and people are spending lots of money then they will raise interest rates and reduce government spending. If the economy is having an economic downturn then it will use the other type of monetary policy known as the expansionary policy(Investeopedia, 2003). In this scenario, government will do the opposite and lower interest rates to help the economy back on its feet. Fiscal policy deals with government assistance. John Maynard Keynes is a theorist who believed this policy to be the most effective. He thought that if the government increases or decreases its spending depending on the United States economy then it can influence the economy overall. The belief is that if the economy is inflating quickly, then raising taxes is the right thing to do. However, if the economy is deflating and down turning in a recession, then the government should lower taxes. By taking the actions outlined in the above sentence, proper fiscal policy can help boost the employment rate and reduce the potential for an economic collapse (Investopedia, 2004). Macroeconomics and the historical evolution of social institutionsThroughout history the United States has experienced many business cycles in the rise and fall of the economy. A business cycle has four parts that the cycle goes through. A "trough" would be the bottom of the chart. Conversely, when economy rises that is called the "growth period." Once the cycle reaches the top, it “peaks” and then it goes back down the curve in a process called a "recession." Throughout all of these the economy as a whole fluctuates and so do the prices of goods along with employment rates. These fluctuations can be assessed for data, but there is no exact time that the cycle occurs. Parts of the cycle might last longer than other parts, leading to a recession or even worse: a depression. One of the most tragic events in economic history is the Great Depression. There was no one thing that caused this tragic event. The stock market crashed in 1929, but history shows that the stock market alone couldn’t have caused the depression. In the early 1920’s, also known as the roaring twenties, the economy seemed very healthy and the United States became a creditor to the rest of the world after the first World War. The economy was expanding; employment rates were high and people were spending their money of luxury items. The rich were being more cautious about their money rather than spending all of it while the middle and lower class were not saving and rather spending. Another issue was that the banks did not have anything to back up the money that they were loaning to people. Along with the issues that had already taken place, the Great Depression affected America's allies across the Atlantic which also decreased the selling of goods to other countries because of tariffs (The Great Depression). Three years after the depression had begun, overseas trade decreased immensely. When Roosevelt entered office in 1932 he made plans of action to help get the economy out of the depression (“About the”). He increased government involvement, but American unemployment remained high at 15% even ten years after the depression started (“About the”). Finally, in 1939 the economy started to make a turn around when World War II broke out. Citizens found employment in factories to help with building weapons for war. Two years later, the Great Depression ended in 1941 when the United States officially joined the war (“About the”). Those were a very devastating twelve years for the United States economy. In all of history, this was and still is one of the most devastating events in history. This event also caused lots of changes in the government and inspired the United States government to become more involved in the economy in order to prevent another cataclysmic depression. The legacy of that era includes regulations, government assistance programs, taxes, and more; the list can go on for days(“About the”). The big idea is that since the Great Depression, the economy has changed drastically and that hopefully with these implementations there shouldn’t be another depression.Fast-forwarding almost a century later brings us to the early 2000’s, when the economy had another hardship known as the Great Recession. Starting with the early 2000’s, just like the 1920’s, the economy was booking and the housing market in particular was very popular. The Great Recession was different from the Great Depression in many different aspects. The Great Recession began in 2007 when the housing market in California collapsed. People were buying large and expensive houses and when the housing market collapsed the houses were left empty and caused people to go bankrupt due to insufficient funds to pay to mortgage. As the housing market was crashing in December of 2007, the Lehman Brothers, which was considered the fourth largest investment bank in the country, went bankrupt in 2008 (Investopedia, 2009).This disaster spread across the economy like it did during the Great Depression. The unemployment rates rose immensely as 7.5 million jobs were lost and numerous households in the United States lost a total of around $16 trillion due to the stock marked decrease (Investopedia, 2009). From the facts provided about the Great Recession, there is much wonder as to how the economy managed not to collapse or how the United States did not go into another depression. The disaster was saved by the United States implementing the government assistance it had created after the Great Depression. The Federal Reserves played a big role in the saving of the economy (Investopedia, 2009). The Reserve was able to lower interest rates and assist banks to keep them from failing. The government also gave assistance to big companies that were about to collapse because of the recession (Investopedia, 2009). Cash for Clunkers was very popular during this time because it enticed the consumer to buy cars. Everything comes back to the multiplier effect. In June of 2009 the economy started into a growth period after the economy had hit rock bottom. If people don’t spend money then the economy can’t recover. As discussed in the previous topic, Keynes' theory was the approach that was taken to help the economy. However, while stopgap measures in the late 2000s did save the economy from potential turmoil, the economy has still not fully recovered even 7 years after the Great Recession. Especially since interest rates are still very low thanks to an excess of government spending. Economists are now wondering what will happen if the United States goes into another recession. Many have misgivings due to interest rates being low and the fact that national debt is quickly rising at almost $20 trillion which makes it about $60,000 of debt per citizen (U.S. National Debt).Macroeconomics and social institutions in a global contextIn the United States trade is very important. It is ranked as one of the top three importers and exporters of the world with over 75 different countries. The US exports mainly to Canada, Mexico, China, Japan, and Germany (United States Trade). The United States has a what is called the United States Trade Representative, or USTR, to help deal with foreign trade. There are many different agreements that have been put in place between different countries (United States Trade). Recently, the United States has become a net exporter of the western hemisphere with a surplus of $12 billion but has become a net importer from the eastern Hemisphere with a loss of $60 million (United States Trade). The US has many exports but the main ones are machinery, mineral fuel, and oil-electrical machinery vehicles and plastic (United States Trade). These exports are important because they bring new money into the economy. The US net imports are crude oil, vehicles, electrical machinery, precious stones such as gold and silver, and machinery (United States Trade.) The United states imports and exports similar things but each thing imported and exported has a specific reason for its supply and demand balance. For example, the United States has Ford Motor Company, which is an American-based company, and they might send their cars to another country to be sold while other United States car dealers import Mercedes Benz vehicles from Germany to sell in America. This is just one prime example of how importing and exporting interact with and support day to day life. Bibliography"About the Great Depression." About the Great Depression. Web. 16 Apr. 2016."Monetary Policy Definition | Investopedia." Investopedia. 2003. Web. 15 Apr. 2016."What Is Fiscal Policy? | Investopedia." Investopedia. 2004. Web. 15 Apr. 2016."The Great Recession Definition | Investopedia." Investopedia. 2009. Web. 17 Apr. 2016."Free Enterprise." Merriam-Webster. Web. 15 Apr. 2016."Macroeconomics Definition | Macroeconomics Meaning - The Economic Times." The Economic Times. Web. 15 Apr. 2016.Tucker, Kristine. "5 Characteristics of Capitalism." EHow. Demand Media. Web. 16 Apr. 2016.U.S. Department of State. "Government Involvement in the American Economy." Education. Web. 15 Apr. 2016."U.S. National Debt Clock : Real Time." U.S. National Debt Clock : Real Time. Web. 18 Apr. 2016."United States Trade Representative." United States Trade Representative. Web. 18 Apr. 2016.Verwiebe, Roland, Univ.-Prof. Dr. "Social Institutions." Web. 15 Apr. 2016."The Great Depression." . Independence Hall Association. Web. 15 Apr. 2016. ................
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