Money and the Prices in the Long Run and Open Economies

Economic Growth and Development
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Abstract
Economic prosperity is the hope of all governments around the world and what each of the government strives to achieve. This is because economic development leads to the improvement of people lives in the country as well as promote the wellbeing of the nation wholesomely. Through economic development, the country generates wealth thereby becoming self-sufficient. This paper looks at the state of economic development. The paper identifies the factors that spur economic growth to provide an accurate account of how countries grow economically. The role of the government in achieving this goal is emphasized greatly in the paper. Moreover, the paper looks at various ways through which economic growth is measured. GDP as a measurement of economic development is emphasized in the paper. The paper also looks at how countries, as well as companies, can achieve their strategic plans. Various readings from journals are used in the paper to help achieve the goals of the researcher.
Economic Growth and Development
Introduction
Countries in the world are differentiated due to various factors such as economic growth. Economic growth may be used to identify a state as either wealthy or poor. Economic growth is measured by looking at various elements that affect a country domestically as well as internationally. Countries develop in different phases due to many factors. For instance, European countries and the United States of America were the first countries to build followed by Asian countries such as Japan and South Korea.

Economic development can only be achieved when the government in place supports the development agenda.
History of GDP, Savings, Investments, Unemployment and Real Estate and their Forecast for the Next Five Years
Economic development is measured in various ways depending on the parameters that are used. The use of Gross Domestic Capital (GDP) is the most common way of measuring economic growth in different countries (Baker, Bloom & Davis, 2016). GDP was first used in US Congress financial report developed by Simon Kuznets in 1932. In 1944, the GDP as an industrial measurement mechanism was adopted after the Bretton Woods Conference. Savings is a concept that is used to measure the number of resources that are kept aside by people in a bid to caution themselves in the future. Countries also have their savings deposited in various international banks.
Investment is the number of resources that are injected into an economy by either the government or private developers. Investment in many countries depends on various issues such as security, interest rates, political environment, infrastructure and human resource. States that receive large investments develop faster than those that do not. Financing can be either foreign direct investment or domestic direct investment. Over the years, the rate of investment changes depending on the above factors.
Real interest rates are bank rates that are charged by banks and financial institutions on loans given to people. These rates are adjusted in a bid to remove the inflation effects to portray the real cost of borrowing money from lenders. These rates change depending on the fiscal health of the country as well as government policy. For instance, the rates that are used in a country may increase or decrease by several percentages from one year to another.
Unemployment rates are used to calculate the number of people in a country who are not formally employed. Unemployment rates are indicators of how healthy an economy is. When the level of unemployment is low, it means that the economy is growing well and few people are having trouble to earn a living. In the next five years, the development of a country may depend on the factors discussed above. If for instance there is a slowdown in the number of investments recorded, the GDP growth of the country may drop. Also, whenever there is a reduction in investment as well as an increase in real interest rates, the levels of unemployment will increase thereby affecting the savings of the people as well as increasing economic suffering. This will be caused by the fact that the number of jobs created will be low compared to the number of job seekers. Therefore, in such a country, economic growth will reduce in the five years taken into account.
How Government Policies Influence Economic Growth in a Country
The government of a country is the most significant factor that influences the economic growth of a country. The government is responsible for formulating roadmaps that are supposed to help a country achieve growth. Whenever the roadmaps are poor, strong economic growth will not be experienced at all. The government is responsible for creating a conducive environment that spurs investment to encourage growth. In events where there are problem factors slowing growth, it is the government’s role to rectify the problems. The government may influence economic growth in the following ways.
The Formulation of Monetary Policies
The government through the parliament is responsible for the formulation of monetary policies. Monetary policies are used by banks and other lenders to determine the number of interest rates on loans (Bruno & Shin, 2015). When poor policies are made, the country will experience weak economic growth due to reduced investment. Monetary policies should be created with a long-term agenda to spur growth over a long period.
Encouraging Investment
For a country to experience economic growth, investments must be encouraged. It is the responsibility of the government to encourage foreign and domestic investors to channel their resources in the country. A government accomplishes this by providing incentives to investors to attract them. For instance, the government may reward an investor with a tax holiday for investing in a particular area or industry. Also, the government should also have its investments in the country to spur growth. For instance, it should invest in schools, hospitals, and infrastructure to encourage other smaller investors.
Economic Plans and Blueprints
A country requires planning to achieve meaningful economic growth. Economic planning is the mandate of the government in place. For instance, a country may decide to focus more on manufacturing if other sectors of the economy are up and running. To achieve this goal, the government will be required to come up with ways of attracting investors in the field of manufacturing through the formulation of plans.
How Monetary Policies can Influence the Long-run Behavior of Price Levels, Costs, Inflation Rates and Other Nominal or Real Variables.
Monetary policy can be described as a framework developed by the government’s central banking authority in a particular country. In the United States of America, the Federal Reserve Bank creates monetary policies used by American financial institutions. These procedures are used to control the circulation of money in the country to promote a healthy and stable economy. Monetary policy is not fixed due to the changing economic factors that affect a country. In some instances, the policy needs to be altered to address issues such as inflation (Cúrdia & Woodford, 2016). This enables the control of nominal variables affecting the country such as the supply of money, exchange rates of foreign currency, inflation as well as real variables such as the price of commodities and GDP. For instance, the Central Bank of a country may decide to increase the supply of money in the market. The extra money will create inflation because many people will have access to more money. For a company in the same market to continue to earn the same profit it earned before the inflation; something must be done. If the inflation level is 3%, the company will have to increase the price of the goods by 3% to recover the cost. Under this mechanism, the consumers suffer since they pay more for products whereas their income remains mostly the same. In case the company decides to keep the prices unchanged, the firm will have to accept a reduction in profits.
Alternatively, the organization may decide to cut on costs thereby rendering the jobs of many people at stake as well as the quality of products being produced. Also, monetary policies affect the volumes of goods and services being traded in a country. This affects both internal and external trade. For instance, whenever the local currency is weak, the exporters from the country earn more whereas the importers bear the burden of importing goods expensively.
How Deficits or Surpluses in Trade Influence Growth of Productivity and GDP
The economic vibrancy of a country can be assessed by looking at the number of goods and services that are traded. Most countries such as the United States have open economic policies regarding international trade. This means that the countries open their markets for goods from other countries without putting in place hurdles against the business. In return, the countries exporting the goods have to open their markets to enable a smooth movement of goods between the countries. Having an economy that is open to international trade helps a country increase productivity (Riasi, 2015). This is due to the demand for more goods and services. Increase in productivity results in more jobs and revenues due to increased investment, thereby increasing the country’s share of world trade as well as GDP. Trade is one of the largest components of GDP. States that have the most significant amount of exports and imports notably have the most significant economies by GDP. For instance, the Chinese and Americans are the most significant exporters and importers of goods and services. Notably, the two countries have the most extensive economies in the world. Whenever there is a reduction in the number of goods and services traded, this means that the country is experiencing a reduction in economic growth.
Surpluses in trade mean that a country exports more than it imports. This means that the country is self-sufficient in most of the goods and services that the citizens require surviving (Thirlwall, 2015). In such scenarios, the country experiences typically economic growth since the surplus means more savings. The more savings a country makes may translate into more investment thereby increasing the economic growth. More investment in the country will increase productivity due. This is because the government will have more money to invest in financial stimulus plans and vital infrastructure and education. The result of improved productivity is increased GDP and a stable economy.
Trade deficits, on the other hand, come about when a country imports more goods than it exports. This means that the country is not self-sufficient. The economy does not produce enough products and services to sustain the local market. The more the trade deficit translates to the fewer savings the country will have. This is because much of the country’s revenues will be used to buy goods from foreign markets to satisfy the local market. The effect of trade deficit on economic productivity is large. This is because the country will experience low levels of savings thereby reducing the number of investments made in the economy. The government will not have enough money to invest in vital sectors that spur economic growth such as infrastructure, education, and health. Low productivity will result in slow economic growth as well as low GDP.
The Importance of the Market for Loanable Funds and Foreign Currency Exchange to Achieve the Strategic Plan
Loanable funds and the exchange of foreign of foreign currency are essential elements that the administration of a country should understand. This is especially important for countries that invest in other countries. Loanable funds are crucial because they may affect the real interest rates charged by financiers (Abor, 2017). For instance, if the amount of loanable money is high, the interest rates will be low. In comparison, whenever the amount of money to be loaned to investors is small, the interest rates will be high due to the competition from loan seekers. Banks operate by using the money deposited by people. The deposits are used to give loans to other people under interest. A country that has more savings will, therefore, result in low-interest rates and low levels of inflation. This is because a lot of money will be available for loans thereby reducing competition to secure funding for investment. Whenever a foreign company finds that loan funds are easy to find and administer, the firm expands easily due to cheap finance thereby achieving the strategic plans set.
The exchange rate for foreign currency is another essential factor that needs to be considered when investing. Some countries have weaker currencies than others due to various factors such as monetary policy and economic state. The foreign exchange markets are involved with national and international credit. The exchange market provides a country with a platform to deal with risks associated with foreign currency and clearing of debts. The US Dollar is used by many countries as the de facto foreign currency in international trade as well as debt repayment. Other currencies that are used in international trade include the Japanese Yen, Franc, Euro, Yuan and the Sterling Pound. Countries that own these currencies can ensure their companies compete well against their competitors. This enables these countries and businesses achieve their strategic plans easily. These companies increase production quickly and become multinationals. In the US for instance, the use of the US Dollar has provided American companies with an upper hand in international trade. This enables these companies to expand their operations quickly thereby achieving the goals in their strategic plans.
Whether the Strategic Plan is Achievable Based on the Findings
Strategic plans are put in place to enable a country or organization to achieve specific goals. Governments have to put in place strategic plans to allow their countries to make economic growth. The government must conduct a study about the state of the economy before creating a strategic plan to come up with the most suitable plan. Moreover, the government has to put in place some measures that will help achieve the strategic plans. From the findings above, the government has to create a monetary policy that will cater to the financial market in the country. This will, in turn, reduce levels of inflation and increase investment and productivity. The government should also study the foreign exchange markets in the international market to invest in countries with the best returns. The companies investing in the domestic market, as well as the foreign markets, will be in a position to get cheap finance thereby increasing productivity. These measures will enable companies, and the governments achieve their strategic plans.
Conclusion
Economic growth is an essential element in the development of any nation. A country that has strong economic growth becomes wealthy and prosperous. This is because the citizens of the country earn a living comfortably. All governments should, therefore, strive to achieve economic growth by creating strategic plans and ensuring that the country has a conducive investment environment to spur productivity.
References
Abor, J. Y. (2017). The Financial Environment and Small Businesses. In Entrepreneurial Finance for MSMEs (pp. 69-85). Springer International Publishing.
Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593-1636.
Bruno, V., & Shin, H. S. (2015). Capital flows and the risk-taking channel of monetary policy. Journal of Monetary Economics, 71, 119-132.
Cúrdia, V., & Woodford, M. (2016). Credit frictions and optimal monetary policy. Journal of Monetary Economics, 84, 30-65.
Riasi, A. (2015). Competitive advantages of shadow banking industry: An analysis using Porter diamond model. Business Management and Strategy, 6(2), 15-27.
Thirlwall, A. P. (2015). Keynes, economic development, and the developing countries. In Essays on Keynesian and Kaldorian Economics (pp. 149-177). Palgrave Macmillan UK.