Essay about Changes to the Economy

527 Words 3 Pages
Unexpected or unanticipated change is an alteration that catches people by surprise such that they have already made decisions that did not take the event into account. The economy is quite dynamic and numerous economic changes take place unpredictably. Economics endeavors to explain the manner in which people react and markets adjust to change. An unexpected 3 percent fall in the price level in the goods and services market will lead to similar effects as when the economy is experiencing deflationary shocks. People tend to increase their savings and cut down on their expenditure in anticipation of losing their sources of income. The stock market will also be characterized by tumultuous instability that will be an indicator of falling …show more content…
The cost of production rises since the firm is incurring more expenses than the revenue is generating from the same amount of raw materials and output. Consequently, firms will be forced to reduce their workforce increasing the unemployment level in the economy and lowering their production levels. As a result, the aggregate demand in the economy will suffer with decline in the demand for goods and services which in turn hurts the profit margins of enterprises. The economic uncertainty will also negatively affect the real price of resources; firms will be unwilling to pay high prices for labor and other factors of production.
Various economic players expect a certain level of inflation to exist in the economy. The prevailing economic conditions enable the forecasting of future actual inflation rates. The anticipated inflation will be factored in when businesses and consumers enter into long-term agreements. However, the actual rate of inflation may be less than anticipated affecting the various economic players differently. The wages paid to workers for the services rendered in the production process represent a cost to the firm (the cost of labor services). With the inflation rate falling below the expected levels, the real wage of workers rises. The real wage earned will boost workers’ purchasing power increasing the demand for goods and services. The cost of capital will

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