List and briefly explain macroeconomic problems affecting less developed countries

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Unemployment
Unemployment means the economy is not attaining the macroeconomic goal of full employment. Unemployment is a problem because:
• Less output is produced and thus arise the problem of scarcity in the economy.
• Due to which the owners of unemployed resources receive less income. This gradually reduces the standard of living.

ii) Inflation
During the Inflation there is general rise in the price of goods and services over time. Inflation is a problem because:
• Since there is rise in the price of goods and services, the purchasing power of money declines. This in turn reduces financial wealth and lowers living standards.
• Greater uncertainty surrounds long-run planning.
• Income and wealth tend to be haphazardly distributed among various sectors of the economy and amongst the resource owners.

iii) The Business Cycle
Contraction Phase: During the contraction phase of the business cycle there is a general decline in economic activity. The overall aggregate demand is less which means that there is less output that is produced, and thus fewer resources are employed for the same.
Expansion Phase: During the expansion phase of the business cycle there is a general rise in the economic activity. Thus the overall aggregate demand increases leading to more production and the resources been employed at a higher level.

iv) Interest Rates
Interest rates are the charges which are levied by the banks for lending a loan. As businesses borrow money from the banks from time to time, increase in Interest rates will directly influence the business. With the increase in interest rates will lead to increase in interest expense. In such a case businesses will have to incur higher costs to repay the loan. Along with the businesses, interest rate changes also affect customers who in turn will affect the business. Individuals in such cases have to pay higher amount to borrow the money, ultimately declining the demand for large products.

v) Stagnant Growth
Stagnant growth occurs when Supply of products is not increasing or it is decreasing below the benchmark. An increase in the total production of goods and services is generally needed for growth of the economy. This is required to keep pace with an increase in the population and expectations of rising living standards. Stagnant growth exists if total production does not keep pace with these expectations. Hence the macroeconomic goal of economic growth is not attained. The probable reasons for stagnant growth can be associated with the quantity and quality of the resources used for production.

ERICK MOGAKA answered the question on November 8, 2017 at 06:20

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List and briefly explain macroeconomic problems affecting less developed countries

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