Macro--economic Essay Example | Topics and Well Written Essays - 1500 words - 1

Macro--economic - Essay Example It will recover at some point, but we are probably two or three years away." 2. Introduction In February 2011, the Obama administration issued â€Å"Reforming America’s Housing Finance Market† (Reforming America’s Housing Finance Market – A Report To Congress, accessed 8 May, 2011). The extensive ranging and significant study was motivated by the view that: â€Å"The housing finance system must be reformed. It is the vital link to sustainable home ownership and rental options for millions of Americans, and it is central to our nation’s economy. We allowed its flaws to go unchecked for too long, contributing to a financial collapse that strained families, decimated communities, and pushed the economy into the worst recession since the Great Depression† (p.31). Since the housing market in the US is undergoing a period of depression even now, an analysis of the article with regard to aggregate demand and aggregate supply of the housing market is discussed in this report. Apart from this all other relevant areas of macro economics will be discussed with a summary at the end of the report as a conclusion will be added. 3.1 Macroeconomics According to Gwartney et al, (2006) macroeconomics is a part of the study of economics which centers on the aggregate economic system. Macroeconomics examines the economy at a national/global level and is related with the economy as a whole. According to Susan Wachter et al (2010), "Housing, which usually leads us out of recession and into recovery, will be a lagging indicator this time. Consumers will look to the health of the whole economy to decide whether to make a home purchase or not." 3.2 Analysis of macroeconomics with regard to housing situation in the US: CASE-SHILLER HOUSE PRICE INDEXES U.S. Home Price Index Quarterly 2000-2010 Source: Bloomberg The above graph shows that the rising fall of the house prices nationwide has exceeded 32% from the 2006 peak, as measured by the Case- S hiller House Price Index (chart). Almost five million households have lost their homes through legal proceedings or short selling. With the exclusion of house prices and legal proceeding, the majority housing-linked standards have reached the bottom, but a healthy revival is doubtful (Bloomberg). The fundamental issue with the residential housing market is linked to a constant imbalance between supply and demand. The basic demand for housing stays gloomy while the supply of unsold homes stays disproportionate. The result is evident as sales of homes are Home sales are dormant, new construction stays exceptionally low, and nationwide house prices carry on to weaken. The demand for housing is also at a low range inspite of low-cost in most major markets. This has led to negative look at the house prices by the consumers and new house hold creation has decreased by 50%. The supply also is on the decrease because there were massive number of houses built during 2000-2007 and record numb er of foreclosures (Bloomberg). 3.3 Aggregate demand curves Source: McConnell, 2010 Aggregate demand curve depicts the quantities of real GDP that purchasers jointly want to buy at each potential price level. The correlation between the price level and the quantity of real GDP required is reverse or negative. In reality with every increase in the real GDP