Why Use the Economic Theory
In Europe, almost every country’s economy is suffering from a financial crisis leading to an economic crunch. The economy in most of the European countries is increasingly becoming worse every day. The most affected of them all is Greece, where the European nations are gathering to help save the situation.
However, despite all odds the economy of Turkey is growing stronger and stronger everyday. The different leaders who are at the helm of the situation are even surprised with growth. The country changed most of its policies so that they can try to salvage the economy and it worked. The economy is growing more than what the leaders are speculating. Therefore, this paper will use the economic theories to try and analyze why Turkey’s economy is defying all odds in Europe over the second quarter of the year. Discussion Concepts The economic theory can be defined as a theory of all production and consumption activities in an economy.
In the economic theory, there are concepts that can well describe each part of the economic theory. The first concept is the consumerism concept. It states an increase in the consumption of the different products is economically beneficial to the economy. This concept will be helpful in analyzing the economic growth of Turkey based on the consumption. Additionally, it will also help in analyzing agriculture as its main economic sector. Therefore, the application of this concept in the paper will be helpful.
The other important concept in the economic theory is the Keynesianism concept. It states that government intervention in the economy by providing monetary policies and other activities in the market places is the best of any countries economy. In this case, the government may try to implement some policies so that they can try to stabilize the market thus becoming useful in saving the country from an economic crunch. This concept is supportive of the paper in analyzing how the different policies implemented by the government of Turkey saved the country’s economy. Monetarism is another concept of economic theory.
It states that the changes that are experienced in unemployment and the rate of inflation are usually caused by the changes experienced in the supply of money. This means that every time there is a change in the supply of money may it be an increase or a decrease it will affect both unemployment and the rate of inflation. This concept of the economic theory will be helpful in analyzing Turkey’s monetary policies and how they have helped in raising the economic growth. The last economic concept of the economic theory to be used in analyzing the economic growth in Turkey is liberalism concept. This concept states that for a healthy economy to be there, there must a free competition and a self regulating market.
This is where the forces of demand and supply are left alone in a market to stabilize the economy. This is where the law of demand is usually actively put in place to set te prices of different products in a market. This concept will help in analyzing the economic growth in Turkey by evaluating whether there is a free market economy in the country or not. Analysis In the second quarter of the year, the economy of Turkey grew by 8.8% and it expanded by 1.
3%. When compared to the neighboring countries, the country’s economy is steadily growing at an increased rate. This is the opposite of what is happening to the neighboring countries. The first concept to be used in analyzing the situation is the consumerism concept. In consumerism concept, for a country to experience economic growth people have to be consuming more than what they are consuming. In the case of Turkey, the countries consumption has really increased over the last decade.
As a result, the countries economy has risen tremendously. According to figure 1, the countries consumption in relation to their disposable income has really increased since 1998. However, there was a little slump between 2001 and 2002 due to external factor like financial crisis. The financial crisis also resurfaced again between 2007 and 2009 causing the reduction in consumption. For there to be an increase in consumption there must be money or disposable income for people to spend.
This more and more people were getting employed and their salaries were high enough for them to be able to spend. For such a situation to happen it means that the country has been experiencing a smooth growth in the economy. Therefore, the people are able to spend more money thus leading the country into economic growth. For that reason, the increase in consumption in Turkey has resulted in the growth of the economy over the several years. The other concept that can explain the growth of Turkey’s economy over the last few years despite the odds is Keynesianism concept.
The concept states that it is due to the government intervention that the economy of turkey has gradually increased. The country has had one of the most favorable political environments for business consumption as opposed to most of the neighboring countries. Additionally, the government decided to raises taxes on some of the household items so that they can be able to acquire money to sustain the economy. This means that domestic items increased in prices while the automobile reduced in prices. According to the consumption rates of each domestic household, the consumption rate of the country has remarkably increased.
As a result, the government revenues have increased. The government has channeled the increased revenues in other parts of the economy thus leading to the steady growth in economy. Therefore, based on the country political stability and good policies in the market, they have led to increased growth in the economy over the second quarter of the year. The other important concept is the monetary concept that will help in analyzing Turkey economic pressure over the second quarter of the year. In this case, the rate of inflattion and unemployment is affected by the rate of money supply in the market. In Turkey, it means that the rate at which money is being supplied in the market affects the rate of inflation and unemployment.
Over the last few years the country has been experiencing financial crisis affecting the inflation rate of the country. The inflation rate has continually increased meaning that there is an increase in money supply in the economy. However, over the last few months the country has made some serious monetary policies to curb the inflation. However, there is one unusual policy which went against what is expected in the books. The banks reduced their interest rates on loans.
This means that people would have some disposable income on their hand while the government will be able to fund most of their projects. On the other hand, the government made some major cuts on the reserves for the banks. These banks reserves were reduced by 8% causing a reduction in the supply of money. As a result, people are able to spend more and at the same time, the money in circulation is remarkably reduced. In the end, the economy of the country has grown tremendously. The last concept of the economic theory is liberalism.
This is where the laws of demand supply are left alone in a market to determine the economy. Over the last few months the country has left the market forces to take over the prices of the different commodities. As a result, it has led to industrial growth. Additionally, there has been an increase in the no of private industry in the country. These private industries have led to the increase in the country’s growth domestic product. Based on the different concepts of economy theory, fig 3 shows how the economy of Turkey is growing from the last five years leading to an extraordinary growth to the second quarter of 2011.
The figure 3 shows that the country is earning more money than what it is spending. Although there are some years like 2009 that show poor economic growth, it is through government intervention and private industries that have led to the remarkable growth of the country’s economy while their neighbors are performing poorly. Therefore, based on figure 3, the country’s revenues have increased by 1.4% in the second quarter of 2011.Conclusion The economy of Turkey has defied all odds by growing at an increasing rate despite what has been happening to the neighboring countries like Greece.
This has been attributed to several places that the government has put in place. Additionally, the political instability has created incentives for the private industries to thrive thus resulting in the growth of the country’s economy. The establishment of all this has been made possible by the economic theory. It states that it is a theory that measures all the commercial activities that take place in an economy. Therefore, all the concepts of economic theory have been used to establish why the economy of turkey has grown remarkably well in the second quarter of 2011.