The relationship between the success of an economic system and income inequality is a significant topic in macroeconomics. The impact of income inequality in the success of an economic system has been a  topic that has been debated over the years by both policymakers and the press. In macroeconomics, income inequality is the degree to which income is distributed unevenly among a population. On the other hand, a successful economic system is one that all entities in the economy are interacting healthily. In this regard, it is therefore right to say that inequality is bad for the success of an economic system.

First, inequality depresses economic growth, leaving less for society to divvy up. The primary means through which income inequality depresses economic growth is by subverting education opportunities for people from low-income backgrounds. The impact of this is lowered social mobility and hampered skills development. As a result, this population becomes less productive. Less productivity means lower wages which in turns reduces the overall economic participation.

Second, income inequality reduces the overall demand for consumer goods bypoor people. When the gap between the rich and the poor widens, the rich save money in the banks. The poor on the other hand borrows money from banks which end up not paying since their economic status does not allow them to repay, thus fuelling a debt crisis.

Lastly, income inequality is associated with the world’s “savings glut.” This is because the rich become less likely to spend an additional dollar than the poor %8%8%. This results in the rich saving more. The more the savings in an economy, the more interest rates reduces which makes it challenge for central banks to manage economies.

In a nutshell, the success of an economic system cannot be achieved by promoting income inequality. For the economic system to become successful, the government should strive to make an equal distribution of resources to its subjects. It must try in all ways possible toclose the gap between the rich and the poor must.

The scope of Macroeconomics

The study of Macroeconomics is concerned with national income and how it is determined, and the level of consumption and saving in the economy. Besides, it focuses on national income fluctuation, inflation, employment, the role of money and the national growth rate. Thus, microelectronics is said to be the study of aggregate (Kennedy&Prag2017).

In essence, the central economic problem of macroeconomics and that of microelectronics is identical. The two are similar in that both are concerned with the issue of allocation of resources (Kennedy&Prag2017). This problem entails what and how to produce, and to whom. This means that a choice has to be made about the types of wanting human beings to want satisfied with the scarce resources. By doing this, people end up sacrificing other options, because resources have alternative uses. The only difference is with the two is level at which these decisions are made- macroeconomics at the national level while microelectronics at the household level.

The efficient allocation of scarce resources in a national economy is a macroeconomics concept that is used to refer tothe most efficient and fullest utilization of resources. It is the combination of inputs outputs and the distribution of inputs and outputs (Baiman2018). This combination must be in such a way that a change in the economy makes an individual better off only by making someone worse off.

The economic concept of the efficient allocation of scarce resources is an essential concern for macroeconomics for one main reason. As noted by Kennedy and Prag(2017),  it helps economists to optimize production from scarce resources. That is,  it allows economists in the allocation of limited resources to help satisfy the infinite human desires and wants. Through, efficient allocation of resources the government can determine what factors of production to increase or reduce in the bid to meet the never-ending human wants.

The central problem faced by the US macroeconomy is the issue of unemployment. US unemployment rate ultimately explains the number of people from the available pool of labor force is unable to find work. This issue relates to the principle of efficient allocation of scarce resources that shows how the government of the US has failed to allocate the four factors of productions efficiently. It shows that less output is produced hence the problems of scarcity.

The assertion that a “trade-off” is inevitable between efficiency and equity is not valid and should not holds. This is because the government effort to distribute resources among its citizens is a way of promoting both equity and efficiency. For example, efforts by the government to provide educational opportunities to the economic disadvantage is both equitable and efficient at the same time. This is an expression of the fair distribution of resources to increase the living standard of the citizens. In the end, the efficiency of the economy will be improved since more people will become more productive.

References

Kennedy, P. E., & Prag, J. (2017). Macroeconomic essentials: Understanding economics in the news. MIT Press.

Baiman, R. (2018). Economics: A tool for critically understanding society. Palgrave.

 
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