Explain why the control of inflation is an important objective of government economic policy.
Explain why the control of inflation is an important objective of government economic policy Inflation is defined as a persistent rise in the general or average price level and is usually given as the percentage change on the previous year. Governments will often have very set aims with what it wishes to happen to the rate of inflation. This is because changes in the inflation rate can have vast repercussions in many aspects of the economic environment. There are two different causes of inflation. It can be caused by excess demand in the economy. If this occurs it means that the amount of people who want a product exceeds the amount being produced. It causes an increase in demand, which is represented as a shift to the right of the demand curve on the appropriate diagram. This is not a problem if there are the necessary resources to cope with the extra demand and create more goods and services accordingly. However, if the economy is already operating at full employment or if there is high factor immobility then no more goods will be able to be produced and demand-pull inflation will occur. The other type of inflation cost-push inflation is caused by an increase in the costs of production. This means that it can be caused by a huge variety of factors, such as when raw materials are imported from abroad and the cost of importing increases then costs rise and prices may to
Unemployment, inflation, economic growth and balance of payments have close relationships with aggregate demand
Macroeconomics is a branch of economics dealing with the performance structure, behavior and decision-making of the entire economy. The four key issues that macroeconomic addresses are economic growth, unemployment, inflation and the balance of payments and they are all relate one way or another to the total level of spending in the economy. This essay will describe the meaning by the term aggregate demand and analyze the short-term relationship between aggregate demand with those four issues as well as the relationships between the four issues with the business cycle. The term “aggregate demand” can be described as the total amount of goods and services demanded in the economy at a given overall price level and in a given time period. It is represented by the aggregate-demand curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide and the curve is often downward sloping because at lower price levels a greater quantity is demanded. The formula for Aggregate Demand is important in that is allows to look at Aggregate Demand in detail: AD = C + I + G + (X-M) where AD is the Aggregate Demand; C is the level of consumption by consumers; I is the investment that occurs in the economy, done mainly by firms; G is the level of Government investment; X is the level of exports and M is the level of imports in the
Economics - Oligopolies
There are a number of areas of relevant theory in this story. The first is the issue of market structure. The retail grocery market contains many hundreds of firms but as the figures above highlight, five firms account for 75% of the total sales in the industry. The industry is said to have a 5 firm concentration ratio of 75%. If the takeover goes ahead this will become a 4 firm concentration ratio. This implies that the market structure is an oligopoly. Oligopoly refers to competition between the few and occurs where a few large firms dominate an industry. We must not forget however, that there are a large number of much smaller firms in the industry - indeed part of the reason for analysing such markets may be to see what happens to these smaller players who may not be able to compete. This is an example of a market that has become more concentrated over recent years - this means there are fewer businesses in the industry and their market share is rising. Oligopoly theory highlights a number of characteristics; non-price competition is strong, high levels of branding and brand loyalty; prices tend to be stable, high degree of interdependence between the main rivals - all of them watching what the other is doing and seeking to react and pre-empt their rivals; high of barriers to entry; strong emphasis on advertising; economies of scale; a possible price leader whose actions
The Causes that Affect the Consumption of High and Low Income People.
The Causes that Affect the Consumption of High and Low Income People. Interest Rates . Higher prices discourage the borrowing used to finance some types of consumption expenditures (such as automobiles and furniture) and it improves the return on earnings diverted as saving into the markets. As such, consumption reduces and saving improves. Lower prices work in the other way. Consumer Confidence . If people have more assurance about the state of the economy, they are more likely to boost their investing. However, because this additional investing is not the result of additional money, it must come from savings. As such, consumption improves and saving reduces. A drop in customer assurance works in the other way. Wealth . Prosperity affects consumption in one of two ways. A rise in financial wealth (including stocks, bonds, and especially money) encourages the family industry to improve consumption and reduce saving. Consumption improves and saving reduces. Alternatively, an improve in physical wealth (including cars, furnishings, and appliances) reduces the need to buy these goods and thus encourages the family industry to reduce consumption and improve saving. Taxes . Government collects taxation to pay for presidency activities. These taxation come from family earnings, specifically non reusable earnings. A rise in taxation means a decrease in non reusable earnings,
John Maynard Keynes’ influence and ideology Even today John M. Keynes’ ideas remain crucial to the most important debate of our time: how can we escape from the economic crisis? Should governments borrow and spend their way out of trouble or slash spending and reduce the national debt? Despite Keynes’ avid support for the free market, his theory is one strongly based on the mixed-market economy. “Keynes said it was possible for governments to come in and make markets work better... Keynes saved capitalism from the capitalists.” - Prof. Joseph Stiglitz Keynes’ theory opposed Adam Smith’s metaphor of “the invisible hand” – which envisages a self-correcting economy, in the form of the self-regulating behaviour of the market - due to individuals' efforts to maximize their own gains in a free market which benefits society, even if original ambitions include no benevolent intentions. Instead Keynes said that capitalism doesn’t always work on its own accord, but that government intervention is sometimes necessary (especially during periods of recession – which Keynesians see as an “economic malady” rather than a normal part of the business/trade cycle. Keynesian theory in modern macro-economics Alistair Darling MP, Chancellor of the Exchequer, 2007-2010 – “The dominant thinking in
Many countries have experienced a substantial rise in their fiscal deficits since 2008. Assess the factors which might explain this trend in the public finances of a country of your choice
June 2011 )a) Many countries have experienced a substantial rise in their fiscal deficits since 2008. Assess the factors which might explain this trend in the public finances of a country of your choice. [20 marks] A fiscal deficit occurs when government expenditure is greater than the revenue it gains from taxes. The UK is the country of my choice. 2008 was the start of the recession with many countries including the UK experiencing 2 consecutive quarters of negative growth. One factor that may explain the trend of public finances in the UK could be increasing unemployment. In the UK, it is now around 7.8%. Unemployment may have increased because businesses are losing money. As a result, they may have to reduce staff in order to survive or maintain profitability. If many businesses throughout the country do this, such as Morrison's cutting 700 jobs, then the amount of people claiming social benefits may increase. This has a dual effect on the government. First, the government has lost out on those 700 people's income tax revenue and secondly, has to pay out benefits to help them. On a macroeconomic level, this loss of revenue coupled with increased expenditure on social benefits caused by rising unemployment can be a factor in the substantial rise in the fiscal deficits. Another factor that links well with the previous one is a fall in consumer confidence. This links
Unemployment Revision Question and Answers - Economics
ECON 4 - Unemployment Revision Questions . What is the definition of unemployment? Unemployment are those without a job but who are seeking work at current wage rates. . How is unemployment measured in the UK? Claimant Count The Claimant Count measure includes people who are eligible to claim the Job Seeker’s Allowance (JSA). The data is seasonally adjusted to take into account predictable seasonal changes in the demand for labour. Labour force Survey The Labour Force Survey counts those who are without any kind of job including part time work but who have looked for work in the past month and are able to start work immediately. The figure includes those people who have found a job and are waiting to start in the next two weeks . Explain the causes of cyclical unemployment and how it can be solved? Cyclical unemployment is involuntary unemployment due to a lack of aggregate demand for goods and services. This is also known as Keynesian unemployment. When there is a recession or a slowdown in growth, we see a rising unemployment because of businesses closing factories. It can be solved by the government by boosting ad – eg through expansionary fiscal policies that reduce tax and increase G spending. . What is structural unemployment – give 3 causes and examples of each? Structural unemployment occurs when people are made unemployed because of capital-labour
Direct and Indirect Taxes and their effect on Singapore.
Q. (a) Explain the difference between direct and indirect taxation. (8) (b) What effect do you think and increase in a tax on a necessity such as fuel would have on individual consumers and the economy (12) A. (a) Direct taxes are government taxes where the burden or the incidence of the tax falls on the taxpayer and he will not be able to shift it to someone else. The tax payer is fully aware of the tax. He knows the kind of tax and the rate system he is paying. He knows when to pay it and where to pay it. In Singapore, direct taxes are income taxes on individuals, sole properties and partnerships. The rate ranges from 4% to 45%. The property tax falls on assets such as houses, land and buildings. It ranges from 12% to 30%. Other examples of direct taxes Singapore are death duties, inheritances tax, road tax and payroll tax. Indirect taxes are taxes where the incidence of tax can be shifted about between buyer and seller. Depending on their relative bargaining position, in tax, although imposed on the producer can be shifted to the consumer by the way of price increases. As indirect tax can be a specific tax based on the quantity. An ad valorem tax is based on the value of the good. Payers of indirect tax, normally, are unaware that they are being taxed; since the tax is hidden in the prices. If supply is inelastic, producers would bear the tax and vice versa. If
Statistics Coursework Introduction I am going to investigate two towns in Kent and look at the crime rates to see if it effects the price of the houses. There are many things that affect house prices. Some things have a short-term affect such as interest rates and unemployment rate, but others have long term affects such as Location of the house and access to basic amenities. I will be exploring all the things that affect house prices as well as comparing two areas in Kent and comparing the price of houses in these areas. Plan * I will begin my investigation by researching the price of property in Maidstone and Chatham. I will do this by using the Internet and liking at different estate agent websites. * I will look at the crime rates in the two towns and see if it effects the price. * I am now going to prepare some data collection sheets, this is where I am going to record the data that I am hoping to collect for my various sources of research. * I will collect my data from the internet, making sure that it is not bias. * I am now going to write up the data collection process, naming and any problems I come across on the way. * Next I am going begin some calculations to answer my hypothesis. I am going to start by working out the mean, median, mode and range. * Then I am going to do some graphs to show how house prices vary and some of the reasons
To what extent does the government budget/statement reflect current government priorities?
To what extent does the government budget/statement reflect current government priorities? In this study I will be investigating the extent to which the governments budget statement reflects their spending on current priorities, such as the NHS, Defence and Education. To do this I will be researching changes in spending using the current budget statement (2007) and also other secondary data resources to find out the total percentage of the governments budget is spent on specific areas, such as housing, defence, public transport etc. I aim to find out how much spending in these areas has increased in recent years, or indeed whether spending has decreased over recent years. Priority One: The Environment. The environment, or more precisely protecting it is a key concern for today's government, and an issue that they appear to be trying to combat. In the 2007 budget the government announced an 800million pound window for the environment transformation fund, this is to finance overseas development programmes that deliver both poverty reduction and environment benefits in developing counties. The government is also increasing the funds available through the Low Carbon Buildings Programme, to a total of over 18million pounds. This is to help meet the demands for households for microgeneration technologies. This extra funding combined with other funding towards housing and the