Explain what is meant by transaction, precautionary and speculative demand for money
a) Explain what is meant by transaction, precautionary and speculative demand for money? (10M ) The demand for money refer to the desire to hold money; to keep your wealth in the form of money, rather than spending it on goods and services or using it to purchase financial assets such as bonds or shares. The preferences for money over other kinds of assets is known as liquidity of preference. Liquidity describes the readiness with which an asset can be converted into cash without any significant loss in value. Wealth held in the form of money provides people with the maximum freedom of action, because it is readily convertible into any other type of asset. It is usual to distinguish three reasons why people want to hold their assets in the form of money, which are transaction, precautionary and speculative motives. The transaction motive refer to the desire to hold money in order to make purchases of goods and services. The transactions demand for money is positively related to real income and inflation. As an individual's income rises or as prices in the shops increase, he/she will have to hold more cash to carry out his everyday transactions. The quantity of nominal money is therefore proportional to the price level in the economy. Since people only receive money at intervals (e.g. weekly or monthly) and not continuously, they require to hold balances of money in cash or
Inflation vs. Unemployment - In what way might there be a trade off between inflation and unemployment? Is it possible for a country to have high levels of inflation and unemployment at the same time?"
Inflation vs. Unemployment "In what way might there be a trade off between inflation and unemployment? Is it possible for a country to have high levels of inflation and unemployment at the same time?" November 1996 exam. As an extension to what we are doing in class, this essay question was assigned to us. In this essay I will define some terms first so that it will help clarify the essay question and also help my respond to the question. The first technical word I can find in the question is a trade off. What is a trade off? A trade off is when one thing plays against each other in a sacrifice manner. The question enquires if there is a trade off between inflation and unemployment, here there are tow different opinions. The Keynesians believe that there is a trade-off between the two, and Monetarists believe that inflation causes unemployment. In this essay I will look at the Keynesians theory. Unemployment is the number of people without a job. Unemployment can be measured in a number of different ways. The main official measure in the UK is the claimant count. This is the registered number of people between the ages of 18 and 60 receiving an unemployment-related benefits such as welfare. The unemployment rate is the number of people on the claimant count expressed as a percentage of the labour force. The labour force includes all those who are economically active.
What Are The Causes Of Inflation? Can Government Control It? Discuss Which Economic Policies Are Appropriate For The Control Of Inflation.
What Are The Causes Of Inflation? Can Government Control It? Discuss Which Economic Policies Are Appropriate For The Control Of Inflation. Inflation is a sustained rise in the average prices of goods within an economy, it can also be seen as a change in the purchasing power of money. Inflation can normally be divided into two types cost-push and demand-pull. Cost-push happens when prices are pulled up by rising costs, demand-pull happens when demand outstrips supply and prices will therefore have to rise to accommodate this. Monetarists argue that inflation is caused increases in the money supply, the total amount of money circulating in the economy at one time. This is as the believe that any increase in the money supply which is not in line with the growth in output of the economy will lead to inflation. If the money supply was increased in the short-run then consumer spending would increase but the output of the producers would not be able to expand, as quickly, so there would be an increase in price to curb this demand. They believe that the money supply should be kept in line with the rate of growth of the output. Another theory for the cause of inflation is the demand-pull theory, this is a theory, which attributes inflation to high levels of demand in the economy. It will come about when there is excessive spending, this will then lead to a increase in the
Define and determine the types and trends of UK unemployment
"Define and determine the types and trends of UK unemployment" Unemployment is when individuals are jobless but are willing and able to work at the going wage rate. The official government figures only count those that are registered as being unemployed and are actively seeking work. Different Measures of Unemployment There are several different measures of unemployment: * ILO - Any person without a job, available to work, willing to work and sought work in the past four weeks * Labour Force Survey (LFS) - Available to work within the next two weeks, currently without work, but have sought work in the past four weeks * The Claimant Count - This measures the number of people who are eligible and claim the Job Seekers' Allowance, as such, this method generally records fewer unemployed (around 400,000) From these figures is it possible to calculate the Unemployment Rate: Number of unemployed/number of economically active x 100 Types of Unemployment There are many different types and causes for unemployment: * Real wage unemployment: This is thought to be the result of wages being above the market clearing level, leading to an excess supply of labour. It is thought that national minimum wages can cause wage unemployment because the employees feel that the work is not worth the minimum amount. * Demand deficient unemployment: This is usually associated during a period
the trend growth rate and measurements of economic welfare
Economics Essay . What determines the trend growth rate in the United Kingdom? (20) First and foremost the trend growth rate can be defined as an averaged total of economic growth, illustrated in a linear format on a graph over a 12 month period, or alternatively as the mean growth rate during an economic cycle. The trend rate of economic growth is determined by taking the percentage change in Real GDP (adjusted for inflation) over the course of a year. Compiled in this manner, it allows considerable fluctuations in output to be smoothed - providing more reliable figures. An output gap exists when there is a differential between the trend rate of economic growth and the actual GDP. A positive output gap usually occurs when the economy is in a "boom" period, whereby the current output lies above the trend. This can be illustrated on figure 1 below, where the horizontal line converges between C and D. Figure 1 Similarly, a negative output gap can be shown between the other horizontal line, this time going from A to B. Conditions such as these typically occur during recessions (whereby there is two consecutive quarters of negative economic growth). There are many factors which can have a direct influence upon the trend growth rate in the UK: Perhaps rather surprisingly, climatic factors play a major role in determining the trend rate of output growth. Variations in
Explain why the recent devaluation of the £ has not resulted in a significant improvement in the export performance of the UK. (25 Marks) Under normal circumstances a devaluation of the pound should make exports more price competitive and lead to greater export performance with greater quantities being sold. However this may not always be the case and might not always lead to a fall in the value of products imported. A fall in the exchange rate should lead to an improvement in the current accounts however following recent figures this is not true. Over the past few years given the 25% devaluation in sterling our export performance is not that impressive. Firstly, the demand from other countries to buy UK exports has not been too good due to the recent recession. Therefore aggregate demand (AD) decreased leading to a fall in UK exports. The UK has been running a persistent current account deficit for several years, but as the economy emerges from recession and domestic spending will return thus helping growth, import growth has still been stronger than exports. The rest of the world may also have a slow recovery in demand, especially in the European Union where household spending has not been up to scratch. Another reason it seems is that Britain's main trading partners have been stuck in low or no growth and are therefore unable to buy more goods and services. Here the
Unemployment and its implications
a) b) Define what is meant by the term unemployment. (8) Unemployment is when people who are registered as able, available and willing to work at the going wage rate in a suitable job but cannot find paid employment despite actively seeking work. Unemployment falls when more people leave the jobless register, when they find work or leave the labour market, than sign on each month. Unemployment is generally measure in two separate methods. The first one is the claimant count. The claimant count measure of unemployment counts only those people who are eligible to claim the Job Seeker's Allowance. The Job Seeker's Allowance was introduced in October 1996 replacing unemployment benefit. Claimants who satisfy the criteria receive the Job Seeker's Allowance for six months before moving onto special employment measures. In April 1998, the government published an alternative measure of unemployment based on the Labour Force Survey. This covers those who have looked for work in the past month and are able to start work in the next two weeks. b) Explain the causes of unemployment. (16) c) What are the Economic implications of unemployment on an economy? (16) Unemployment is politically, socially and economically undesirable. Unemployment is a waste of scarce resources leading to a loss in potential output of an economy.
Compare and Contrast labour market deregulation and labour market programs as 2 approaches to reducing the level of unemployment.
Compare and Contrast labour market deregulation and labour market programs as 2 approaches to reducing the level of unemployment. To prevent an increase in the natural rate of employment and subsequently to reduce the level of unemployment, combinations of supply side and/or demand side policies are used. One approach, which is often associated with the incentive approach (where unemployed are forced to actively seek work or leave the labour force), is labour market deregulation. It favours decentralized wage bargaining, the removal of minimum wages and conditions, and reductions in the regulations over employment. However, supporters of the deregulations approach point to the continued existence of awards and use of safety net wage increase for lower paid workers and reduce access to long term unemployed vacancies. Critics of this approach argue that it has a narrow focus on wages, often ignoring skills and the importance of productivity generation. It is a smokescreen for diluting employment conditions and does little to generate jobs. A second supply side approach is labour market programs that attempt to improve the matching within the labour market. Such policies would include: * Training and education programs * Work experience programs * Direct job creation programs The labour government introduced its 'Working Nation' program in 1994 as an attempt to reduce
Why Are People Unemployed?
Why Are People Unemployed? Introduction Unemployment directly affects people of age's 18-60 year olds. It is usually defined as a condition under which able people of the working age that wish to work for the current wage or salary rates for their skills but cannot get a job. When a member of a family is unemployed, the family feels it in lose of income and a reduced standard of living. There are many possible causes of unemployment, and unfortunately, for the government, it is never easy to identify which is the most important and what to do about it. Unemployment is a big problem for the economy. The graph below shows how awful unemployment has been during the past years. Unemployment 1979-1998 Types of Unemployment There are various types or sources of unemployment. These are contributing to the causes of unemployment. The main types of unemployment are: Frictional unemployment: People who are not working who are simply between jobs. This maybe the result of changes in the technical conditions of work, being hired elsewhere or simply relocating etc. They are not actively searching for a job, but instead they are waiting to begin their next job. In general, frictional unemployment is partial and temporary. Structural Unemployment: Structural unemployment occurs because a difference between the types of workers wanted by employers and the kinds of workers looking for
Economic Management and the European Union
Economic Management and the European Union Report The European Union was formed on November 1st 1993. The Treaty of the European Union (also known as the Treaty of Maastricht) was ratified and the 12 member countries from the European Community became members of the European Union. These 12 countries were Belgium, Denmark, France, Germany, Greece, Republic of Ireland, Luxembourg, the Netherlands, Portugal, Spain and the United Kingdom. The European Union is dedicated to improving economic integration and improving cooperation, trade and relations between the member countries. Austria, Sweden and Finland took the total number of countries in the European Union to fifteen, when they joined in 1995. The total increases to 25 on May 1st 2004, when 10 new countries join the European Union. These are Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. Previously, the European Community consisted of 3 separate organisations. These were the European Coal and Steel Community (ECSC) formed in 1951, the European Economic Community (EEC) which was formed in 1957 and the European Atomic Energy Commission (Euratom) which was formed in 1957. These 3 institutions merged in 1967 and the European Community was formed in Brussels. The European Community Council agreed on a treaty in Maastricht, the Netherlands in 1992 after much bargaining