Should the Government be Prepared to Increase Spending in Order to Eliminate Unemployment?
Should the Government be Prepared to Increase Spending in Order to Eliminate Unemployment? Government spending can be categorised in two ways: capital or current spending. Capital spending is spending which aims to create future long-term and long-lasting benefits. In the case of the Government, this can include improving infrastructure (roads, telecommunications equipment and so on) - these are things that allow or aid the production and sale of goods and services. Current spending is expenditure which aims to provide things which only last for a limited time. This can include increased wages or salaries. One of those types of spending is much more effective, when it comes to decreasing unemployment; capital spending can cause what is known as a 'multiplier effect'. Should the Government chose to invest in creating a much more efficient road or transport network, there is the opportunity of employment for those with the skills to allow this to happen (builders, engineers, surveyors, etc). The multiplying effect comes into play, when the long term effects of the investment are considered - a more efficient transport network will allow businesses to transport their products more efficiently. The increased efficiency means that the businesses are able to use the saved time/money elsewhere. This again, leads to more opportunity for employment. These newly employed workers
Reasons for unemployment and the main economic theories explaining it.
The unemployment is a common issue of macroeconomic policy. Unemployment is often debate on two difference views of economist has been considered known as Keynesian between Monetarist. Sunhee an ( Group M) The definition of unemployment described people who are able and willing to work at a prevailing wage but they are unable to find a job. To begin with, economists recognised the four key classes of unemployment discussed above - frictional, seasonal, cyclical and structural. In this essay, I will discuss how economists considered the main roots of unemployment as they are seeking different theories and will assess how two economist (Keynesian and Monetarists) approaches to the unemployment problem. Fundamentally, monetarist and Milton Friedman believed that the money supply is the most important component of economic growth and affects aggregate demand. Monetarist claims that there are various factors of unemployment. Firstly, monetarist believed that the unemployment arise due to excessive growth of the money supply leading to excess demand for goods and services. Assume that, if the price rises, the rate of demand will lead to higher price thus there may be a temporary (short run) rise in real output and low unemployment. However, it may be arises the expectation of higher prices and wages among the people. Besides, if products or services price rises, the demand
Compare the effectiveness of the fiscal and monetary policy with some reference to supply side policy in running the UK economy. Fiscal policy is used to change taxation and government spending in order to control the level
Economics Homework **Compare the effectiveness of the fiscal and monetary policy with some reference to supply side policy in running the UK economy. Fiscal policy is used to change taxation and government spending in order to control the level of aggregate demand, which can reflate or deflate the economy. Monetary policy is the control of money supply by changes in interest rates that affect bank lending, which then changes the level of AD. Fiscal policy is far more effective than the monetary policy as it can target many things, whereas the monetary policy is limited on its effectiveness. Fiscal policy can be very effective when used at the right time, such as in a deep recession, because fiscal policy can cause a multiplier effect which can create jobs quickly and it gives people a boost in confidence, which then increases spending and investments. Monetary policy isn't very effective when there is a recession, because even though it can create jobs but it still can't attack investments and it can cause inflation to increase if we are too close to Nairu. It's never ideal to just rely on just 1 policy, you have to use both together in order for the economy to run smoothly. If the fiscal policy is just used on its own then it may be overdone thus causing inflation to increase, these effects depend on whether or not we are close to Nairu. Too many injections from the
What are the effects of inflation on an economy?
What are the effects of inflation on an economy? Inflation can be defined as a sustained rise in general price levels. This is a very general definition as there are so many factors that have to be taken into account when considering the General price level of an entire economy. In the UK, inflation figures published and announced once a month give certain percentage rates of inflation. These are annual percentage rates indicating the change in inflation between the current year and the previous of the same month. The Retail Price Index (RPI) is the most famous, but the government prefers to quote the RPIX. Although other measures are used for calculating inflation, these are the most widely used methods in the UK. The RPI is a set of numbers that show the monthly change in the average of a sample of goods and services. There is an annual family expenditure survey that is used to decide which services are to be used in the sample and which are most important of those. In this sample typical household expenditure such as, food and housing costs would be considered whereas tobacco would not. Therefore, The inflation figures that form the RPI is the annual percentage change in this index from the most recent month compared with the same month in the previous year. This is known as the headline rate of inflation. Alternatively the government will regularly publish the
Explain how supply side measures can be used to promote economic growth (15)
Explain how supply side measures can be used to promote economic growth (15) Supply side policies are government policies designed to increase the productive potential of the economy and push the LRAS curve to the right. They can affect the economy in a number of ways: increasing the supply of the quantity and quality of labour, raise the amount of capital employed, further the exploitation of natural resources and increase efficiency of the factors of production. 'Fixing infrastructure' was one of the factors David Cameron has mentioned that would provide immediate economic boosts and help with growth in the long term as well. To promote economic growth, supply side policies focus on shifting the LRAS curve to the right. Supply side policies are an economic theory that states that a reduction in taxes will stimulate the economy through increased consumer spending. Over time, the increased economic growth will generate a larger tax base, which will recoup the revenue lost from the tax cut. Some argue that cutting taxes on activities such as saving and working would increase the productive potential of the economy. The level of taxes has an impact on investment and therefore LRAS. An increase in taxes on businesses will reduce the profitability of investment. With a lower rate of return, fewer investment projects will be carried out, limiting the productive potential and
DISCUSS THE ALTERNATIVE POLICIES A GOVERNMENT MAY USE TO IMPROVE ADEFICIT IN THE BALANCE OF PAYMENT
DISCUSS THE ALTERNATIVE POLICIES A GOVERNMENT MAY USE TO IMPROVE ADEFICIT IN THE BALANCE OF PAYMENT The deficit in the balance of payment means import bigger than export in the record of transaction in one economy to the rest of the world. The deficits mainly occur through various reasons such as: structural problem, exchange rate position, excess economic demand etc. hence the alternative policies could adopted to reduce this problem. First of all, the structural problem which indicate the products non-competitive, low quality or high price, and this problem will lead reduce in export, and effect the deficit in the balance of payment. In order to tackle this problem the supply side polices has been used, such as reaching and develop the new technologies etc. Doing research in previously experiences, solve self-problem, in order to enhance the quality of the products to make the products more competitive. And reduce the cost of production to influence the price goes down. However, the supply side policy is a long run policy, which may take long time to achieve the result, and amount of money will be cost. Therefore there will not be effectiveness in the short run. Secondly, the exchange rate position is directly affect the export and import. When the exchange rate high, it will be hard to export, because the export become more expensive, the importer may choose other
What are the current targets of macroeconomic policy in the UK and how can they be achieved?
Question 2 What are the current targets of macroeconomic policy in the UK and how can they be achieved? The United Kingdom is a highly developed country; it's the fifth largest economy in the world, and the third most populous country in Europe with a population of over 60 million people. The UK has a very sound macroeconomics system with four main objectives which helps sustain its status as a G8 member. The macroeconomic policy in the UK is influenced by two set of forces, the market by looking at supply and demand and those induced by government intervention. As a whole macroeconomic objectives in the UK are concerned with the overall performance of the economy. It relates to high economic growth, relatively stable price level and low and stable level of unemployment in addition the last goal is related to the balance of payments and the exchange rate may be distinguished, but it has no immediate or lasting advantage to the country of its payment position. I will deal with each goal in turn. Economic growth is a desirable objective, it's the major cause of rising living standards its has been a dominant forces for industrial nations over 200 years. Even small differences in growth rates can lead to large differences in income per head due to the power of compound interest. Since the end of the 2nd world war the rate if economic growth has averaged 21/2 % per annum. The
I will be evaluating on the article "UK inflation drops to Bank target" by the BBC which only focuses on this problem. Brief summary: The main issue in the article
Recently in United Kingdom- a powerful and wealthy economy, there has been an issue being discussed with growing worry. The problem, not so strange to most countries in the world, is inflation, more specifically "the surge in UK inflation rate" in 2005. I will be evaluating on the article "UK inflation drops to Bank target" by the BBC which only focuses on this problem. Brief summary: The main issue in the article is the drop in the inflation rate in 2005 in three successive months, what causes have led to such a decrease after months of increasing inflation, what actions have been taken to bring down the rate of inflation and the effects that such a drop created. The major concepts involved in the article are inflation itself, CPI, RPI, inflation rate, cost push inflation, interest rate. The first concept, inflation itself is actually a sustained increase over a period of time in the general price level, in other words a fall in the real purchasing power of money. To understand about inflation, another concept is involved which is CPI: The consumer price index (CPI)-the measure of the consumer price level. What is CPI? CPI reports the cost of a fixed "market basket" of consumer goods and services over time. The formula of calculating CPI for a particular year is found as follows: Price of the most recent market basket in the particular year CPI =
"Government spending is the enemy of employment in two ways. First government borrowing is inflationary which destroys confidence in the private sector. Secondly, government expenditure "crowds out" private expenditure" Discuss.
"Government spending is the enemy of employment in two ways. First government borrowing is inflationary which destroys confidence in the private sector. Secondly, government expenditure "crowds out" private expenditure" Discuss. Government borrowing can be inflationary because the government borrows from banks, which increases the money supply. Banks assume that consumers will not take more than 10% of their savings out and on that basis are able to lend to the government. This increases the money supply because the government has borrowed from the bank but the consumer's savings stay the same and therefore there is more money in circulation. According to monetarist beliefs an increase in the money supply will directly increase inflation. Inflation can lead to unemployment, as people demand less due to higher prices and therefore demand for labour maybe decreased. Inflation also creates uncertainty for entrepreneurs, cost curves increase and revenue can decrease thus squeezing profits. Also when inflation is in the mind of the entrepreneur it can escalate easily as they will take inflationary actions like automatically increase prices and therefore it is imperative government spending/borrowing is controlled. Although government borrowing does increase the money supply, the monetarist view of a direct link between money supply and inflation is wrong, as proved when Britain
Market for alcoholic drinks
Section B data response Q26: Markets for Alcoholic Drinks (a) Define the term 'demerit good'. A 'demerit good' is a good or service, of which consumption causes negative, affects on the consumer themselves. An example of a demerit good is alcohol. Due to the effect these goods or services cause, the government often imposes heavy taxes on the product to persuade people not to use them. Often a ban is imposed to help this, for example smoking in public places was banned by the Government in 2007. (b) Using Extract A identify two points of comparison between the prices charged for alcoholic drinks by different retail outlets in London in March 2008. From Extract A, we can see the price of a pint of beer, glass of wine and measure of spirit; all vary in price from different retail outlets. In a public house in central London, it costs almost 3 times more to have a pint of beer than in a supermarket which would only cost you around £1.20. From the table we can see on average buying alcohol from an off-licence would cost you only a few pence more than in a supermarket. The most expensive place therefore to buy your alcohol from would be the public houses, costing around £2.50 a drink. It is more expensive to go to a pub in London than somewhere further up North. The reason it's very expensive to drink in a pub because you, as a consumer, are paying for the overheads. The
