How far do these sources support the view that there was no consensus on how to tackle unemployment in the decade before the downfall of the Labour government in 1931?
How far do these sources support the view that there was no consensus on how to tackle unemployment in the decade before the downfall of the Labour government in 1931? Looking at the sources there would not appear to be much of a consensus on how to deal with unemployment in the 1920s, but when you look more closely at the sources there is a division between the orthodox policies in the early 20s and the more radical Keynesian thoughts of stimulating the economy which, from the sources do not become seriously considered until after the Wall Street Crash in 1929. Phillip Snowden the Chancellor of the Exchequer for Labour in 1924 and 1929-31, puts across the view that no unorthodox plans should be used, and in fact the only policy that should be followed is government cutbacks. It shows the orthodox, laissez fair view of Snowden about how to deal with the economic problems and unemployment in Britain. This is similar to the treasury view in source B of balancing the budget to sole the economic problems. It is an official statement of the Treasury's views about what path to follow, they believe that government spending should be cut because the only other options available would create more problems for the government and the people. It informs you of what choices the government had, but it has been written to try and bring the government departments around to the Treasury
Discuss the relationship between unemployment and inflation. To what extent is the Phillips curve still relevant?
Discuss the relationship between unemployment and inflation. To what extent is the Phillips curve still relevant? Professor Phillips, using figures from the 1870s to the 1950s showed that there was a relationship between unemployment and inflation, and using the data collected, modelled this relationship on a curve, which became known as the Phillips curve. The basic theory was that attempts to reduce unemployment would lead to a rise in the general price level, or inflation, and vice-versa. The Phillips curve is shown below: Inflation and unemployment both have a negative effect on the economy, if either factor is high. Both factors have a negative effect on economic growth. Unemployment is the existence of a section of the labour force, who are willing and able to work but who, for some reason, are unemployed. In the UK unemployment is measured using two methods: The Claimant Count and The Labour Force Survey. Inflation is a sustained rise in the general price level, or a sustained fall in the purchasing power of money. Inflation is measured using the retail price index (RPI). There are three main theories on the relationship between unemployment and inflation. The monetarist theory is based on the adaptive expectations hypothesis and the accelerationist theory. The adaptive expectations hypothesis is the theory that people will base their expectations
Measurement of Inflation Definition of Inflation Inflation refers to the continual increase in prices. The value or purchasing power of money refers to the amount of goods or services one pound can buy. Inflation means the value of money is falling because prices keep rising. Calculating the Retail Price Index The retail price index (RPI) is a monthly survey carried out by the government which measures price changes. The following procedure is used: * A basket of goods and services consumed by the average family is listed. For example, food, clothing and transport are included in the basket. * The price of items in the basket in the base (first) year is noted. * Each item in the basket is given a number value (weighted) to reflect its importance to the average family. For example, food has a higher weighting than transport. * The price of goods in the basket is recorded every month compared with base year as a percentage (price relative) using the equation: Price relative = Current price/Base price x 100 * The price relative of each item is then multiplied by its weighting. * The new RPI is found using the equation: RPI = Total weightings x Price relative/Total weightings The value of the RPI in the base year is always 100. After twelve months the price of good items in the basket may have risen by 25 per cent and that of housing by 20 per cent while the cost
Discuss the extent to which an increase in exports will improve an economy's macroeconomic performance.
Good macroeconomic performance is normative in nature therefore hard to be validated. However for the purpose of this essay, good macroeconomic performance basically involves low unemployment, high and stable economic growth, stable and low inflation and an acceptable and positive current account of the balance of payments. An increase in exports will bring about and increase in aggregate demand in the short run. Aggregate demand is made up of consumer expenditure, government expenditure, investment and net export, export minus imports. Therefore an increase in exports will increase net export and subsequently increase aggregate demand. An increase in aggregate demand would mean an increase in economic growth, which shows good economic performance. Diagram below shows the increase n aggregate demand. Exports will also improve the county's balance of payments. Balance of payments is the net trade in goods, services, investment and transfers. An increase in exports will mean that overall balance of payments will not be in a deficit but in a surplus. An improving balance of payments will also mean that the county's industries and firms are competitive and therefore show that the firms are economically healthy and performing well. However there are problems arising from an increase in exports. In the short run, with a short run supply curve, although an increase in exports will
With reference to "Weapons of Mass Distraction", discuss whether fiscal policy is an effective tool to control economic growth.
With reference to "Weapons of Mass Distraction", discuss whether fiscal policy is an effective tool to control economic growth. Fiscal Policy is the method a government can use to control the trade cycle. Fiscal Policy uses government spending to increase or decrease various parts of aggregate demand. These are shown as AD=C+I+G+(X-M). A major problem with fine-tuning the economy is the time lags that are involved with fiscal policy. These time lags mean that when a fiscal policy change has been put into effect, the results may come at a later period. If the economy is doing well at this period, this could well push the AD curve too close towards AS creating inflation. This means that even though it shows that fiscal policy is an effective tool, it maybe used improperly causing a problem not a solution. However, if fiscal policy is used at the right time, it will indeed be a very effective tool. And so we can infer that fiscal policy is indeed effective, yet a risk as timing also plays an important factor in its success. One of the reasons it is so effective, is due to the multiplier effect. This multiplier effect measures the effect of the cycle of respending has on the economy. For example, if a government spends £100 million on building a road, the company would spend £70 million on wages for extra labour hired for the demand and £20million on materials. The extra
What are the main differences between the 'natural rate of unemployment' and the 'NAIRU' hypotheses?
Unemployment Short Questions (250 words max) . What are the main differences between the 'natural rate of unemployment' and the 'NAIRU' hypotheses? The main differences between the two concepts relate to the fact that they belong to different models; the Friedman's or the Neo-Classical model (the natural rate of unemployment) and the imperfect competition model developed by New Keynesian economists (NAIRU). The existence of the differences between the NAIRU and the natural rate of unemployment, hence, depends on the theoretical perspective. For the Monetarist and Neo-Classical economists, the two concepts are identical because the economy is always at full employment. From the New Keynesian perspective, however, the equilibrium can settle at a level below the full employment; thus making the natural rate of unemployment a special case of NAIRU that occurs at full employment. In both models, there is a point, at which the level of inflation is constant, that is it is possible to draw a vertical long run Philips curve in each model. The natural rate is the point of labour market clearing, where there is no voluntary unemployment and any temporary disequilibrium is quickly eliminated. The NAIRU, on the other hand, is the rate of unemployment at which the competing claims of labour and firms in the economy are consistent. With NAIRU, the notion of market power and the
TOTAL NO OF WORDS: 3261. ECONOMICS ASSIGNMENT ON INDIAN ECONOMICS BY:-PUNIT.BAUVA PROFESSOR:-MR.J.R.JASINSK INDEX:- SR.NO TOPICS . INTRODUCTION 2. MACRO ECONOMICS 3. HEALTHY ECONOMIC GROWTH. 4. FULL EMPLOYMENT. 5. HEALTHY BALANCE OF PAYMENTS. 6. INFLATION. 7. DEMAND SIDE AND SUPPLY SIDE POLICIES. 8. GROSS DOMESTIC PRODUCT. 9. CONCLUSION. 1. INTRODUCTION: The term "Economics" is derived from two Greek words, oikou and nomos, meaning the rule or law of the household.There are several definitions of economics such as "SCIENCE OF WEALTH" by Adam Smith and J.B.SAY, "SCIENCE OF MATERIAL WELL BEING" by Alfred Marshall and A.C.Pigou, "SCIENCE OF CHOICE MAKING" by Robbins and "SCIENCE OF DYNAMIC GROWTH AND DEVELOPMENT" by Paul.A.Samuelson. Indian Economy is the third-largest in the world.The economy is diverse and encompasses agriculture, handicrafts, textile, manufacturing, and a multitude of services. Although two-thirds of the Indian workforce still earn their livelihood directly or indirectly through agriculture, services are a growing sector and are playing an increasingly important role of India's economy. However, since the early 1990s, India has gradually opened up its markets through economic reforms by reducing government controls on foreign trade and investment. India faces a burgeoning population and
Explain what the main macroeconomic policy objectives are and why are there problems when trying to achieve them together? What is full employment? It is desirable to achieve it?
ESSAY 3 Explain what the main macroeconomic policy objectives are and why are there problems when trying to achieve them together? What is full employment? It is desirable to achieve it? Governments management of the economy is always a key political issue. Each government must set targets and objectives when it assumes power in order to improve welfare of the country as a whole. The four main macroeconomic policies to reach this target are the country economic sustainable growth, to reach equilibrium in international trade, to stable low inflation and to achieve a less unemployment index Economic growth is an increase in the real level of national output, measured by the annual percentage change in real GDP (gross domestic product). It is also defined as a long-term expansion of the productive potential of the economy. Growth stimulates higher employment as there is more investment in the country; it has a positive impact on company profits and business confidence. So a higher demand for imports are produced, increasing international trade. It has a positive effect in governments finances because of the high level of tax revenues they receive. This is why a greater spending on merits goods can be made. However, if the economy grows too quickly there is a danger of inflation as demand races ahead of the ability of the economy to supply goods and services. Producer then
Examine two reasons why a government might wish to control increases in its expenditure Increases in government expenditure will shift the Aggregate Demand (the sum of all demand within an economy) outwards. This is called an expansionary fiscal policy (fiscal meaning relating to government spending), and may be implemented to stimulate an economy if it is in recession. Another type of fiscal policy is called contractionary fiscal policy, and is used to help control demand pull inflation. Demand-pull inflation is the increases in prices at a relatively higher rate than increases in income. This occurs when demand is greater than supply. A government may wish to control increases in its expenditure for a number of reasons, including controlling the extent of government intervention, letting market forces act and to prevent crowding out. The two reasons that I will examine are to keep the tax levels down and to control inflation. Taxes are placed in two categories. First there is direct tax, which is tax levied directly to a person or organization, for example income tax. The second category is indirect taxes, which are taxes placed on goods and services. In Australia, the main indirect tax is the Goods and Services Tax (GST). This is relevant to the governments expenditure plan because of the affect increases or decreases in expenditure will have on the budget, which is a
The aim of this essay is to discuss the relevance of John Keynes to the current macroeconomic situation in the UK.
The aim of this essay is to discuss the relevance of John Keynes to the current macroeconomic situation in the UK. Macroeconomics can be defined as "the study of whole economic systems aggregating over functioning of individual economic units" (Bannock G, 2003: 236). It considers aspects of the economy from a government perspective such as the general price levels in an economy instead of a price level in a single market. John Keynes and economists who share a similar view to his on macroeconomics strongly believe that an economy will frequently settle below full employment. In such a situation aggregate supply will most likely be price elastic and increases in aggregate demand will mainly affect output. Keynes theory suggests government intervention through demand side policies in order to boost aggregate demand and reduce unemployment. However, Keynes theory is opposed by classical economists who believe that an economy will be at full employment and as a result demand side policies implemented by the government with the intent to boost demand will likely lead to an increase in prices and cause inflation. On the contrary to Keynes's recommendation classical economist insist government should implement supply side policies aimed at shifting aggregate supply to the right (Gillespie. A, 2007: 307). The government of any economy will set policies in order to achieve set