"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
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
Sabrina Sharawy Introduction to Macroeconomics October 9th, 2004 Keynesian Policy Keynesianism is an economic thought, building upon the ideas of John Maynard Keynes. Keynesian economics is a theory of total spending in an economy and of its effects on output and inflation. This economic approach is characterized by a focus on aggregate demand, the amount firms and households plan to spend at each level of income, rather than supply. J. M. Keynes' book, General Theory, has proved to be probably the most significant social science study of the 20th century. It quickly and permanently changed the way the world looked at the economy and the role of the government. However, in practice, this economical view had proved itself to have its advantages as well as its disadvantages. One of the key propositions of Keynesianism is that there is no natural tendency for capitalist market economies to correct economic stocks and maintain equilibrium at full employment. Before Keynes it was well known that there was a regular pattern of "boom and slump", but it was assumed that economies quickly righted themselves without government intervention. Keynes denied this. He stressed the role of government is "to run counter-cyclical budgets, rather than the permanent fiscal prudence advocated by others". We cannot say that Keynesians advocate government spending, taxes, and the money
TABLE OF CONTENTS * Preface * Acknowledgements * Introduction to Budget ............................................ .......1 * Budget 1 * Purpose of Budget 1 * Role of The Budget 1 * Objectives of Budget Preparation 1 * Budget 2004 - 2005 ......................................................2 * Challenges 2 * Salient Features 3 * Comparative Budgetary Position 2003-04 & 2004-05 5 * Resource Position 2004-05 6 * Internal Resources 7 * External Resources 11 * Provincial Share In Federal Receipts 12 * Province-Wise Share 13 * Current Expenditure 14 * Budget At A Glance ........... ........................................21 * Receipts 21 * Expenditure 22 * Provincial Budget 2004-05 ........................................... 23 * Punjab Budget - Highlights 23 * Economic Analysis 2003 - 2004.........................................24 * The Economic Survey - Highlights 24 * Economy - Summary 30 * Conclusions........... .................................................. 34 * Bibliography ..............................................................35 PREFACE Macro-Economics is the study of the behavior of the economy as a whole. It it examines the forces that effect many firms, consumers, and workers at the same time. Macro-Economics deals with many challenges and
Discuss the view that minimum wage legislation leads to unemployment. Has this been the recent experience of the UK?
Discuss the view that minimum wage legislation leads to unemployment. Has this been the recent experience of the UK? Minimum wage legislation is often contemplated by governments as a way of combating poor wages and the poverty that typically accompanies these wages. This is a direct form of government intervention and its use causes a great deal of debate, particularly from Classical (or free market) economists. Free Market economists argue that the minimum wage causes unemployment. This paper will discuss the argument that minimum wage causes unemployment and go on to analyse whether this has been the case in the UK over recent years. When a government introduces a minimum wage it sets a wage level to which every worker is entitled. Any employer which pays less than this minimum wage does so only by breaking the law. A minimum wage only has an effect if placed above the market equilibrium as can be seen in Fig.1. When the minimum wage is implemented the supply of workers increases as more are willing to work for the higher wage and we move up the labour supply curve. At the same time employers are less able to afford as many workers at the higher wage level and reduce the amount of workers that they employ. As is seen in Fig.1 there is a simultaneous move up the labour demand curve. The introduction of the minimum wage has therefore created unemployment of QaQb. Fig.1
Pakistan is in the grip of a serious energy crisis that is affecting all sectors of the economy and the various segments of the society. As the situation stands to-day, there are hardly any immediate solutions to resolve the issue.
AN OVERVIEW Crisis' has been coined by a Greek word which means 'decisive moment'. Crisis is declared when something has gone to a level where an action must be taken to avoid complete disaster or breakdown. Energy is essential for the maintenance and development of the quality of human life as well as for economic activities. To maintain accelerated growth momentum, the economy needs reliable, uninterrupted and affordable supply of energy. Pakistan is in the grip of a serious energy crisis that is affecting all sectors of the economy and the various segments of the society. As the situation stands to-day, there are hardly any immediate solutions to resolve the issue. A change of attitude and a change of life style is needed at the national level which should be triggered by the ruling elite and followed by all segments of the society that have access to electricity. At best there could be some short and long-term solutions to the crisis but they need immediate planning and execution with an enormous investment. SOURCES OF ENERGY : Pakistan's commercially exploitable energy resources consist of coal, gas, oil and hydropower, and a large base of traditional fuels in the form of fuel wood, agricultural and animal wastes. Pakistan does not have adequate energy reserves . Pakistan has to import large quantities of oil to meet its energy requirements There has been consistent
'Less than credible stabilisation will not eliminate inertia and will generate real exchange rate overvaluation'.
'Less than credible stabilisation will not eliminate inertia and will generate real exchange rate overvaluation' Inflationary pressures persistently dog every type of economy across the world. However, the pressures are typically much higher amongst many developing counties. In many cases, aside from the lack of necessary economic tools required to combat inflation, a major component in the constraints faced by these countries is the issue of credibility. In this essay I will focus on the role that credibility plays within various stabilisation programs, and more specifically the effect that it has on inflationary inertia and on the real exchange rate. This will be done by looking at the different types of stabilisation programs that have been used, the causes of a lack of credibility of these programs, the steps that governments can take to increase the credibility of its schemes, and finally a conclusion will be drawn regarding the links between credibility and both inflationary inertia and exchange rate overvaluation. Firstly though, it is worth looking at the scope of the effects that inflation has across the world. While the western hemisphere is in no way immune to the threat of inflation, it is true that high levels of inflation are much more widespread amongst developing countries where, as Agenor and Montiel (1996) show sustained inflation rates of over 25% have
Greece financial crisis: The main causes of this crisis are? What are the effects of the crisis on Greece and the Euro zone .
Greece financial crisis: The main causes of this crisis are? What are the effects of the crisis on Greece, Euro zone . What is financial crisis? The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth; they do not directly result in changes in the real economy unless a recession or depression follows.? A financial system performs the essential function of channeling funds to those individuals or firms that have productive investment opportunities. To do this well, participants in financial markets must be able to make accurate judgments about which investment opportunities are more or less creditworthy. Thus, a financial system must confront problems of asymmetric information, in which one party to a financial contract has much less accurate information than the other party. ? For example, borrowers who take out loans usually have better information about the potential returns and risk associated
Unemployment in Australia.Unemployment is a major cost to the economy not just in the terms of lost production, but it also involves major, long-term social cost such as increased inequality, poverty, family problems, crime and social division.
Unemployment The problem of unemployment is one of the most serious long-term economic problem challenges in the past decades. Unemployment is a major cost to the economy not just in the terms of lost production, but it also involves major, long-term social cost such as increased inequality, poverty, family problems, crime and social division. One of the major economic debates of recent decades has been what should be done in order to reduce unemployment. There are major differences of opinion among economists about both what has caused the increasing level of unemployment during recent years, and what policies that might be used to reduce unemployment in the years to come. There are many explanations and arguments offered by economists, including: - Wage rates are too high - Job losses are an inevitable result of new labour saving technologies. - People do not have the opportunities for training and education. - Economic growth is too low to generate adequate employment growth. - Employees in developed countries cannot match the low paid people in developing countries. - The labour market is over-regulated, which provides an incentive for employers not to hire. - Many people are voluntary unemployed. Governments all over the world struggle in order to achieve sustained reduction in unemployment. A variety of strategies have been used over the last two decades, with
Has globalization been of benefit to the Singapore economy? Globalisation is the integration of national economies with the international economy through trade, foreign direct investment, capital flows, migration and the spread of technology. There is reduction and removal of barriers between national borders in order to facilitate the flow of goods and services, investments, financial capital, labour and technology. One of the characteristics of globalization is free trade, whereby flow of goods and services across borders is not restricted. Global trade allows for an enormous variety of resources to be made more widely accessible in Singapore. With free trade, foreign goods which are cheaper than domestic products can be imported. At the same time, the existence of foreign competition provides incentive for domestic firms to engage in research and development that will lead to product improvement. With each country trading based on comparative advantage, trade promotes economic efficiency by providing a wider variety of goods, often at a lower cost. As a result, consumers are able to enjoy more variety of goods of better quality at lower costs from the wages they earn. Hence, the consumer welfare is improved and their standard of living is raised. The purchase of cheaper imported raw materials and goods from countries that are more cost efficient helps to lower domestic