This report will focus on the issue of Mexico adopting the US dollar as its official currency.
Dollarization in Mexico Written by: Matthew Baron Eren Pamir Maksym Rubin This report will focus on the issue of Mexico adopting the US dollar as its official currency. We will examine the feasibility behind the surrender of the Mexican peso, the replacement of the country's physical currency with US dollars, and the effects that these actions will have on Mexico from an economic, political and social perspective. In examining these effects, we will determine whether the Mexican government should pursue official dollarization. I. Requirements and processes. Some economists have argued that countries wishing to replace their central banking systems through dollarization must first fulfill certain preconditions, such as a high level of dollar reserves, a solvent banking system, sound government finances, and flexible wages (Joint Economic Committee). However, if these conditions already exist within a country, chances are their monetary policy would already be effective, which would negate the need for dollarization (Id.). In Mexico's case, there would be no preconditions to fulfill in order for the country to consider becoming a candidate for dollarization. However, there are a few important steps that the Mexican government must address once the decision to dollarize has been made. One of the main issues in dollarization is the exchange of all the Mexican peso
Overheating economy in China
How successfully can fiscal policy be used to combat (a) recessions and (b) 'overheating' in the economy? Use examples and evidence to support your arguments. Business cycle is defined as the alternating periods of expansion and contraction in an economy's real output (Welch, 2004: 146). Rather than occur randomly, business cycle tends to be regular which goes through four phases: a recovery during which real GDP increases; a peak where maximum output occurs; a recession during which real GDP falls; and a trough where minimum output occurs (ibid.). There is undoubted those economic fluctuations have influential effects on societies. Fiscal policy, which is the governmental policy used to intervene in the macroeconomics by the overall level of government purchases and taxations, is one of the most important policies used to maintain the stabilisation of the economy (Case and Fair, 1999: 583). Recession and overheating can be seen as the main targets that the fiscal policy tends to deal with (Mankiw, 2005: 723). Critically, it seems to be successful to combat recessions and overheating by fiscal policies, but there are also several limitations. Recession is a period in which the economic growth rate is far below the normal, according to Frank and Bernanke (2004: 645). During a recession, people have fewer stimuli to consume and invest, and the unemployment rate tends to rise
Report on house prices
Assignment for 4ECQ402 Exploring Business Data A REPORT ON HOUSE PRICES CONTENTS Introduction 3 Overall distribution of house prices 4 Proportion of houses with garages I 5 Proportion of houses with garages II 6 Relationship between House price and Garage 7 Relationship of House price to Size 8 Relationship between House price and Distance 9 House prices in the UK for different regions 10-11 Appendix - Average dwelling prices_________________12 Introduction For this assignment I will be using the data set 'House Prices', which gives some results from a survey relating to house prices in 5 different small towns. I am going to explore this data file using Minitab, and write a report on my findings. The variables in the data set are: Price House price in £000 Bedrooms Number of bedrooms Size Size of property in square feet Distance Distance from nearest large town Town Which of the 5 towns the property is in Garage Whether property has garage (0 = no, 1 = yes) Baths Number of bathrooms (lavatory and washbasin = 0.5) Note: In the following report, the value of price is in £000. And relating to whether the house has a garage, '0' represents 'no' and '1' represents 'yes'. Look at the overall distribution of house prices in the survey. Descriptive Statistics: Price Variable N Mean Median
Piece rate
Piece rate can be defined as a fixed rate of pay for a particular amount of work done. Piece rate pay gives a payment for each item produced; it is therefore the easiest way for a business to ensure that employees are paid for the amount of work they do. Piece rate pay is also sometimes referred to as a "payment by results system". Piece rate have been the focus of several important theoretical studies, nearly all of which concentrated on the implications of piece rate use for incentives, productivity and labour costs. These studies suggested that a piece rate is used mainly to increase workers' incentives and to eliminate the uncertainty about workers' efforts that employers face when paying a wage. Under this method in contrast to time wage the performance of the worker is measured at frequent intervals and he or she is paid accordingly. This worker thus works for himself as well as for the employer and has a direct incentive on his work. In general, advantage of piece rate is that it is expected to increase output per worker and facilitate the incorporation of a more heterogeneous labour force. If output can be clearly measured, piece rates are considered simpler and more efficient than time wages. While employers need to monitor for quality control when piece rates are used, it is generally believed that employers do not need to monitor effort or screen workers since
Friedman and Full Employment Theory
Friedman is also famous for a second theory, this one containing much more merit. It's called the natural rate of unemployment. (1) To understand it, we should review the early Keynesian goal of reaching "full employment." "Full employment" does not mean 100 percent employment. For various reasons, the unemployment rate cannot be reduced to zero, if only because people are always being fired, laid off or moving between jobs. But even granting that unemployment can never be completely eliminated, it still might be possible to ensure that anyone searching for a job can find one reasonably quickly. Economists call this happy state of affairs "full employment." How can it be reached? Early Keynesians believed that they could achieve it by expanding the money supply. Of course they could not overdo it. Keynes himself knew of this danger when he wrote Tract on Monetary Reform in 1923. The central bank could expand the money supply right up to the point where full employment was reached; after that, any monetary expansion would result in inflation. The question was how much to expand. An apparent answer emerged in 1959, when British economist A.W. Phillips discovered a relationship between wages and unemployment in British historical statistics. When unemployment was high, wages had fallen; when unemployment was low, wages had risen. A look at American statistics revealed the same
Do higher wages cause higher prices, or do price rises cause wage rises?
Do higher wages cause higher prices, or do price rises cause wage rises? Do higher wages cause higher prices, or do price rises cause wage rises? What are the policy implications in either case? Inflation involves changes in both prices and wages, and can be initially caused by either. Therefore, in this essay I will look at two cases of inflation, one which is caused by a change in aggregate demand, and one which is caused by a change in aggregate supply. Both of these will have relation to prices and wages. I will then examine the fiscal and monetary policy responses available to government in either case. In the first case, a rise in aggregate demand could lead to inflation. This kind of inflation is referred to as demand-pull inflation. An initial increase in the level of aggregate demand could be caused, for example, by a rise in government spending. This would cause the aggregate demand schedule to shift to the right, and the short-run equilibrium point would move upwards and to the right along the short-run aggregate supply curve. This would lead to a rise in prices as well as an expansion in GDP. However, this would place the economy above long-run aggregate supply, and therefore producing more than its long-run potential. This means that the economy is operating with unemployment lower than the natural rate, and the ensuing labour shortages will lead to a
Monetarism: A Historic-Theoretic Perspective
Monetarism: A Historic-Theoretic Perspective The first and most important lesson that history teaches about what monetary policy can do -- and it is a lesson of the most profound importance -- is that monetary policy can prevent money itself from being a major source of economic disturbance.1 Economists usually view their discipline as a progressive science in which new ideas constantly replace inferior old ones. A look at the history of economic thought suggests that new economic doctrines emerge primarily as an alternative or a counter reaction to previously existing orthodoxies. As a result of these "intellectual revolutions," new schools of economic thought form and develop, challenging the validity and diminishing the influence of their predecessors' beliefs and ideas. Modern monetarism emerged in the 1950s as a reaction to the then-prevalent Keynesian approach to macroeconomic theory and policy. In 1956, the American economist Milton Friedman attacked the income-expenditure approach of John M. Keynes and proposed an alternative macroeconomic theory that viewed money as the root source of major economic calamities. The counter-revolutionary Friedman resurrected older economic doctrines in building his monetary theory and his ideas, expounded in the classic Studies in the Quantity Theory of Money (1956), marked the beginning of modern monetarism as a distinct line
Using Blanchard's Aggregate Demand and Supply Analysis, explain the view that the biggest risk facing the world economy is deflation, and assess the effectiveness of monetary and fiscal policy.
"Using Blanchard's Aggregate Demand and Supply Analysis, explain the view that the biggest risk facing the world economy is deflation, and assess the effectiveness of monetary and fiscal policy." The world of economics is a very complicated area and when you are in charge of an economy you have a difficult job on your hands to ensure the growth of the economy. Every government wants the see their economy grow at a steady rate, anything else is seen as a problem for the government including fast growth. When an economy is growing, demand often outpaces supply which means many people are chasing too few goods, this is a major cause of inflation, although in the short run people spending money is a positive thing. Once the government has taken action to kerb the inflation many companies will often find that they are then left with unsold goods as the economy is sliding towards a recession, at which point companies will have to lay of workers as the demand falls. At present it is feared that the world economy is in a recession. The world economy is made of 4 major economies in the world: * USA * Japan * Germany * UK The table below shows the GDP growth rate over the last three years: 999 2000 2001 USA 4.5 4.2 .2 Japan .8 2.4 -0.4 Germany .4 3.0 0.6 UK 3.5 3.1 2.2 Source: www.worldbank.org The table clearly outlines that the world economy is
In order to analyze whether the advert is misleading
Part 1 Assumptions o The fist TV set: . Advance payment=£560 (in real terms) 2. Maintenance expenses=£56 (in real terms) 3. Maintenance expenses are the same during lifetime. 4. Expected lifetime =10 years. 5. The guarantee and maintenance expenses payment are both made at the end of the year. So no cash outflow exits during the early 4 years. o The new TV set: . Advance payment=£560 (in real terms) 2. Maintenance expenses=£56 (in real terms) 3. Maintenance expenses are the same during lifetime. 4. Expected lifetime =10 years 5. New TV set has no guarantee. 6. Maintenance expenses are paid at the end of the year. o Other assumptions: . Real interest rate=10% 2. Monetary rate=14.4% 3. Inflation rate=4% 4. Salvage for the first set=£336, which means at the end of the 4th year when the first set is replaced with the new one, it can be sold at £336 at the same time. So if the customer replaces the first set in 4th year, the total cash outflow in this year is £24. 5. Customers can get 200£ discount for new set only at the end of 4th year. In other words, they can not get discount in 5th year or later. 6. The rental charges are what the customer totally needs to pay if he rent a set, in other words, maintenance expenses and other similar payment accruing during the rent period are not paid by the customer. 7. Depreciation is not recorded since it does
Macroeconomic factors and the firm - Broadside.
Alistair Courage - Macroeconomics Assignment 1 Macroeconomic factors and the firm - Broadside . (a) Inflation Between 1945 and the end of the 1960s the primary tool used to control the economy was fiscal policy; this was during the Keynesian era and Keynesians still believe that fiscal policy coupled with reasonably steady interest rates is the right approach to take. Fiscal policy is concerned with government expenditure and taxes; the theory is that if you decrease government expenditure and increase taxes this will steady a booming economy and prevent inflation from escalating out of control, lessening the effects of 'overheating' - this is known as deflationary fiscal policy. The reverse of this is used when an economy is experiencing the symptoms of recession - increasing government expenditure and decreasing taxes gives the economy a helping hand and is known as expansionary fiscal policy. In the 1970s political and economic attitudes changed to bring about an age of monetarism that went hand-in-hand with monetary policy becoming the focus for control. John Sloman (see bibliography) tells us that "the high point of monetarism came in the early 1980s. Governments around the world made the control of inflation the number one short-term macroeconomic objective". Monetary policy can relate to three main areas: Controlling the supply of money Controlling