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University Degree: Macroeconomics
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What has been the relationship between the four macroeconomic objectives of low employment, low inflation, rapid and sustainable growth and the avoidance of current account balance of payments deficits in the UK over the past 20 years.
At times of high unemployment, government spending rises whilst tax revenue falls. As a consequence the public sector borrowing requirement (PSBR) increases. To make up the difference the government has to pay interest on this borrowing. The Keynesian approach to reducing unemployment has been to adopt policies aimed at increasing aggregate demand. The government should increase government spending, reduce taxes or reduce interest rates in order to increase consumer spending and therefore increasing demand. The natural rate of unemployment is more formally known as the (NAIRU), non-accelerating inflation rate of unemployment which can be maintained without increasing the inflation rate.
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Government efforts to revive economic growth have met little success and were further hampered in late 2000 by the slowing of the US and Asian economies. Japanese economic activity has been stagnant since the collapse of the speculative asset-price bubble in 1990, despite highly expansionary monetary policy which has brought interest rates down to record low levels. Although several reasons have been put forward to explain the sustained weakness of the Japanese economy, none is more intriguing from the viewpoint of a central bank than the possibility that monetary policy had been largely ineffective because the Japanese economy entered a Keynesian "liquidity trap."
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Keynes proposed a new way to analyse the economy, which he presented as an alternative to classical theory. His vision of how the economy works quickly became a center of controversy. Yet as economists debated The General Theory, a new understanding of economic fluctuations gradually developed. In The general Theory, Keynes proposed that an economy's total income be, in the short run, determined largely by the desire to spend by households, firms and the government. The problem during recessions and depressions, according to Keynes was inadequate spending. The Keynesian cross is an attempt to model this insight. In 1937 John Hicks introduced the IS-LM model which generally represents Keynes's General Theory in the form of a system of simultaneous equations.
- Word count: 2016
How well do they account for the experience of unemployment in OECD economies in the past twenty years?
The aim of this essay is to explain NRU (market clearing rate of unemployment) and NAIRU (equilibrium rate where inflation is stable but there still can be some involuntary unemployment), distinguish between the two and comment on how useful these concepts are in explaining such a phenomena as OECD economies' unemployment, where unemployment continued to grow even when inflation was stabilised. In General Theory there is very little explanation about the determination of the movement in money wages as Keynes simply relied on the perfect competition model of price determination. However, real wages were found to move pro- cyclically rather than counter-cyclically and the account of inflation was required.
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The short-run and long-run Classical arguments are briefly illustrated below. Figure 1.1 The short run effect of an increase in the money supply An increase in the money supply would shift the LM curve to the right resulting in a temporary equilibrium at y1. The rate of interest falls from r to r1. The output effects of an increase in the money supply are unpredictable at best and can create severe problems. The equilibrium at y1 is temporary because it is beyond the natural level of employment and cannot be sustained in the long-run.
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The inflation rate largely depends on the economies output and the closer the AD curve is to full employment/potential output, the larger the increase in the inflation rate. According to Keynes, in the long run, an increase in demand (causing an increase in output) has no effect in the price level as it is perfectly elastic however in the short run aggregate supply curve is not perfectly elastic, an increase in the price levels The main cause of demand-pull inflation (on a sudden increase in demand)
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Failing output, rising unemployment, collapsing investment, a trade deficit chasm all following an inflationary surge, demonstrate the widespread failure of government economic policies during the 1980's. Far from being solved, Britain's economic problems have worsened. Recessions during the 1980's This section of my assessment activity investigates the main points that caused a recession during the 1980's. Inflation During the 80's During the 1980's the government's use of harsh policies to control a double-digit inflation of 13.4% during 1979 and then 18% in 1980 you can see this change in the Appendix 1.1.
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In perfectly competitive markets, producers take prices as given. Let?s start with the behaviour of producers in perfectly competitive markets; remember, they take the price as given. Imagine that, for some reason, the aggregate price level falls, which means that the price received by the typical producer of a final good or service falls. Because many production costs are fixed in the short run, production cost per unit of output doesn?t fall by the same proportion as the fall in the price of output.
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"Can financial markets ever be considered to be truly efficient; given that insider trading is prohibited in a number of jurisdictions? Further, what might have been the pitfalls and the benefits of relaxing insider trading prohibitions?
Examples of financial markets include the New York stock exchange (NYSE) and the forex markets. Insider trading defines the buying and selling of securities by someone who has access to material, non public information about the security. A controversial example of this was the Kenneth Lay Enron scandal in which Mr. Lay used his inside knowledge as a company director to sell his shares in the company just prior to the company filing for bankrupt . At present, there are three main types of market efficiency; Allocative efficiency (production and distribution), Operational efficiency (market micro structure)
- Word count: 2072