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University Degree: Macroeconomics

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  1. "Examine the major areas of disagreement between Keynesians and monetarists. Comment briefly on the view that their disagreements are as much a matter of ideology as of economics."

    One of the academic leaders was Prof. Milton Friedman, who demonstrated a close correlation between changes in the money supply and the rate of change of money GDP, and therefore prices. So the monetarists suggestion was that there is a strong causal relationship between the supply of money and inflation. The very basic Keynesian equation is the national income accounting equation: Y = C+I+G, (Y= National Income, C= Consumption of the private sector, I = Investment, G= Government expenditure.) Government expenditure and investment are exogenously given and the consumption is determined by C=Cv+cY (Cv= Autonomous Consumption , c= marginal propensity to consume).

    • Word count: 2317
  2. "Keynesian policies are incompatible with price stability" "Monetarist's policies are incompatible with full employment". Discuss the validity of these two statements.

    o Multiplier effect: an initial increase in aggregate demand of �xm leads to an eventual rise in national income that is greater than �xm * Wages and prices are sticky, a major sticky point between monetarists and Keynesians o Respond slowly to changes in supply and demand, this can result in inefficient markets i.e shortages and surpluses, especially labour o Spending, consumption, investment, or government expenditures cause output to fluctuate. * The natural rate of employment is not necessary the "ideal" o In the past Keynesian policies have advocated using price stabilization as means of affecting the business cycle o

    • Word count: 1479
  3. Explaining how two areas of the housing market works, these being regional price difference and price changes over time.

    The North is seen as having fewer amenities and has a higher crime rate than the South, this been a consumer perception, and so the house prices in the North are lower. This graph shows how when the demand of a house increases the price increases if the demand stays the same. The more expensive areas to live like the Home Counties and Greater London have a greater demand due to desirability and Price. However if everything is ceteris paribus but Price and demand then we should see more expensive places having a lower demand like so: However this is

    • Word count: 2153
  4. International Monetary Fund and long term economic health

    In response, the commercial banks increased the loans, in confidence that the indebted countries will pay back by getting into more debt with IMF. As the indebted countries got into even more debt, the IMF's 'right' was to intervene into their economies, making structural adjustments with the purpose of actually helping to repay debts. Tragically, very often the effects on the economies have been devastating. 'Ill' economies have been treated with IMF's 3-step help1 and very often made even more ill, by IMF's technical assistance policies.

    • Word count: 1056
  5. Identification & explanation of the inflation trend over twenty years : Germany

    PHASE 1 (1977-84) THE SECTION ,THE INFLATION GROW FROM 2.7 UPSERGE TO 6.35 THEN DROPED BACK TO3.4 IN 1983. In Germany, Bundesbank has a very anti-inflationary biased behavior. This traditional strong fiscal prudence approach has only been interrupted twice since the Second World War. During late 1970s the shock of 2nd oil crisis had lead to a slackened growth rates in Germany and in 1978 the Government planned increases GDP 6 to boost world economy. Numerous unfortunate side effects resulted-Inflation increased by 2% , current account became negative7 and public deficits increase over the next few years8. Moreover, the shift in distribution of income led to a squeeze on profits and Kay Page 2 5/8/2007 unemployment did not fall appreciably.

    • Word count: 2041
  6. Compare the positions of the New Classicals and New Keynesians regarding: (a) market competition; (b) flexibility of prices and wages and (c) speed of price and wage adjustments.

    They argue that in the short run, quantities supplied and demanded need not be equal and the economy may remain out of general equilibrium. Keynesians are sceptical about the economy's ability to reach equilibrium rapidly on its own, they are much more inclined than are classical economists to recommend that government act to raise output and employment during recessions and to moderate economic growth during booms - Demand Management. As pointed out above, Keynesians believe that wages and prices do not move rapidly to clear markets - wage and price rigidity.

    • Word count: 2663
  7. Critically evaluate the assertion that over-demand rather than under-supply was the root cause of the deterioration of urban environments in the nineteenth century.

    In this sense over demand is responsible as if people did not concentrate in one area and share cesspools and water fountains then cholera epidemics would not have spread. In effect the rise in demand for water contributed to urban health deterioration. However if governments put more pressure on water suppliers in regard to purification of water as they have done in the twentieth century then contamination could have been greatly reduced.

    • Word count: 1033
  8. Interest elasticity and the stability of the demand for money are crucial for the debate on the relative effectiveness of monetary policy versus fiscal policy. Discuss.

    The assumption that the demand for money is stable is crucial to monetarists because it means that changes in the money supply will have a predictable impact on the economy. This would thus make monetary policy more effective. Fiscal policy is the means by which the government may vary the level of its expenditure and revenue to influence the behaviour of the economy. Over the last two decades the government's role in the economy has been looked at much more closely and at times led to controversy, this controversy comes in the form of the extent to which the levels of public sector expenditure have been to the detriment of private expenditure in the economy.

    • Word count: 1692
  9. Defining Unemployment.

    The current method understates the level of unemployment in the UK. Since 1986 the unemployment rate has changed. Prior to 1986 the denominator consisted of the unemployed and the employed. Subsequently this has also included the self employed and HM Forces. Since 1979 there have been around 30 changes since 1979, all but one of which have served to reduce the official claimant count. Survey Method Labour Force Survey Conduct surveys to find out about the Labour Force. Definition of Unemployment: people without a job who were available to start work within the next two weeks and who had either looked for work within the four weeks prior to interview or who were waiting to start a job.

    • Word count: 2810
  10. Explain the concept of dynamic inconsistency - Is the condition of the government aiming at a level of output above the level consistent will full employment crucial?

    But if wage and price setters lock themselves into contracts, committing themselves to SRAS0 (short run aggregate supply curve), in the diagram below, then the government incentive to cheat leads to a movement from point A to B so that the government can benefit from higher inflation (with higher monetary growth). The benefit can be seen from the fact that the government is now on a higher indifference curve since it has temporarily boosted the economy to achieve a rise in its popularity (specific at the point of reneging equilibrium B).

    • Word count: 1330
  11. What determines the choice of an optimal exchange rate regime? Identify a set of conditions that would constitute a case against fixed exchange rate regimes.

    Similarly a fixed exchange rate is also more suited to economies where foreign trade makes up a large percentage of GDP. A fixed exchange rate might reduce currency speculation, preventing fluctuations in import and export levels. The choice of an optimal exchange rate is clearly dependent on the size of the economy in question and its dependence on foreign trade. Speculation is perhaps the biggest danger when a fixed parity is in use. An effective example would be the UK's difficulties in supporting the ERM in 1992.

    • Word count: 1526
  12. Asset Markets & The IS-LM Model.

    If the increase in spending is permanent the state will require to find �100m each and every year. This implies either or both A rising debt-GDP ratio A rising nominal money stock Note. If the government funds it's deficit via bond sales, it will also require to raise additional capital to service the annual interest payments if it wishes to maintain a permanent nominal spend of �100m . Suppose r=10%. In year 2, the govt will require to raise not only �100m but also 10% of �100m. In total, the government needs to raise �110m in year 2 to maintain it's deficit spend of �100m on public spending programmes.

    • Word count: 2496
  13. The Federal Reserve System.

    Think of it as the main branch of every bank in the country. The Fed provides banking services to financial institutions like the services your bank provides for you--deposits, check clearing, etc., including charging service fees and collecting interests on loans made. It performs this function through twelve reserve banks that provide banking services to the banks in their Federal Reserve district. The most important duties of the Federal Reserve System relates primarily to the maintenance of monetary and credit conditions favorable to stable business activity in all fields-agricultural, industrial, and commercial. Among those duties are lending to member banks, open-market operations, fixing reserve requirements, and establishing discount rates, and issuing regulations concerning those and other functions.

    • Word count: 4721
  14. Should the Uk Join EMU

    Increased technology and the Internet makes it very easy for UK consumers to calculate Euro values. 3: During the last 10 years Britain has had stable prices, especially since the B of E has taken control of interest rates. There is more chance of volatile inflation under a larger currency union. 4 helps Britain's trade with the EU. It also makes the price mechanism a more reliable tool for making investment decisions as the adjustment process of exchange rates is no longer necessary.

    • Word count: 13932
  15. Is the food spending of female garments workers depend on the following variables? : Family Income, Family size, Earning member, House rent, and Education.

    the following aspects: * Economic conditions, such as wage payment, total family income, job experience * Social conditions, such as education level, number of family member, earning member. Development of the Theoretical Model We know the consumption is depending on disposable income. Thus we can say Consumption function is a relationship between consumption expenditure and disposable income. If we consider 'C' is Consumption Expenditure and 'YD' disposable income we get, C = f (Y0) So Consumption = f (Disposable Income)

    • Word count: 2706
  16. How clear is the distinction between voluntary and involuntary unemployment?

    It follows that the level of frictional unemployment in an economy will be heavily affected by the availability of information regarding the labour market. If it is hard to find out about vacancies, it will take a long time for workers to find a position which is suited to them. It is also argued that unemployment benefits may have an effect on frictional unemployment levels, because if benefits are relatively high then people will feel able to stay out of work for longer and spend more time searching for an appropriate job.

    • Word count: 1562
  17. Economic and Monetary Union.

    This conjured up fears in the rest of the EU particularly in France. A reunited Germany would be by far the largest country in the EU. Reunification could draw a line under Germany's rehabilitation and a more independent Germany could emerge. With Germany's traditional hinterland in Central and Eastern Europe, also emerging from Communist rule, there was concern that Germany's attachment to the EC could diminish. Ultimately reunified Germany raised fears of a militaristic past. EMU was regarded as way of tying Germany more closely into the EU, under these changed circumstances.

    • Word count: 8904
  18. Discuss, in the light of the economic changes that have occurred within the UK in recent years, whether it is still correct to describe the UK economy as a mixed economy.

    The second because of the huge increase in claimants (the unemployed, for example) plus the increase in the number of pensioners relative to those in work. Though, previously during the 1970's and early 1980's, the GDP, which was devoted to government spending, was much higher. This was until Privatisation occurred, when the Conservative governments under Maggie Thatcher developed the policy of Privatisation. Privatisation means the transfer of economic activity from the public sector to the private sector. The Financial secretary of the government Mr Nicholas Ridley, expressed the commitment of Privatisation when he said, "It must be right to press

    • Word count: 823
  19. What are the major macro-economic issues facing this country today?

    The downward effects came from a decrease in a number of commodity groups. An increase in unemployment is usually caused by a downturn in economic activity. Unemployment is an economic indicator that refers to the number of people who are able and willing, but are unable to work. People in this situation are said to be unemployed. The current rate of unemployment in the UK for the quarter November 2004 to January 2005 stood at 4.7%, with 1.41 million people unemployed.

    • Word count: 1630
  20. Problems of Keynesianism.

    Certain industries may decline due to a sharp fall in demand for goods/services. As this happens new industries take over. Regional Unemployment is similar to structural unemployment accept that those industries in decline are locally based, as a result the local economy falls into depression. Fractional Unemployment - This occurs when people are between jobs; they leave one job to look for another and feel confident of finding one. This is also known as short-term unemployment. Technical Unemployment - Due to the introduction of new technology companies can achieve higher levels of productivity.

    • Word count: 1127
  21. Show why a permanent rise in the growth of the money supply induces a jump in the price level at the date at which the rise is announced.

    To examine the change in Pt, on one hand, as money supply increases, the inflation rate rises as well followed by an increase in nominal interest rate. It then reduces the real money demand. This causes an exceed money supply. People tend to buy more goods as they hold more money than they wish. An increase in demand of good put upward pressure on price. On the other hand, at the date when the rise is announced, there is no sudden increase in the growth of the money supply but a tendency to growth faster from then on.

    • Word count: 947
  22. What Causes Inflation To Rise? Does It Matter?

    There is a wide range of price indices which may be used for this purpose such as the retail prices index (RPI), index of wholesale prices, a set range of commodities, or a general increase in prices including interest rates or indeed any combination of price increases the government chooses to use in the measure of inflation. To measure the inflation the percentage change in the price level is calculated, the higher the percentage the higher the increase. When compiling the RPI certain items will always receive a heavier weighting than others as the cost of a luxury car rising

    • Word count: 2386
  23. How the Exchange Rate Mechanism attempts to control fluctuating currencies between its members.

    In the 1960s, Members of the EEC were also members of the International Monetary Fund (IMF). The Fund applied Wood's theory, in that each of the participating currencies 'pegged' onto the Dollar by undertaking to keep the market value of its currency within a band: where the ceiling was 1% above its Dollar parity and the floor was 1% below. Implementation of the Wood theory was left to the decision of each individual country. However, on 15th August 1971, this system ceased when the US Dollar's convertibility into gold decreased and the contributing factor of the floatation of currencies.

    • Word count: 4222
  24. Discuss the rationale for and impact of the monetarist policies implemented by the Thatcher administration.

    This also represented a major shift in economic thought, due to the discovery that the Philips curve was in fact only a short run trade off between unemployment and inflation. Instead, this belief was centred around the Friedman influenced expectations-augmented Philips curve in which the long run unemployment always reverts back to the 'natural state' and only supply side factors can shift the NRU lower. Hence there is no long run trade off between inflation and unemployment and measures to lower unemployment below the NRU will create inflationary pressures, currently experienced, and vice versa with inflation.

    • Word count: 1876
  25. What determines House Prices and causes them to change?

    The amount that has to be repaid in the form of mortgage repayments is determined by the interest rates. If the central bank decides to increase interest rates, consumers will be discouraged to move and buy a new house, and new house owners to buy a house at all. This is because mortgage repayments would b higher, and it adds to the cost of buying and maintaining a house. This reduces consumers' disposable income, and discourages buying a house, causing the demand for houses to decrease and eventually causing house prices to decrease. The increase in interest rates will discourage consumption and increase saving, because consumers would gain a good return on money saved.

    • Word count: 2374

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