Using graphical analysis, examine the view that unemployment is essentially a Keynesian problem
Using graphical analysis, examine the view that unemployment is essentially a Keynesian problem. Assignment 2 Business Environments Module: 26301 Tutor: Leigh Davison Student Number: 2011432859 John Maynard Keynes was an economist and political philosopher who was remarkably made famous overnight with his 1919 book, "Economic Consequences of the Peace" where he predicted that Germany would escalate the Second World War because of hyperinflation. (Baumol et al, 1997, p530). He is well known for his masterpiece published in 1936, "The General Theory of Employment, Interest and Money" on which most of modern macroeconomics is based upon. In this book, he argues that full employment was not a natural phenomenon, and that employment levels are determined by the spending of money and not by the price of labor as suggested by neoclassical economists. The matter of unemployment is a macroeconomic problem that has the most severe impact on individuals. Most people rely on their income from labor to maintain or even increase their living standards but also a sense of their personal achievements. The loss of a job would mean lower living standards and often a fall in their self-esteem. Moreover, involuntary unemployment also harms the whole economy, as they are not contributing to the economy's production and potential output is wasted; they are viewed as the burden of the economy
Discuss the claim that inflation is a Monetary phenomenon.
Discuss the claim that inflation is a Monetary phenomenon Phenomenon: Remarkable person or thing Inflation is naturally related to the monetary side of the economy, this cannot be disputed as inflation deals directly with the money in the economy. However whether it is a Monetary 'phenomenon' is another matter altogether. In this essay I intend to prove that it is a monetary phenomenon that nobody can control, and it rules itself. To do this I will analyse the methods, which the British government has tried to use to control inflation. Inflation (or at least the control of it) is regarded as high priority by the British government, particularly as they compare the British economy with other advanced industrial countries, such as Japan. The measurement of Inflation can be measured in a variety of ways. The Most Common and the one that I will refer to in this essay is the Retail Price Index (RDI or Headline Measure). According to 'Business for Higher Awards' (Dave Needham, Rob Dransfield et al), RDI 'produces a picture of inflation as consumers experience it'. However to analyse Inflation properly you have to look at inflation as experienced by industry, as this may give some 'warning of inflationary pressures building up in the economy'. By monitoring the changes in the prices of imports and 'factory Gate price', an indication of what trends are emerging into wage and raw
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
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
Financial Crisis in Iceland
Course: MSc Finance and Investment Module: ECM04 - Economics of Capital Markets Date Due in: 2nd March 2009 Number of pages: 19 Word count: 4,261 Financial Crisis in Iceland Background, Causes, Consequences and Future Prospects Students: Jóhann Þórhallsson, Magnús Helgason & Sigurbjörg Ýr Guðmundsdóttir Lecturer: Jens Holscher & Khaled Soufani Table of Contents Introduction 3 Background & Causes 4 European Economic Area 4 Free Capital Transfer and Privatization of the Banks 4 Speculation Capitalism in Iceland 5 Free Market Capitalism 6 The Central Bank 7 Consequences 9 Model of Financial Crisis - Iceland Comparison 11 Conclusion 14 References 15 Appendix A 17 Appendix B 18 Introduction This assignment is part of ECM04 Economics of Capital Markets module on phase 2 in MSc. Finance and Investment at University of Brighton 2008-2009. The assignment is to analyze the Icelandic financial crisis which eventually led to the collapse of the Icelandic banking system and the economy as a whole. In order to analyse the Icelandic financial crisis we will begin to look at the background and what we regard as the causes, look at the consequences and future prospects. In the end we compare the Icelandic financial crisis to a model which Kindleberger covers in his book Manias, Panics and Crashes. Kindleberger (1978) describes financial crisis in the
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.
Macroeconomics Assignment 2 Tian Ni Zhang Q3. 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. Answer: Recall the Fisher equation, we knows that the nominal interest rate is given by i = r + ? where r is the real interest rate and ? is the inflation rate. While supposing people expect that ? is constant, we derive the quantity of money growth as Mt = (1+ ?) Mo. Using the money neutrality concept we would know that the price will grow by the same proportion as inflation rate. That is Pt = (1+ ?) Po. Hence we get the left side of Figure 1. The money supply curve and the price curve are parallel with the slope of ?. Suppose that from time T there is a permanent increase in the growth of money supply as ?', the money supply curve rotates upward from T, shows that Mt growth faster than before. 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
Outline the way in which a government which issues money can gain real resources. How relevant is th
Outline the way in which a government which issues money can gain real resources. How relevant is th In almost all modern economies the government plays a central role and will need to pay for its own expenditure. Funds for government expenditure will generally be raised by taxation. But when spending exceeds taxation revenue the government runs a budget deficit and will need to borrow the difference. It can borrow from the private sector by issuing interest-bearing government debt (bonds). Alternatively the public sector can finance the shortfall by borrowing from the central bank (Bank of England in this case) effectively issuing non-interest bearing high-powered money (defined as notes, coins and banks' operating balances at the Bank of England or M0 in the UK). Hence the government faces a budget constraint in a similar way as each individual consumer does, except that it has the right to "print" money. The purpose of this essay is to examine how the government can gain real resources by this method and whether or not it is a significant option in the UK. Any budget deficit must be financed by additional bonds or extra money balances and this government budget constraint can be shown in equation 1 below: Equation 1: CONSOLIDATED GOVERNMENT BUDGET IDENTITY Pt(Gt - Tt) = St - St-1+ Bt - (1+i)Bt-1 where P = price level G = real government expenditure T = real taxation
What Causes Inflation To Rise? Does It Matter?
WHAT CAUSES INFLATION TO RISE? DOES IT MATTER? The term inflation is a well known for the effect it has on wages and prices. It is a common perception that inflation is a negative aspect in the economy, however, it is also necessary to remember that although inflation can be a destructive force it is also a requirement in any economy as zero inflation with normally represent zero or negative growth. To understand the effects of inflation and the costs that it might impose on individuals and the society as a whole it is first necessary to understand its causes. Inflation is usually defined as a continuing or persistent tendency for general price level to rise so it could be said that in effect the rate of inflation measures the change in the purchasing power of money1. The important aspects of this definition are concepts continually and general as it refers to rise in the average price level over a period of time. Inflation is a monetary phenomenon where the price level and therefore the value of money that is changing, not the price of particular product and secondly it is an ongoing process, not a one off event. Since inflation refers to changes in the average level of prices, measurement involves consideration of movements in an index referring to the average level of prices. There is a wide range of price indices which may be used for this purpose such as the retail
Describe the benefits to international policy coordination as set out in the Hamada diagram. Why is time consistency so important if policy co-ordination is to be successful? Use diagrams to support your arguments.
Describe the benefits to international policy coordination as set out in the Hamada diagram. Why is time consistency so important if policy co-ordination is to be successful? Use diagrams to support your arguments. The increase in interdependence of the world economy has significantly changed the lives of consumers. Being able to purchase things at a fraction of the cost that it would otherwise be if it had been produced nationally, and having access to a much wider variety of products has increased. This increased interdependence has created the term, globalisation, which is the breaking down of physical barriers to integrate regional economies into a single integrated economy. The effects of this are vast, including economies of scale and comparative advantage, to name a few. Interdependence is now a necessary part in the world economy today, whether it is in the form of an economic monetary union or whether it is by trade flows. It is nearly impossible for one countries policy not to have an effect on another. However, using the USA as an example after the First World War shows us that isolating each country is not sustainable. The USA adopted protectionist policies, introducing high tariffs and quotas on all European goods, to encourage consumers to buy American. This strategy then collapsed, and showed the global economy that policy coordination is to be an imperative