Thursday, 13 September 2007

Article Abstract

In this article, the british prime minister has refused to raise the wages of his government workers in order to stop AD from shifting out because it counts as government spending. Also, if the wages are raised AS is also shifted out, therefore the end result is only that the price level is raised with no increased output. The government spending would cause a crowding out effect because the british government is deficit spending. The crowding effect would cause no long term economic growth.

Tuesday, 11 September 2007

The "Best Article in the World"

Brown firm over public sector pay

Press Association
Monday September 10, 2007 2:53 PM

Gordon Brown has risked the wrath of the unions by insisting he would not undermine the economy by making "unaffordable" promises on pay.

Amid growing discontent over public sector wage deals, the Prime Minister said financial "discipline" was essential to maintain growth.

In his first speech to the Trades Union Congress since entering No 10, Mr Brown also outlined plans for bringing the UK closer to full employment than ever before, with a crackdown on migration to ensure "British jobs for British people".

Mr Brown said the Government would "always put stability first".

"No loss of discipline, no resort to the easy options, no unaffordable promises, no taking risks with inflation. So let me be straightforward with you - pay discipline is essential to prevent inflation, to maintain growth and create more jobs - and so that we never return to the old boom and bust of the past," the Prime Minister said.

Mr Brown said that if inflation was allowed to get out of control, the country could go back to the "same old familiar pattern" of spiralling prices, high unemployment and public spending cuts that there had been under the Tories.

"Because this Government will take no risks with the economy I'd only make promises we can afford. For me it will be stability first, now and in the future - stability yesterday, today and tomorrow - and that will mean more jobs."

Mr Brown said he hoped this could be "Britain's century", and wanted to see the economy move towards producing highly skilled posts rather than lower skilled.

He put forward a package of measures which would be implemented "rapidly" to create 500,000 jobs. Previously a lack of available posts was the major barrier to people working, but now there were more than 650,000 vacancies waiting to be filled, he said.

"The bigger barrier to full employment is not the lack of jobs but the lack of skills," he said.

Copyright (c) Press Association Ltd. 2007, All Rights Reserved.

Friday, 7 September 2007

Unit 3.5 Definitions

Unemployment - the failure of an economy to fully employ its labour force.
Umeployment rate - The percentage of the labour force unemployed at any time.
Costs of Unemployment - Loss of potiential goods and services, unequal burdens, emotional distress
Types of Unemployment - Frictional: workers who are either waiting for jobs in the future or currently searching for them. Structural: Workers who have been laid off because their skills are now obsolete and have been replaced by machines. Seasonal: Workers who have jobs in the winter and summer but do not in the months between. Cyclical: Unemployment caused by insufficent total spending or by insufficient aggregate demand.
Inflation - A rise in the general level of prices in an economy.
Types of inflation - Cost push: Increases in the price level caused by increases in resource costs. Demand pull: Increases in the price level resulting from an excess of demand over output at the existing price level. Excess monetary growth: An increase in the price level caused by an increase in the supply of money causing it to be worth less.
Costs of Inflation - Decrease in real income, Increased costs of production

Monday, 3 September 2007

Interest Article

Sunday, 26 August 2007

Monetary Policy Article

Tim Shaughnessy: Effectiveness of Fed's monetary policy debatable
August 25, 2007

News reports about the Federal Reserve generally do not make the front page but if you sifted past the headlines you saw that the Fed cut the "discount rate." Since people refer to the chair of the Fed as the second most powerful person in the world, it might be helpful to unpack some of the details of the Fed's latest move to see how it affects the economy.

The primary purpose of the Fed is to maintain a sound monetary system leading to low inflation and unemployment, while ensuring smooth and trustworthy operation of banks and financial transactions. In short, the Fed's role is to control the money supply. If it injects more money into the economy, this tends to temporarily spur production of goods and services; in the long run, though, too much money will lead to inflation. If the economy heats up and inflation is looming, the Fed will pull money out of circulation, leading to lower prices but less production.

In the Fed's role as a "bankers' bank," it can change the money supply using the discount rate. In a similar way that I have an account at AmSouth, AmSouth has an account at the Fed. I can borrow money from AmSouth; AmSouth can borrow from the Fed. AmSouth charges me an interest rate when I borrow; the Fed charges AmSouth to borrow, and it calls this rate the discount rate.

The official announcement said the rate was cut "50 basis points," which is just a fancy way of saying half a percent. (Like all economists, the Fed sounds smart when it renames already familiar terms.) Thus, it is now half a percent cheaper for banks to borrow money from the Fed. They borrow more and turn around and lend it out so the money supply increases, which hopefully causes more production of goods and services.

Why did the Fed do this now? "To promote the restoration of orderly conditions in financial markets," according to its press release. The sub-prime mortgage market woes threaten to put the brakes on the economy, so the Fed cut the discount rate as an antidote. The stock market seemed to appreciate the move as the Dow, Nasdaq, and S&P 500 all moved up about 2 percent, reflecting investors' optimism that the easier lending by banks will help the economy.

There is much debate within economics about the effect and effectiveness of monetary policy, with some believing that the Fed is good at fighting inflation but not so good at preventing recessions, and some who think the Fed cannot affect output at all in the long run. We will have to wait and see whether the discount rate cut was the right medicine.

Sunday, 19 August 2007

International Econ Commentary Article

Anti-trade backlash would hurt the world's most vulnerable people
Vancouver Sun
Published: Monday, August 13, 2007
The growth in international trade and the consequent increase in imports of tainted goods -- from E.coli-infected spinach from the United States to toxic lead-coated toys from China -- pose more than a health risk. They threaten to jeopardize support for a liberalized global trading regime that represents the only viable hope for many developing nations to raise their standards of living.

In the U.S., Democratic presidential hopefuls are attacking trade at every turn to appeal to the labour vote.

New York Senator Hillary Clinton has registered her opposition to a trade deal with South Korea and, more seriously for Canada, says the North American Free Trade Agreement "has hurt America." She wants to see "broad reform" in how the U.S. approaches trade. "I believe in smart trade, pro-American trade, trade that has labour and environmental standards, trade that's not a race to the bottom," Clinton told a forum in Chicago hosted by the AFL-CIO.

Former North Carolina senator John Edwards vowed to fight trade deals that don't benefit American workers. "While economists say that trade helps our economy over-all, we need to be honest about the fact that it does not help everyone," he told a crowd in Cedar Rapids, Iowa. "Globalization has helped stunt the growth in wages for American workers."

Other contenders, including Barack Obama, agreed that they would revise NAFTA. "Our trade agreements should not just be good for Wall Street, it should also be good for Main Street," Obama said.

Such mindless sloganeering is troubling coming from those who want to be the next U.S. president.

But the theme is striking a chord with many, including owners of dogs and cats killed or hurt by pet food laced with the poisonous chemical melamine and parents worried about toys coated in lead paint from China.

As CanWest News reported last week, Canadian food imports have grown nearly 22 per cent in the last decade. The U.S. accounted for $11.9 billion of the $19.2 billion imported by Canada from 195 countries last year, but substantial volume came from China ($756 million), Brazil ($607 million), Mexico ($599 million), the Philippines ($91 million), Malaysia ($66 million), Iran ($26.8 million) and Ghana ($24 million).

As little as 10 per cent of imported produce is examined by the Canadian Food Inspection Agency despite the fact that some source countries tend to have poor hygiene, low food safety standards and lax regulation. Meanwhile, Canadian farmers must abide by strict food safety rules and face frequent inspections.

The CFIA says it doesn't have the resources to inspect everything, that it would take an army to scrutinize a million entries of fresh produce a day. Yet an Ontario farmer reports that he has already had five visits from inspectors this year, raising questions about the deployment of federal inspection resources.

It is clear that the rapid growth in imports has not been matched by a corresponding restructuring of administrative services to facilitate it. Canadians and Americans have to be persuaded that the products for sale on grocery shelves, at toy shops and in the shopping mall are safe. Unless inspection systems are put in place that can offer that assurance, the advances in alleviating poverty in the developing world through trade will be put in jeopardy.

Politicians should not be misled by anti-trade propaganda. The evidence is irrefutable that trade creates wealth for nations and lifts people out of poverty. A study by Columbia University economics professor Xavier Sala-i-Martin estimated that there were between 250 million and 500 million fewer poor people in 2000 than there were in 1970. In a 2005 report, the Food and Agriculture Organization of the United Nations argued that a growing agricultural sector is crucial for sustainable poverty reduction.

An anti-trade backlash would be a calamity for the global economy and cause the greatest hardship to the most vulnerable citizens in the least prosperous countries.

It's up to industrialized nations to ensure the growth in imports that can enrich the populations of the developing world is not impeded by bureaucratic failure.

The issue in this article is that the US and now much of the world is reconsidering Free Trade Zones and starting to consider more protectionist measures due to the safety and contamination of goods that are being imported from other countries, mainly China. If the US and other more developed countries were to remove the free trade zones and start imposing tariffs in order to control the quality of goods then less developed countries that rely on trade with larger countries for much of their GDP will be severly affected because the new barriers to trade will create a serious damper on the amount of money that they earn and the poorer people in those LDEC's will be hurt the most because it is they who are the ones who rely the most on the trade of natural resources with other countries as their main source of income.

Wednesday, 15 August 2007

Summer commentary #2

In this article, the history of animosity between Pakistan and India has caused the slowing of trade between the countries through an inefficient method of transportation. The current system doesn’t allow trucks carrying goods for trade into either country and forces them to unload their goods and have a different truck on the importing country’s side come pick them up and take them to their destination. This is obviously a waste of time and money for both the importing and exporting country and also usually causes damage to the goods being shipped. Most goods are shipped by land and because of this forced transfer of goods between India and Pakistan, trade between surrounding countries (Afghanistan, Nepal, Bhutan, Tajikistan) that are being driven through either of these countries also suffer, especially ones that are land locked and have no other option for mass transportation. Both Pakistan and India have much to gain by streamlining their border crossing process because due to this inefficient system both countries are suffering massive losses to their GDP. In the article it’s mentioned that trade between the countries has been valued at 400 million for the past six years, however it has been estimated that it could instead be between 3 billion and 10 billion. Obviously this is an enormous increase and would be a big boost to both countries’ economies. Also because India and Pakistan are the among the most economically strong countries in the South-East Asia region, low trade between these two countries is a big limitation on growth in this region and if trade increased, both countries, especially India, would significantly strengthen economically.

What both countries should do is to allow free entry of cargo trucks from both countries, therefore eliminating the costly and potentially goods damaging transfer process. Also because both countries are part of the South Asia Free Trade Area, trade between both countries would increase and as a result so would the GDP’s of both countries and the surrounding countries, as they too would have easier access to the markets in India and Pakistan. International trade would increase as well because the land locked countries around India and Pakistan, such as Afghanistan, Nepal and Bhutan would have access to the ports in both countries and allow for greater ease in shipping their goods around the world.