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.
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
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
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.
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.
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
http://www.dailytimes.com.pk/default.asp?page=2007%5C08%5C15%5Cstory_15-8-2007_pg5_1
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.
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.
Tuesday 14 August 2007
Summer destroying Commentary of death number 1
http://www.forbes.com/markets/feeds/afx/2007/08/08/afx3999541.html
The problem in this article is that the lumber companies in Canada are being taxed and therefore being forced to be less competitive relative to the US companies. In a truly free market, the US companies would have long ago been out competed by the cheaper Canadian lumber. This is obviously indicated in the article by it saying that the US suffers twice as many layoffs which shows that the US lumber companies are having to cut costs in order to remain competitive. However, the American government understandably wishes to protect its lumber market which is where the trade tariffs come in, but the tariffs would violate the NAFTA, so the US government created the SLA where Canada would control the tariffs but would control them under guidelines that were agreed upon by both the US and Canada. In this article the US claims that Canada is allowing too much lumber to be exported to the US for too low of a price and is therefore out competing the US lumber harvesters. This claim would violate the Softwood Lumber Agreement which says that the Canadian provinces that export lumber to the US must increase tariffs on lumber exports when lumber prices are low so that the US lumber firms can stay competitive with the Canadian firms. The US also claims that the taxes that Canada enforces are too small and that Canada is also circumventing the SLA by subsidizing the Canadian lumber firms when taxes are increased due to low prices therefore canceling out the effect of the tax.
In order for this problem to be resolved, the US lumber companies need to become more competitive which means that more lumber needs to be available because if there are more trees available to be harvested, then the cost of lumber will decrease. Therefore, instead of being whiney and accusing the Canadian government of not following a trade agreement that is detrimental to their economy anyways, the US government should instead focus more on replenishing their forests because not only would this aid the US lumber companies, but also would provide positive externalities to the public. By allowing Canada to specialize on lumber production and specializing upon a different industry as well would also be in not only the US’ best interests but would also increase the allocative efficiency of the US because Canada is obviously better at producing lumber. Therefore the US could concentrate on a different export and increase its GDP.
The problem in this article is that the lumber companies in Canada are being taxed and therefore being forced to be less competitive relative to the US companies. In a truly free market, the US companies would have long ago been out competed by the cheaper Canadian lumber. This is obviously indicated in the article by it saying that the US suffers twice as many layoffs which shows that the US lumber companies are having to cut costs in order to remain competitive. However, the American government understandably wishes to protect its lumber market which is where the trade tariffs come in, but the tariffs would violate the NAFTA, so the US government created the SLA where Canada would control the tariffs but would control them under guidelines that were agreed upon by both the US and Canada. In this article the US claims that Canada is allowing too much lumber to be exported to the US for too low of a price and is therefore out competing the US lumber harvesters. This claim would violate the Softwood Lumber Agreement which says that the Canadian provinces that export lumber to the US must increase tariffs on lumber exports when lumber prices are low so that the US lumber firms can stay competitive with the Canadian firms. The US also claims that the taxes that Canada enforces are too small and that Canada is also circumventing the SLA by subsidizing the Canadian lumber firms when taxes are increased due to low prices therefore canceling out the effect of the tax.
In order for this problem to be resolved, the US lumber companies need to become more competitive which means that more lumber needs to be available because if there are more trees available to be harvested, then the cost of lumber will decrease. Therefore, instead of being whiney and accusing the Canadian government of not following a trade agreement that is detrimental to their economy anyways, the US government should instead focus more on replenishing their forests because not only would this aid the US lumber companies, but also would provide positive externalities to the public. By allowing Canada to specialize on lumber production and specializing upon a different industry as well would also be in not only the US’ best interests but would also increase the allocative efficiency of the US because Canada is obviously better at producing lumber. Therefore the US could concentrate on a different export and increase its GDP.
Saturday 26 May 2007
Unit 3.3 Chapter 11 Questions 4,5,6,7 Date: May 26th
4. a)The equilibrium will be $300 Billion but it doesnt have to be full employement because the output has to match the demand.
b) The amount of real GDP that has been demanded doesn't match the amoint supplied therefore the price levels will not be equilibrium.
c) The factors of aggregate demand are consumer wealth, consumer expectations, real interest rates and taxes.
5. a) Productivity = total output/total input
Productivity = 100 dollars / 37.5 units
Productivity = 2.667 dollars per unit
b) Per-unit production cost = total input cost/total output
Per-unit production cost = 2 dollars x 37.5 units / 100 dollars
Per-unit production cost = 0.75 dollars per unit
c) Per-unit production cost = total input cost/total output
Per-unit production cost = 3 dollars x 37.5 units / 100 dollars
Per-unit production cost = 1.125 dollars per unit
This increase in the cost of inputs will shift the AS curve inwards and the effect upon price level and output will be that price level will increase and output will decrease.
b) The amount of real GDP that has been demanded doesn't match the amoint supplied therefore the price levels will not be equilibrium.
c) The factors of aggregate demand are consumer wealth, consumer expectations, real interest rates and taxes.
5. a) Productivity = total output/total input
Productivity = 100 dollars / 37.5 units
Productivity = 2.667 dollars per unit
b) Per-unit production cost = total input cost/total output
Per-unit production cost = 2 dollars x 37.5 units / 100 dollars
Per-unit production cost = 0.75 dollars per unit
c) Per-unit production cost = total input cost/total output
Per-unit production cost = 3 dollars x 37.5 units / 100 dollars
Per-unit production cost = 1.125 dollars per unit
This increase in the cost of inputs will shift the AS curve inwards and the effect upon price level and output will be that price level will increase and output will decrease.
Unit 3.3 Chapter 9 Questions 7, 8, 9 Date: May 26th
7. If the duplicating machine costs 500 dollars and is expected to contribute 550 dollars to the years net revenue then the machine contributes 50 dollars to profit and the expected rate of return will be:
$50/$500 = 10% rate of return
If the interest rate is 8% then the total interest cost will be 40 dollars which will then leave a 10 dollar profit. Therefore, because there is still profit that can be earned, the handbill publisher should purchase the duplicator.
8. a) 20 billion b)30 billion c) 35 billion
This curve is the investment demand curve because it shows the relationship between the interest rate and the dollars invested in the economy. The relationship between these two is inversely related, therefore this means that as the interest rate increases, the dollars invested in the economy decreases.
9. The multiplier effect is where a change in input to the economy will result in a greater change in real GDP. The larger the MPC then the larger the real GDP will be and the opposite is for MPS.
MPS = 0 = infinite multiplier
MPS = .4 = 2.5 x mulitplier
MPS = .6 = 1.67 x multiplier
MPS = 1 = no multiplier
MPC = 1 = infinite mulitplier
MPC = .9 = 10 x multiplier
MPC = .67 = 3.03 x multiplier
MPC = .5 = 2 x multiplier
MPC = 0 = no multiplier
With a multipler of 0.8, GDP will rise by 6.4 billion dollars with an investment of 8 billion. With a multiplier of 0.67, GDP will rise by 5.36 billion dollars with an investment of 8 billion dollars.
$50/$500 = 10% rate of return
If the interest rate is 8% then the total interest cost will be 40 dollars which will then leave a 10 dollar profit. Therefore, because there is still profit that can be earned, the handbill publisher should purchase the duplicator.
8. a) 20 billion b)30 billion c) 35 billion
This curve is the investment demand curve because it shows the relationship between the interest rate and the dollars invested in the economy. The relationship between these two is inversely related, therefore this means that as the interest rate increases, the dollars invested in the economy decreases.
9. The multiplier effect is where a change in input to the economy will result in a greater change in real GDP. The larger the MPC then the larger the real GDP will be and the opposite is for MPS.
MPS = 0 = infinite multiplier
MPS = .4 = 2.5 x mulitplier
MPS = .6 = 1.67 x multiplier
MPS = 1 = no multiplier
MPC = 1 = infinite mulitplier
MPC = .9 = 10 x multiplier
MPC = .67 = 3.03 x multiplier
MPC = .5 = 2 x multiplier
MPC = 0 = no multiplier
With a multipler of 0.8, GDP will rise by 6.4 billion dollars with an investment of 8 billion. With a multiplier of 0.67, GDP will rise by 5.36 billion dollars with an investment of 8 billion dollars.
Saturday 19 May 2007
Unit 3.3 Chapter 13 Questions 4,6,7 Date May 18 (ish)
4. The components of the M1 money supply are the coins, bills and checkable deposits. The largest component of the M1 money supply is the checkable deposits and the bills are called legal tender. The face value of a coin must be worth more than the intrinsic value of the coin (the value of the metal) because if it is not, then rational people would simply melt down the coins and sell them for the value of the metal. The near monies that are included in the M2 money supply are the savings deposits, small time deposits and the money market mutual funds. The difference between the M2 and M3 money definitions are that the M3 near monies are greater in value, such as the M3 definition includes large time deposits (100,000 dollars or greater) while the M2 includes only small time deposits (below 100,000 dollars).
6. If the price level increases by 1.25 then the new value of the dollar is 0.8 of what it was in year 1. If the price level decreases to 0.5, then the new value of the dollar has doubled from year 1. We can therefore conclude that the dollar and the price level are inversely related.
7. The main determinant for transactions demand is the level of the nominal GDP and the main determinant of asset demand is the interest rate. When asset demand is added horizontally to transaction demand and the equlibrium interest rate is determined by the intersection point of the supply of money and total demand for money. An increase in the use of credit cards will shift the total demand of money outwards because with the increased use of credit cards, an increase in the asset demand will occur. A shortening of worker pay periods will also decrease the total demand of money because the number of times the dollars are spent per year will increase. This increase will change the transaction curve because the curve is determined by the nominal GDP / the number of times a dollar is spent in a year, therefore an increase in the dollars spent will decrease the transaction curve, which will decrease the total money demand curve. An increase in nominal GDP would shift the total money demand supply outwards because as nominal GDP increases so does the transactions demand.
6. If the price level increases by 1.25 then the new value of the dollar is 0.8 of what it was in year 1. If the price level decreases to 0.5, then the new value of the dollar has doubled from year 1. We can therefore conclude that the dollar and the price level are inversely related.
7. The main determinant for transactions demand is the level of the nominal GDP and the main determinant of asset demand is the interest rate. When asset demand is added horizontally to transaction demand and the equlibrium interest rate is determined by the intersection point of the supply of money and total demand for money. An increase in the use of credit cards will shift the total demand of money outwards because with the increased use of credit cards, an increase in the asset demand will occur. A shortening of worker pay periods will also decrease the total demand of money because the number of times the dollars are spent per year will increase. This increase will change the transaction curve because the curve is determined by the nominal GDP / the number of times a dollar is spent in a year, therefore an increase in the dollars spent will decrease the transaction curve, which will decrease the total money demand curve. An increase in nominal GDP would shift the total money demand supply outwards because as nominal GDP increases so does the transactions demand.
Tuesday 15 May 2007
Unit 3.3 Chapter 12 Questions 7 + 10 Date: May 10(?)
7.
The full employment budget is a form of measure of the Federal budget surplus or deficit that would occur if the economy operated at full employment. The full employment budget is used to adjust the actual federal budget surpluses and deficits to eliminate the automatic changes in tax revenues.
If the full employment budget is at GDP 3 instead of GDP 2 and then there is a decrease downwards then it is undergoing a deficit and we can assume that the fiscal policy is expansionary. The decrease in the full employment budget indicates that the government has either increased its government spending or decreased its taxes.
10. The problems with the time lags in enacting and applying fiscal policy is that the recession or inflation may have time to grow more serious than it would have been if it were perhaps recognized and acted upon sooner. Recognition lag is a main part of this problem because of the time it takes to recognize a problem, but also Administrative and operational lag contribute to the problem by not acting quickly enough and then for the solution needing time to take effect. A political buisness cycle is when a politician changes the fiscal policy in order to gain popularity or public support, usually by cutting taxes. Politicians dont always have the economy in mind when they enact these fiscal changes so the result may not always be beneficial. If the public suspects that a tax cut or increase will be short term, they will simply spend or save accordingly so when they tax cut or increase occurs, they can continue to spend at the same level of consumption that they do now and thereby defeating the purpose of the fiscal change. Crowding out is when the government borrows money from the public sector and the decrease in avaliable funds, pushes some investment out.
The full employment budget is a form of measure of the Federal budget surplus or deficit that would occur if the economy operated at full employment. The full employment budget is used to adjust the actual federal budget surpluses and deficits to eliminate the automatic changes in tax revenues.
If the full employment budget is at GDP 3 instead of GDP 2 and then there is a decrease downwards then it is undergoing a deficit and we can assume that the fiscal policy is expansionary. The decrease in the full employment budget indicates that the government has either increased its government spending or decreased its taxes.
10. The problems with the time lags in enacting and applying fiscal policy is that the recession or inflation may have time to grow more serious than it would have been if it were perhaps recognized and acted upon sooner. Recognition lag is a main part of this problem because of the time it takes to recognize a problem, but also Administrative and operational lag contribute to the problem by not acting quickly enough and then for the solution needing time to take effect. A political buisness cycle is when a politician changes the fiscal policy in order to gain popularity or public support, usually by cutting taxes. Politicians dont always have the economy in mind when they enact these fiscal changes so the result may not always be beneficial. If the public suspects that a tax cut or increase will be short term, they will simply spend or save accordingly so when they tax cut or increase occurs, they can continue to spend at the same level of consumption that they do now and thereby defeating the purpose of the fiscal change. Crowding out is when the government borrows money from the public sector and the decrease in avaliable funds, pushes some investment out.
Monday 14 May 2007
Unit 3.3 Chapter 12 Questions: 2+3 Date May 8 (maybe...)
2.
The Government Spending Multiplier:
MPC / MPS = 1 / 0.2 = 5
200 billion dollars is wanted, therefore:
200 billion / 5 = 40 billion dollars must be spend
Or the government could decrease taxes:
40 billion / MPC = Amount to be decreased by
40 billion / .8 = 50 billion
3. The governmental fiscal policy for ending severe demand-pull inflation is to use a contractionary policy, through decreasing government spending or increasing taxes upon the public.Increasing taxes will reduce the Disposible income, which will decrease the consumption and the investment,therefore, in addition to the decreased government spending, all of these measures will shift the aggregate demand curve inwards and thereby slow down demand because they are all determinants of demand and when they decrease, then so does the aggregate demand, which in turn reduces or stops demand-pull inflation. If someone wished to preserve the size of the government then they would favour the decreasing government fiscal policy, but if they wished to decrease the public sector, then they would increase taxes.
The Government Spending Multiplier:
MPC / MPS = 1 / 0.2 = 5
200 billion dollars is wanted, therefore:
200 billion / 5 = 40 billion dollars must be spend
Or the government could decrease taxes:
40 billion / MPC = Amount to be decreased by
40 billion / .8 = 50 billion
3. The governmental fiscal policy for ending severe demand-pull inflation is to use a contractionary policy, through decreasing government spending or increasing taxes upon the public.Increasing taxes will reduce the Disposible income, which will decrease the consumption and the investment,therefore, in addition to the decreased government spending, all of these measures will shift the aggregate demand curve inwards and thereby slow down demand because they are all determinants of demand and when they decrease, then so does the aggregate demand, which in turn reduces or stops demand-pull inflation. If someone wished to preserve the size of the government then they would favour the decreasing government fiscal policy, but if they wished to decrease the public sector, then they would increase taxes.
Saturday 5 May 2007
Econ Last Word Homework
1) Weigh the two arguments regarding unemployment in Europe. Is unemployment high because of high natural rates of unemployment or because of deficient aggregate demand?
Unemployment is high because of the high social security and the care that the unemployed receive from the government. The workers have large benefits that they receive from the government in the event that they become unemployed, so they aren't all that worried about being unemployed which leads to a relatively lower average of overall motivation, which would lead to more workers being fired. Also, the high wages that companies must pay dictate that the number of workers they hire will be lower because they cannot afford to hire as many. However, the government doesn't want to increase inflation, so therefore it doesn't increase government spending, which doesn't shift the aggregate demand curve outwards, which won't increase employment. So, this shows that it is not solely the fault of social intervention by the government but also the inability of the government to combat unemployment by increasing aggregate demand.
2) Explain the experience of the US between 1996 and 2000 when the economy was at greater than full employment with high GDP growth while maintaining low levels of inflation. What allowed this so-called "New Economy" to occur, and what brought it to an end in 2001?
The U.S was able to maintain this level of high growth because of increased aggregate demand and of increased aggregate supply. The resulting shift outwards in both aggregate supply and demand had the effect of increasing the real GDP while at the same time keeping inflation low through the aggregate demand shifting the real GDP up but at the same time increasing inflation, and then aggregate supply further increasing real GDP while decreasing inflation at the same time. The U.S had greater than full employment because the aggregate demand curve was already on the vertically sloping part of the aggregate supply curve. What brought this increase in growth to an end could be a decrease in any of the determinants of aggregate demand, however with the onset of the war in Iraq and therefore the increased government spending, this seems unlikely. Therefore a decrease in aggregate supply must have occurred, perhaps through the firms finally having to layoff workers because of the increased cost of hiring workers due to the short supply of workers perhaps further exacerbated by the people in the army having to leave part time jobs to go fight in Iraq.
Unemployment is high because of the high social security and the care that the unemployed receive from the government. The workers have large benefits that they receive from the government in the event that they become unemployed, so they aren't all that worried about being unemployed which leads to a relatively lower average of overall motivation, which would lead to more workers being fired. Also, the high wages that companies must pay dictate that the number of workers they hire will be lower because they cannot afford to hire as many. However, the government doesn't want to increase inflation, so therefore it doesn't increase government spending, which doesn't shift the aggregate demand curve outwards, which won't increase employment. So, this shows that it is not solely the fault of social intervention by the government but also the inability of the government to combat unemployment by increasing aggregate demand.
2) Explain the experience of the US between 1996 and 2000 when the economy was at greater than full employment with high GDP growth while maintaining low levels of inflation. What allowed this so-called "New Economy" to occur, and what brought it to an end in 2001?
The U.S was able to maintain this level of high growth because of increased aggregate demand and of increased aggregate supply. The resulting shift outwards in both aggregate supply and demand had the effect of increasing the real GDP while at the same time keeping inflation low through the aggregate demand shifting the real GDP up but at the same time increasing inflation, and then aggregate supply further increasing real GDP while decreasing inflation at the same time. The U.S had greater than full employment because the aggregate demand curve was already on the vertically sloping part of the aggregate supply curve. What brought this increase in growth to an end could be a decrease in any of the determinants of aggregate demand, however with the onset of the war in Iraq and therefore the increased government spending, this seems unlikely. Therefore a decrease in aggregate supply must have occurred, perhaps through the firms finally having to layoff workers because of the increased cost of hiring workers due to the short supply of workers perhaps further exacerbated by the people in the army having to leave part time jobs to go fight in Iraq.
Thursday 26 April 2007
Venture Capital Investment Slips in first quarter
http://www.sltrib.com/ci_5757242
In this article, the amount of venture capital investment in Utah has dropped significantly, down nearly 60% in comparison to the first quarter in 2006. However, the article claims that a good level of investment is from 20 million to 60 million dollars and that the first quarter of 2006 was so high because of the abnormal amount of venture capital investment. Venture captial investments are early stage investments where the chances of success are uncertain.
The low investment in venture capital means that the GDP for the first quarter in Utah is lower because a 60% decrease in any form of investment will ineveitably decrease GDP by a noticeable amount. Also a decrease in investment decreases the injection of money into the cycle therefore decreasing the total money spent, whether it is in consumption or government spending. This could be signs of a recession because of the contraction of buisness activity within the economy. This in fact may be the trough of the business cycle because the level of investment is at the lowest point that is considered a good level of investment. Therefore, next year in the first quarter of 2008 we should see an increase in venture capital investment because it should be the recovery part of the buisness cycle. If it does not recover, then it may be considered a depression if this decline in investment continues for too long.
In this article, the amount of venture capital investment in Utah has dropped significantly, down nearly 60% in comparison to the first quarter in 2006. However, the article claims that a good level of investment is from 20 million to 60 million dollars and that the first quarter of 2006 was so high because of the abnormal amount of venture capital investment. Venture captial investments are early stage investments where the chances of success are uncertain.
The low investment in venture capital means that the GDP for the first quarter in Utah is lower because a 60% decrease in any form of investment will ineveitably decrease GDP by a noticeable amount. Also a decrease in investment decreases the injection of money into the cycle therefore decreasing the total money spent, whether it is in consumption or government spending. This could be signs of a recession because of the contraction of buisness activity within the economy. This in fact may be the trough of the business cycle because the level of investment is at the lowest point that is considered a good level of investment. Therefore, next year in the first quarter of 2008 we should see an increase in venture capital investment because it should be the recovery part of the buisness cycle. If it does not recover, then it may be considered a depression if this decline in investment continues for too long.
Sunday 8 April 2007
Discussion starters : chapter 21
1. The GDP can tell the CIA that what the country is producing and how much the country is spending. This is a quantitative measure of the well-being of the populace and can tell how much each individual can poosibly spend and therefore can indicate the possible potential happiness of that individual. However, the GDP does not say how the wealth is distributed among the people, so one person could have all the money and everyone else could have none. Economically, this would be bad for GDP because it would decrease if GDP were calculated by expenditures because no matter how much money a single person has, a thousand people can spend alot more money than one person can. Also, GDP does not account for the "cash market" where services are not performed by professionals but rather under the table. Having your neighbour mow your lawn in exchange for you fixing his bike is also not included in GDP.
2. If in some countries, drug are legal, then they are counted in GDP but in others, if drugs are illegal then they are not counted. Therefore, because of this difference in legality the GDP for both countries will seem uneven. The country that has legal drugs will have a relatively higher GDP then one with illegal drugs because even though the drugs are still in the country, they are not counted because they are illegal, which lowers the country's GDP. The prohibition of alcohol and the hunting of endangered species may also confuse comparisons of GDP between countries.
3.
4. A) out B) out C) in D) in E) in F) in
5. Leisure time could be included as a measure of social welfare because it provides oppurtunities for happiness for the worker. Leisure time could be measured by the wage of the worker or his contribution to GDP because if he did not have leisure time then that time could have been spent working and contributing to GDP
2. If in some countries, drug are legal, then they are counted in GDP but in others, if drugs are illegal then they are not counted. Therefore, because of this difference in legality the GDP for both countries will seem uneven. The country that has legal drugs will have a relatively higher GDP then one with illegal drugs because even though the drugs are still in the country, they are not counted because they are illegal, which lowers the country's GDP. The prohibition of alcohol and the hunting of endangered species may also confuse comparisons of GDP between countries.
3.
4. A) out B) out C) in D) in E) in F) in
5. Leisure time could be included as a measure of social welfare because it provides oppurtunities for happiness for the worker. Leisure time could be measured by the wage of the worker or his contribution to GDP because if he did not have leisure time then that time could have been spent working and contributing to GDP
Monday 19 March 2007
London is ranked 6th highest GDP for a City in the World.
London to Rise From Sixth to Fourth Place in Global City GDP Rankings by 2020 | |
Tuesday , 20 March 2007
http://www.turkishweekly.net/news.php?id=43577
London has been ranked 6th richest city in the world in terms behind New York, Los Angeles, Chicago, Paris and Tokyo. However, because London's growth is faster than Chicago's or Paris' it is said that it will overtake them by the year 2020. The faster growth will cause the average person to be earning more so therefore the GDP per capita will also increase. Other cities that are projected to increase in standings are from countries with high levels of growth.
Tuesday 13 March 2007
Monday 12 March 2007
Sunday 11 March 2007
Wednesday 7 March 2007
Green Ethanol's Dirty Fuel and the Positive and Negative Externalities
GREEN ETHANOL'S DIRTY FUEL As natural gas prices rise, some ethanol producers are using coal — a move critics say doesn't add up
http://www.twincities.com/mld/twincities/news/columnists/16834568.htm
In this article, the ethanol producers inMinnesota
http://www.twincities.com/mld/twincities/news/columnists/16834568.htm
In this article, the ethanol producers in
The government could subsidize the natural gas industry and thereby increase the supply of natural gas and allow for the price of natural gas to decrease. (see graph: Market of Natural Gas Subsidized to Increase Supply) A subsidy is when the government feels that a certain good is being under produced and essentially funds the firm to produce more of that good. The government should subsidize natural gas because that would increase the amount of ethanol produced with minimum negative externalities, which is good for everyone because ethanol is a merit good. Merit goods are goods that are under provided by the market and therefore under consumed by consumers. Ethanol would have positive externalities on society by decreasing the amount of greenhouse gases produced, decreasing the global dependence on fossil fuels and increasing the longevity of the supply of the fossil fuels. This subsidy would make natural gas more available to the power plants and result in an increase in demand for natural gas because of its decrease in price. This subsidy would enable the natural gas producers to better manage their costs and perhaps open a new natural gas plant to combat their increased costs thereby permanently decreasing their diseconomies of scale. Once the new natural gas plant was operational then the government could withdraw their subsidy because the new plant, with the old plant, would keep costs low. (see graph: Short Run and Long Run Average Total Cost Curves For Natural Gas Producers) This would also be beneficial to the natural gas industry by increasing competition with the coal industry and perhaps taking some of the consumers of coal because natural gas is a substitute and even if it may be a little more expensive than coal, the new lower prices and the fact that natural gas is cleaner burning than coal make it competitive.
Therefore, to solve the problem of ethanol producers using coal instead of natural gas, the government can internalize the externalities by using a subsidy for the natural gas producers to simultaneously decrease the negative externalities caused by burning coal and to increase the positive externalities by producing ethanol. An improvement upon this solution is that the government creates tradable pollution permits for the ethanol producers and because natural gas doesn’t pollute as much as coal does, then the firms can produce more ethanol because they burn more fuel.
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