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a.Briefly explain the different types of inflation. -2007NQ21A
Economists often conceptually distinguish between two basic type of inflation, depending on whether it originates from the buyers’ or the sellers’ side of the market.
1.. Demand-pull inflation: A rise in the general price level resulting from an excess of total spending(demand) over supply.
2 . Cost-push inflation:A rise in the general price level resulting from an increase in the cost of production irrespective of demand condition.
b.What factors cause these inflation types to occur?- 2007NQ21B
Demand-pull inflation is caused by pressure on prices originating from the buyers’ side of the market. On the other hand, cost-push inflation is caused by pressure on prices originating from the sellers’ side of the market.
c.What role does monetary policy(if any) play in causing or reducing the different inflation type? - 2007NQ21C
When inflation government can apply policy like printing money, then ↑“C” Household consumption expenditure will increase, the demand of business will increase that same time influences growth of “I” Gross private domestic investment and a deduction on “R” interest rate.
When inflation government can take action, print $ then money supply↑ >C↑ > D ↑> I ↑ (-R) pull demand.
MS>MD=↑ interest rate >↑ supply of money> ↓demand of money, influence on the wants of bonds > ↑ price bond rate >↓ interest rate.
a.The different type of unemployment -2007Q23A
4 types, it is Seasonal unemployment, Fictional unemployment, Structural unemployment and cyclical unemployment.
b.What factors cause the different types of unemployment occur? -2007Q23B
1.Seasonal unemployment: Unemployment caused by recurring changes in weather conditions, demand or production patterns.
2.Fictional unemployment: Unemployment caused by the normal search time required by workers with marketable skills who are changing jobs, initially enter the labour force or re-entering the labour force.
3.Structural unemployment: caused by a mismatch of the skills of workers out of work and the skills required for existing job opportunities.
4.Cyclical unemployment: Unemployment caused by the lack of jobs during a recession.
b. What factors cause the different types of unemployment occur? -2007Q23B
Seasonal, frictional, structural and cyclical unemployment are different type of unemployment. Seasonal unemployment is unemployment due to seasonal changes. Frictional unemployment results when workers are seeking new jobs that exist, but imperfect information prevents matching of the applicants with the available jobs. Structural unemployment is unemployment caused by the changing structural features of an economy. Such structural changes include changing job skill needs in the economy, changes in product demand and technological change. Cyclical unemployment is unemployment resulting from recession.
c. How fiscal policy play a role in reducing the different type of unemployment-2007Q23C
Keynesians say yes, fiscal policy can be effective in reducing unemployment. In a recession, expansionary fiscal policy will increase AD, causing higher output, leading to the creation of more jobs.
Classical Economics say no. Fiscal policy will only cause a temporary increase in real output. In the long run, expansionary fiscal policy just causes inflation and does not increase real GDP. Classical economists argue that to reduce unemployment it is necessary to use supply side policies which increase the flexibility of labour markets (e.g. reducing power of trades unions)
Fiscal policy has many limitations such as:
1. crowding out (government baorrowing reduces size of private sector)
2. Tax cuts may be saved not spent
3. Time Lags
However, despite these limitations it can play a role in increasing AD and reducing cyclical unemploymenta.The different type of unemployment -2007Q23A
4 types, it is Seasonal unemployment, Fictional unemployment, Structural unemployment and cyclical unemployment.
b.What factors cause the different types of unemployment occur? -2007Q23B
1.Seasonal unemployment: Unemployment caused by recurring changes in weather conditions, demand or production patterns.
2.Fictional unemployment: Unemployment caused by the normal search time required by workers with marketable skills who are changing jobs, initially enter the labour force or re-entering the labour force.
3.Structural unemployment: caused by a mismatch of the skills of workers out of work and the skills required for existing job opportunities.
4.Cyclical unemployment: Unemployment caused by the lack of jobs during a recession.
b. What factors cause the different types of unemployment occur? -2007Q23B
Seasonal, frictional, structural and cyclical unemployment are different type of unemployment. Seasonal unemployment is unemployment due to seasonal changes. Frictional unemployment results when workers are seeking new jobs that exist, but imperfect information prevents matching of the applicants with the available jobs. Structural unemployment is unemployment caused by the changing structural features of an economy. Such structural changes include changing job skill needs in the economy, changes in product demand and technological change. Cyclical unemployment is unemployment resulting from recession.
c. How fiscal policy play a role in reducing the different type of unemployment-2007Q23C
Keynesians say yes, fiscal policy can be effective in reducing unemployment. In a recession, expansionary fiscal policy will increase AD, causing higher output, leading to the creation of more jobs.
Classical Economics say no. Fiscal policy will only cause a temporary increase in real output. In the long run, expansionary fiscal policy just causes inflation and does not increase real GDP. Classical economists argue that to reduce unemployment it is necessary to use supply side policies which increase the flexibility of labour markets (e.g. reducing power of trades unions)
Fiscal policy has many limitations such as:
1. crowding out (government baorrowing reduces size of private sector)
2. Tax cuts may be saved not spent
3. Time Lags
However, despite these limitations it can play a role in increasing AD and reducing cyclical unemployment
a.Explain the concept of tax incidence – 2009NQ22A
The tax incidence means the share of a tax ultimately paid by consumers or by sellers.
b. Outline and explain what factors determine the price elasticity of demand – 2009NQ22B/ 2007NQ24B
Three factors that affect the numerical value of the price elasticity of demand are the availability of substitutes, share of budget spend on the product and adjustment to a price change over time.
Availability of Substitutes: The ease with which buyers can find substitutes-in-consumption affects the price elasticity of demand.
As a proportion of consumer budget: Consumer are more sensitive to a price change, demand curve became more elastic, when the good or service takes a larger proportion of their income.
Adjustments to price change over time: the longer consumers have to adjust, the more sensitive they are to a price change, and the more elastic the demand curve.
c.Draw and explain how the elasticity of demand and supply determine the incidence of tax.
- Facing a downward-sloping demand curve and an upward-sloping supply curve, sellers will raise the price by the full amount of the tax
- If the demand curve is vertical, sellers will raise the price by the full amount of a tax.
Perfect competition and Monopoly-
- Illustrate and explain the perfectly competitive firm’s short run supply curves? 2007NQ22A
Explanation: Perfectly competitive firm’s short-run supply curve: The firm’s marginal cost curve above the minimum point on its average variable cost curve.
- Illustrate and explain the price and output decisions for a monopolist ? 2007NQ22B
The short-run-profit-maximising monopolist, like perfectly competitive firm, locates the profit-maximising price on its demand curve by producing the quantity of output where the MR and the MC curves intersect. If this price is less then the ATC curve, the monopolist shut down to minimize losses.
The monopolist maximizes profit by producing that level of output for which MR=MC.
at Point A Price 100 x qty 4= profit 400 , at point B price is 75 x 4 = profit 300
400-300 = total economic profit is 100
a.“In the perfectly competitive market a firm is a price taker” – Explain - 2009NQ23a
The prefect competitive firm as a price taker means a seller with no control over the price of its product.
The forces of market demand and supply determine prices in the perfectly competitive market.
b.“A competitive firm will shut down its production in the short run if price is lower than average total costs”. True and False? Explain - 2009NQ23B
True, when competitive firm facing its production in the short run price is lower than average cost which firm are in short run loss. Locates the profit-maximising price on its demand curve by producing the quantity of output where the MR and the MC curves intersect. If this price is less then the ATC curve, the monopolist shut down to minimize losses.
c.Graphically explain the short run profit maximization condition for a monopolist. - 2009NQ23C
-Economist assumes firms try to maximize profits( or minimize losses)
-The monopolist maximizes profit by producing that level of output for which MR=MC.
The monopolist maximizes profit by producing that level of output for which MR=MC.
at Point A Price 100 x qty 4= profit 400 , at point B price is 75 x 4 = profit 300
400-300 = total economic profit is 100
(same as the above)
GDP and Unemployment
a.Explain how the GDP of a country is measured. 2009NQ24A
GDP is a widely reported measure of a nation’s economic performance.
GDP is the market value of all final goods and services produced in nation’s geographic borders during a period of time, usually a quarter of a year.
GDP = C+I+G+(X-M)
Sales growth, production, total revenue, in oganic growth> take over other companies.
GDP counts only new domestic production of final goods- finished goods and services produced for the ultimate user.
GDP does not include the value of intermediate goods or second0hand goods.
GDP measures value, rather than quantities, so it is reported in $ terms.
-GDP does not count transactions such as giving gifts, stocks and bonds, or making transfer payments.
b.illustrate how nominal GDP is converted to real GDP - 2009NQ24B
Fiscal and Monetary Policy -2009NQ25
- Explain the courses of Global Finance Crisis(GFC) of 2008,2009
-Global Financial crisis was caused by lot of sup prime mortgage loans to causing too much debts and too little capital the rest of the economy with much needed credits. Eg credit example- investment load for other business with too little capital thus that business circlur cycle for short of money supply which then need to recession crisis.
Define Sub prime mortgages and explain how it has contributed to the GFC crisis of 2008-9
Sub prime mortgages and the riskiest category of consumer loans and are typically sold in separate market from prime loans
- low honeymoon rate
- issued to low income borrowers
- Can support the borrows if house price rises significantly
The original bank did not to be concern whether their house owner client where unable to servie the loan as they had sold the mortgage to other financial industrial
Fiscal & Monetary Policy -2009NQ25
For the last two years almost all country in the world, have faced economic difficulties arising from the Global Financial Crisis GFC. To overcome these difficulties, many governments have and are still taking fiscal and monetary policy measures.
For the last two years almost all country in the world, have faced economic difficulties arising from the Global Financial Crisis GFC. To overcome these difficulties, many governments have and are still taking fiscal and monetary policy measures.
- Outline the main economic difficulties that have arisen?
-At Global Financial Crisis the market was facing a lot of negative equity, the country and people has over borrowing and can’t pay back. Basically the demand of money is more than supply of money.
MD>MS= Excess money demand > People sell bond > Bond prices fall and the interest rate rises.
-It was majorly caused by the negative equity like mortgage and loans it is causing too much of debts with too little capital in the market. The needs of money arise, aggregate demand of investment goods and consumer durable arise, it influence interest rate rise same time. The business cycle was short of money supply which then need to recession on a financial crisis.
b) Discuss what macroeconomic policy measures governments have taken.
c) illustrate, using the AD-AS Model, how these difficulties and the policy measures have impacted upon price, output and employment.
- Why do many governments legislate for minimum wages?
What role does monetary policy (if any) play in causing or reducing the different inflation types?
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