Carry on what i did yesterday

Cause of economic growth

• component of AD in the short run
• AS in the long run
• could write with reference to all policies.

Achievement of supply side

• economic growth
• capital investment
• low unemployment
• advance technology manufacture
• living standard
• productivity
• international trade position
• wage

benefit of Budget deficit

• government spending on capital investment that bring potential benefits in the long run
• if increases in public sector such as health, education, it will increase labour productivity and employment.
• A tool of demand management.Maintaining a high level of demand and keep unemployment low.

Cost of inflation

• Menu cost
• shoeleather cost
• inflation cause inflation
• fall in the money value
• fiscal drag
• uncertainty
• inflationary noise
• loss of international competitiveness

Import controls

• tariff
• quotas
• embargoes
• red tape

Homework

The swine flu could be *good* for the economy because everyone is going to run out and buy cold medication and hand sanitizer - do you agree?

Answer(briefly)

No, i do not agree. Swine flu have more harmful effect on the economy.
Government have to increase it spending on the area of prevent swine flu such as provide more information, health centre, collect data, advertisements and so on. This would involve opportunity cost that government would decrease its spending on other area such as education, or it would put downward pressure on budget deficit.
Some area`s activities have to be shut down such as school, factory, shopping mail, the place where people usually are crowed. Since the industries are closed, it would decrease production. Especially on the tourism. People are likely not choose to travel at this period of time, tourist market would be greatly damaged on the top of recession. Some small tourism industries may even went bankrupt if the swine flu is going to be wide spread.There would have great impact on airline companies.
People would feel uncertain, they are less likely to go to shopping mail, pub,gym,restaurants, most importantly, much less consumption on pork although we will not get the virus by consuming pork, but it all matter on the way people think and feel. People feel much safe if they do not eat pork. Therefore, less consumer spending, AD shift to left since there would less trade activities.(diagram...)
However, all the effect are short run.After the flu is over, economy will start to recover.Since the swine flu have not yet be seriously wide spread, the impact would not be so seriouse at the current time.

Summary for Unit 2

I am writing for the topic that i am weak at and the points normally i missed out or dun remember.

Capacity utilisation is the extent to which firms using capital goods.

Factors affect Saving.

• Real disposable income
• Interest rate
• Age structure of the population
• range of financial institutions
• Confidence and expectation.
• Government spending.(Welfare benefit that may discourage saving)

Factors affect Investment

• Interest rate
• capacity utilisation
• Advanced technology
• corporation tax
• the current situation of economy
• price of equipment

Factors of Government spending

• The situation of the economy
• the extent of market failure
• wars

Cost of economic growth

• Pollution(which would have a harmful effect in the long run),congestion
• demand-pull inflation
• People did not get happier as they get richer.
• the profit may not be evenly distributed

Benefits of economic growth

• lower unemployment
• fiscal dividends
• better standard of living, quality of the life
• reduce poverty
• accelerator effect of growth on capital goods
• improve international trade position

Cost of unemployment

• loss income
• loss total output
• increased government spending(opportunity cost)
• fiscal cost
• demotivating(long term out of employment)
• social instability

points that i missed out

Awww>.<...today we did a question related on government intervention to correct market failure, that`s the evaluate question i did yesterday, they are similar and i found out some of the points i missed out.

• Black market which totally avoid taxation.
• The cost of collecting and enforcing the tax could be significant
• Taxes may lead to lower growth and therefore damage the economy
• To be effective, such tax should be applied internationally.
• By raising firm`s costs of production, it could leads to higher unemployment.

i will focus on market imperfection and write another evaluate question later on.

Using regulation to correct market failure.

Regulation is the legal restriction implement by government,such as banning chewing gum in Singapore, restriction on sales of demerit goods such as alcohol, tobacco and etc. There would be market failure as if it left to the market, it will be over consumption and production. People tends not to be aware of the harmful effect or negative externalities.(Diagram of external cost did not take into account) .

By restricting on the sales of demerit goods, people tends not to buy them as much as before if it work in fulls. AS would shift to the left, and AD contract. In the case of alcohol, the accident after over consume alcohol could reduced, less fighting and crimes after people get drunk which provide stability of the society.(could write one more examples)

However, the level of regulation to be set is difficult to measure, the setting level must be equal to the external cost which is extremely hard.If the regulation is too harsh, it would demotivate industries to work which may slowdown the economy. Or the regulation is too low, it would not have the necessary effect to correct market failure.There is black market that does not follow the regulation most of the times. And there are people taking the risks to break the law.The cost of the regulation to be put into action may be significant. Effective regulation need to be international.

Using tradable permits to correct market failure.

Tradable permits is a permit that allow the owner of the factories emit a certain amount of pollution , it could be sold or transfer to another polluter. Tradable permit is specially design for market failure caused by pollution.

Pollution level need to be strictly controlled, as too much pollution is harmful to environment, it would bring down our standard of living, it could cause diseases or even natural disaster.The factories produce without taking into account all the external cost.A tradable permit would achieve a desired environmental outcome with the country`s maximum level of permitted emissions.

However, it is hard to decide the number of permit should issued and the level of pollution the factory is allow to emit.It would be costly to have the permit to work,as it would increase the cost of production, it would damage the economy or lead to cost push inflationary pressure.There are always some people emit pollutant without a permit/ illegally.

Evaluate question 4

Economists have proposed several different policies to solve the problems created by
negative externalities. These include taxation, regulation and the use of pollution
permits.
Discuss how effective any one of these policies may be in correcting the market failure caused by negative externalities.(12 marks)

Negative externalities is the when social cost is more than private cost of particular action .Normally, the consumption of demerit goods is accompanied by negative externalities.Such as the consumption of tobacco, alcohol and so on. It is information failure while the customer did not understand fully the harmful effect which resultd over consumption and production.(diagram)
By using tax,which is to put a higher tax on demerit goods, the supplier tends to produce less as the cost of production is high if the demand of the goods is price elastic. People tends to buy less since the price had gone up, in this case the tax is shared between supplier and consumer.(diagram)The tax would have much effect, if the demand of the goods is price inelastic, where although producer pass all the tax to consumer and they still buy it.
The tax would not be so effective, if there is an increase in wages, so people would have more disposable income and they tend to spend more and some of it will be demerit goods.It is hard to measure how much tax to be put on will be most effective. And supplier could provide misleading information that encourage more consumption.
And there is other negative externalities that caused by emission of CO2 which pollute the environment, in this case, a green tax would better take place, it followed polluter pay principle, an additional tax for extra pollutant.Tax might not be always the best and effective one, it largely depends on the current situation of people, elasticity and government priority

Up to date

I need a up to date post for some reason, so i post it first, and i will carry on writing something about economic later on.

I had finished the yesterday post, and i am going to write some numerical facts about UK`s economy, i think it will be useful for the coming exams.


Lord Davies believes that companies should look east for a route out of the recession.

The sub prime crisis leads to banks collapsing, having serious problems and then moved into global consumer confidence deteriorating and across the world, global demand has fallen.

The UK economy shrank by 1.9% in the first three months of this year.
Manufacturing sector had fallen 6.9% which is particularly hard.

It forecast for 2009 as a whole is now for a 1.5% decline in GDP.

UK`s GDP had down 1.9% in the first quarter of the year.

Unemployment continued to rise,The Labour Force Survey measure suggests the trend rise in unemployment is around 60,000 a month and there is high increase number in claimant count.

Evaluate question 3

What is Current Account Deficit and Government Deficit and do they have any effect on Aggregate Demand and Supply?



Current account deficit means the expenditure on abroad exceed the revenues generated from abroad.It consist of net trade in goods and services, net transfer and net investment.

UK kept having a net trade in goods deficit for few years, this could shows that there are higher demand on imports, which is a leakage to the economy, AD=G+I+C+(X-M), a downward multiplier effect(diagram), it would leads to AD shift inwards.As UK has a strong exchange rate, the price on exports are high , the consumption on exports would tend to be low, the supplier would more likely to turn to domestic market or close down which cause an increase in unemployment and an inward shift of AS.However, it still largely depends on other factors such as whether the demand for the goods are price elastic or income elastic. The current situation of the market and the size of the current account deficit.Net investment which means the UK investors gain profit , interest and dividend on their investment in other countries to UK.The transfer balance is negative as the British government is a net contributor to the EU budget,so there may left less government spending, which would have less welfare benefits to unemployment, AS shift to left.


A current account deficit appear, the government tend to use monetary policy to adjust exchange rate to boost the demand for exports. Provide better information for supplier to improve better quality of the exported goods.Import control to protect domestic market and boost the demand, AD shift to right. Deflation to decrease the consumption on imports.

Government Deficit is budget deficit where government spending exceed tax revenue. For instance, huge government spending into the bank to boost demand. A budget deficit means government have to borrow to finance , the borrowing may through government bond or issue debt for domestic or overseas. No matter how it borrow, there is a interest need to pay. A way to pay that is by having a higher tax, but in this case, a higher tax would damage AD and AS.However, it still depends on what the government spending is used for? and the size of the deficit as well as the situation of the market. If the government spending used to finance extra capital spending that leads to an increase in the stock of national assets or for expand supply side capacity such as education and training, better health care, reduce unemployment, subsidy , it would have positive effect on AS. If the government spending priority is on defense or education, it would have negative effect on AS and AD, as there is a time lag for people to be educate as skillful labour. If the economy is currently have stable economic growth, a small budget deficit will not affect much on AD and AS.Government could cut down interest rate to boost demand to rise revenue from indirect tax to correct budget deficit.

Specially for Mr. Chris

Mr.Chris

Hope you will have a pleasant and safe journey.

See you on Monday.

P.S Make sure you will come back safe and sound.

Evaluate question 2

Discuss how an increase in aggregate supply may affect output and inflation.

Aggregate supply is the total amount the producers is willing and able to supply at a given price over a period of time. How an increase in AS may affect output and inflation depends on the situation of the economy.
If the an economy is working at full capacity, an increase in AS would help to reduce demand-pull inflation and rise real GDP.(a diagram could be drawn) . Increase in AS is due to the lower cost of production in the short run, and increase in productivity in the long run. Inflation will take place if the increase in AD is faster than the increase in AS ( diagram).
If increase in AS is achieved by education and training in the long run, it is essential to the economy in the long run.
If the economy is currently having inflation, an increase in AS is likely to slowdown the inflation.
And if the economy is experiencing structure unemployment, increase in AS would reduced the unemployment, however, low unemployment is likely to lead to high inflation. (phillips curve)
If the economy is working under full capacity, increase in AS may not have effect on output and inflation.
All the aboves have to depends on how much the increases is. If the increase in AS is large, the faster slowdown on inflation in some case.But if the increase in AS matched with the increase in AD, it will increase in output without generate inflation.

Evaluate question

Evaluate the important to UK macroeconomic performance of increases in income per head of the population.

The macroeconomic performance is measure by the economic growth, low inflation, low unemployment and the position of balance of payment.

Increases in income per head of the population means that the average income of the UK increased, people have a higher purchases power.They would consume more goods and services if they are income elastic.so the consumer spending would raise, AD would shift to right.This could effectively help to reduce cyclical unemployment which due to a lack of aggregate demand. If UK is working under full capacity, AS would shift to right to meet the higher demand. (A diagram could be drawn). However, if UK is working near full capacity, an increase in AD is likely to cause demand-pull inflation. (demand-pull inflation diagram) .

There may not necessary right ward shift of AD. If the interest rate is increasing as well, people might even save more into bank to gain interests which might leads to a inward shift of AD. And other than consumer spending, there are government spending, investment and net exports which are the component of AD.If the UK market is experiencing inflation, a increase in income might even increase inflation.

If increased income did boost the economy, unemployment rate would be reduced. Industries would hire people to increase production and more firms would set up in the long run, structured unemployment could be reduced.

As people are consuming more goods, they would consume more imports particularly more goods if they are income elastic. UK has sustain net trade in goods deficit, this would results the deficit even larger and leads to bigger current account deficit.However, it might encourage more active trading between trading partner and give more opportunity to UK as a open economy.

Current account deficit and the effects on AD or AS

Current account deficit occurs when the expenditure abroad exceed the revenue from abroad. An current account consist net trade in goods and services, net investment and net transfers.

Current account deficits meant people might indicate people are spending more on imports, which is a leakage to the economy, a downward multiplier effect. As AD are made up of C+I+G+(E-M), AD would shift to the left .However, this might result supplier compete into exports market instead of domestic market since the domestic demand is low,thus AS might shift to right.It is for trade in goods, normally UK would have trade surplus in services , as UK`s promote high quality services especially in financial and business services. Which are supposed to be a injection to the economic and leads to multiplier effect that shift AD to the right. However, the net exports are deficits most of the time.

Current deficit might caused by net investment, while IPD( interest, profits and dividends) goes abroad more than come from abroad.People might not see UK a best place to set up firms and move to other country. In this case, AS would shift to left.

The net transfer might be negative, as UK government is a net contributor to EU budget. AD would shift to right as government spending is a component of AD.

Current account deficit might be mainly caused by high exchange rate, which result high price of exports and cheap imports. So according to law of demand, people tend to buy more imports than exports. AD would shift inwards if demand is elastic. For the factories that involved imports as raw material might take the advantage and increase output since the production is low. Thus, AS might shift to right.

If Current account deficit is result by the change in income for domestic or abroad. If the income at abroad is falling, they would reduce the consumption of exports which leads to AD shift inwards, but if it is income inelastic it would not have strong effect. If the income of domestic is raising, people tend to spend more and some of them would be imports if income elastic.Thus AD might not neccessary shift depends on the other conponent,such as consumer spending increased.

I think there are more to cover, but i just cannot think of>.<...

How does China Effect is having inflationary consequences for the UK economy

The fall in goods prices and impact in inflation in the Developed World, is known as the China Effect.

The China Effect have caused lower price on clothes, electronics ,most of the goods UK imported from China. It keep UK price level cooling.In recent years, UK`s economy has been dependent on deflating imported goods prices. To some extent, we've been able to enjoy simultaneous fast domestic growth, strong consumer spending and low inflation, because the prices of manufactured goods have been falling each year. UK`s economic growth tends to be stable, potential productivity tend to be expanded in the long run.In the short run, China effect would have negative effect to AD since the people in the UK consumer more imports.

Increasing wages,increses AD, increased employment rate, increasing demand for exports ,such as English furniture and financial services. As more goods and services are demanded, UK would rise employment too, in order to supply sufficency exports. This would be a good sign to UK`s economy. However, with the incresing wage rate, some UK investor would move back to UK as the cost of production is now rising unless the increased wage is due to increased in productivity.

China`s exchange rate is undervalued, it has large difference with UK`s. Exports of China is competitive. It made a downward pressure on balance of payment current account.

With greater market opening after WTO accession, there will be the further prospect of industry trade, which will benefit UK to sell competitive products and services to China.

However, China Effect is not granuanted in the future, and the benefits we already felt and gain.Continued growth and global integration of China will undoubtedly be
of importance for the world economy.

I read through this, and i think it is quite uesful.http://www.finfacts.ie/finfactsblog/2007/06/waning-of-china-effect-will-result-in.html

Amended The impact on the UK of the China effect

Since the balance of payment current account is surplus and it is increasing. This meant that China`s revenue from abroad exceed its expenditure abroad. Thus, UK must have contribute towards it=> a leakage to the UK `s economy. This leads to competive pressure on the exports market, especially UK. As UK`s exchange rate is high and it make exports less competitive=> trade deficit http://www.statistics.gov.uk/articles/nojournal/ukTrade.pdf
In turn, the exchange rate of China is low, this benefits those industies in UK that use imports as raw material=> reduced the cost of production.

Consumer spending is high in China, some of the money could spend on exports, which come from UK=> injection to the economic. Since the consumer spending is increasing rapidly ( from 7.2 % to 9%), this could result UK`s AD shift to right, since the demand is now more.

GDP growth is raising at the speend around 10%,this whould most probably cause by demand pull inflation. thus UK`s investor might invest in China and gain interest, profits and dividends.

The manufacturing wages in increasing at a high speed. Some manufacture previously move to China might move back to UK, and generate employment and increase total output. Unless it is caused by the increases in productivity.

Interest rate is raising, the exchange rate would rise as well. However,Althought it is said to be undervalued,as it increased it would not make much difference on the price of exports and it will probably be absorbed by Chinese manufacturers trimming their profit margins and so will not be passed on into export prices. And UK`s exchange rate is much higher than China.

There is a huge amount in capital investment.this may spend one transportation and infrastructure and especially the Olympic game hold by China in 2008, this might increase the potential production of China. But what is the effect on UK for this particular increase?

wad i learn 2day

Negative equity is a term used in housing market,usually following a general fall in property prices, to mean that the market value of a mortgaged house or flat is less than the amount outstanding balance on the loan.

Giffen goods are very very inferior goods. when the price of goods rise, the consumption of the goods rise. This arise when there is no close substitute goods and the goods must constitute a substantial percentage of the buyer's income. Such as potato and meat for low income family.Potato are stable food for them, assume that they are buying a large portion of potato and some meat. when the price of potato increases, they would choose buy more potato and less meat since potato are basic need to them.

Accelerator is a small increases in demand leads to a bigger increases in investment.

Keynesian-style : an injection to the economic boost aggregate demand.(injection are exports, investment and government spending. leakages are saving, tax and imports)

factors affecting consumer expenditures: inflation, disposable real income, wealth, distribution of income, age structure, consumer`s confidence, interest rate.

Labour force survery is recored by interview.

Finally i finished the homework

I had just finished my sociology homework. Just in timeT_T..tomorrow i have to go to school...HUH~~~~

Tough time start.

Daily daily daily blog

daily blog, this is the words i hear and see most frequently since i came to UK. So, i am doing daily blog, daily blog is very important. Doing daily blog are essential for me. Therefore, let`s blog.

Economic problem is how to allocate scarce resources among the alternative ways.
This can be explain in the simple way, such as teenage, they have an limited amount of money like we do. But we want to buy many things. We have to make a desicion among the things that we want to buy. This is economic problem. People have wants and needs. Basiclly wants is anything we would like to have even though we may not have the resources to buy it. Needs is the products that we are willing and have the ability to purchase. Economic problem often occures on people endless wants.

Opportunity costs is when the (next) best choice which is forgone when the choice is made. public goods and private goods are economic goods which have opportunity cost. An simple example is, a car park is installed, the opportunity cost is an house or an shopping mall. As i am writing this blog, my opportunity cost is the time i could use for leisure. On the big scale, the opportunity cost of produing more consumer goods are capital goods, or vice versa.(an diagram could be draw)

producation possibility curves shows the maximum quantity of combination of two products. Producation possibility curves is very useful. It could show a country`s productivity, opportunity cost,allocative efficiency.

Today i didnt finish another workbook>.<.. i was doing mathematics and sociology. I will try to finish them by end of this holiday. It is so upset that holiday only left two days for meT.T. And thank you to Mr.chris for answering my question. Can i understand the excluability is on production and rejectability in on consumption? Thanks

Oh yeah!

today i went to school and study together with Mica, i had finish one workbook which is market failure. I am going to send an email to Mr.BBT for the answer of it. It is happy to see many people leave comment on my post, unfortunately, they are not positive comment:-]

Daily = weekly right??heheh~~~~

I think i had mixed up excludability with rejectability, which are the characteristic of private goods>.< Dear Mr.chris, can you clarify for me, thank you so much. I know you are going to view my blog everyday to catch the chance to call me Mrsxxx.

Tomorrow i will go to school again, to finsh another workbook. Heheheh~~~~

Wish everyone have a good day!!

start to blog again

I thought blog is a noun, however we are using it as a verb.
I will start to blog again daily since i had come back home from somewhere...heheheh~~~

I have found out that i have had some sociology homework to do just now>.<...well, i will done it before the deadline. and finish two economic workbook, enhance my weakest topic, government intervention.Finsh account before friday and do math during this weekend. Dear dear, i certainly need to work hard>.<.

Tomorrow i will post what i have done and check whether them are keep up to date.
And hello, Mr.chris. Long time did not see you, welcome me that i am back:)

Last day

Today is the last day for Easter courseT.T

I will certainly miss every moment we had during this course, we have fun, a laugh, interesting lesson, cute teacher, friendly students, actively paticipate in the class, start from 6 am to another day`s 1am......

I would remember them in my life, i will remember those famous phrase " you may leave if you hate your parents", " oh, really? whatever..lol", "the problem of the size of current account deficit-.-", " your are an intelligent student, so , answer this question" and ......

tonight we are going to have dinner together>.<, i will take a lot of picture and upload here, i am feeling sad nowT.T... i hope we will have Easter course again next year with the same teacher which refers to pretty Mr.BBT...

Mr.chris, i want to say thank you for giving us your precious time to help us, and you run it free.
We love the lesson and enjoy them, thank you

Daily blog

As you know, a regular daily blog means update blog everyday. However, it is hard to achieve in this week. We normally reach home at 1 in the early morning, and feel sleepy indeed. Therefore the consequence of such action would be edit the post which may be more relevant to economics in the late morning .

So, Mr. BBT, i will have my new post in the late morning today. However, I want to thank you for offering us such an interesting Easter course. I feel it is much more fun than school lessons even though the teacher is the same=p. I really enjoy the lesson:). Special thanks to you for making us lose weight by end of the course. As you notice, your Big Tummy is no longer so Big, it is a certainly good sign. heh~~~

It is very important to me as i found out that i became more talkative in the class. I am glad that i started to contribute my opinions.I hope you don`t feel it is a noise pollution. Big THANK YOU to you, dear Mr.chris.