Business economic - Coursework Example

Business Economics By + To get from GDP to GNP requires the addition of net property income from abroad.GNP=GDP+NR (Net income inflow from assets abroad)-NP (Net payment outflow to foreign assets)GDP is the calculated and estimated value that defines the worth of any country’s services provided ad production carried out over a whole year while GNP is refers to GDP added to total amount of capital gain from all investments made abroad with amount of income that has been earned by foreign nationals in that country subtracted from the total.2). If investment demand falls, the smaller the multiplier, the larger is the fall in equilibrium output.

This is because money demand decreases when the interest rate increases because bond, which solve for equilibrium output is multiplier which is obtained I smaller or larger than the multiplier3). If the MPC is 0.8 and government levies a net tax of 0.3 then the MPC out of disposable income beomes0.5C=α + βyd where; α- autonomous consumption =α+0.8(yd) yd- disposable income =α+0.8y (1-t) β-MPC t=0.3 α=0.8y (0.7) β=0.564). suppose the bank of England lowers the required reserve ratio.

The effect on the commercial banking system would be to stimulate the commercial banking system to increase the money supply. Lowering reserve ratio by the bank of England prompts the commercial banks to lower their rates thus stimulating the economy through increase I money supply.5). The most frequently employed instrument of monetary is open market operations selling at government bonds and securities.6). Inflation causes a redistribution of income and wealth away from lenders to the benefits of borrowers.

Inflation reduces the value of money so lender losses some value of his money once he is paid in the period of inflation.7). Total unemployment is made up of Keynesian unemployment and classical unemployment.Keynesian economic theory usual relay on spending aggregate demand to define the economic market place of which is often influenced by public and private decisions. Classical economic theory is rooted in the concept of a laissez-faire also known free market, which requires little to know government interventions.

Also allows individuals to act according to their self-interest regarding economic issues thus promoting unemployment8). An externality exists in production of good or service when: the marginal social cost differs from the marginal private cost of production. For example, a chemical industry emits wastage as a by-product into nearby rivers and into the atmosphere. This creates negative externalities, which impose higher social costs on other firms and consumers.9). In a market economy, the ideal solution to the problem of externalities would be to allow producers to produce the output level where both the marginal private benefits and the marginal.

Externalities create divergence between the private and social cost of productionSocial costs include all the costs of production of the output of the particular good or service. Example cost arising from the pollution of the atmosphere.10). When uses monetary policy to stimulate aggregate demand, one should decrease the interest rate.Lower interest rates make it cheaper to borrow. This tends to encourage spending and investment this results to higher aggregate demand and economic growth. It may also cause inflationary pressures.