StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Macroeconomics Part 2 - Essay Example

Comments (0) Cite this document
Summary
a) Inflation can be described as a sustained increase in the general price level. The rate of inflation measures the annual percentage increase in price and is usually measured by the Consumer Price Index (CPI). This is a weighted average of retail prices…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER94.6% of users find it useful
Macroeconomics Part 2
Read TextPreview

Extract of sample "Macroeconomics Part 2"

Download file to see previous pages Demand pull inflation is caused by a rise in aggregate demand which means persistent rightward shifts in the aggregate demand curve. The rise in aggregate demand may occur due to rises in consumer demand, in the level of government expenditure, in investment by firm, in foreign residents demand for the country’s exports or a combination of these four (Sloman 1997). Demand pull inflation is usually linked to a booming economy. When the economy is in recession, demand pull inflation tends be low. However, when the economy is near the peak of the business cycle, demand pull inflation is likely to be high. The graph above illustrates the rise in aggregate demand by a rightward shift in the aggregate demand curve, from AD1 to AD2. Prices rise from P1 to P2 and output rises from Q1 to Q2 resulting in inflation. On the other hand is the cost push inflation where high costs force firms to increase their prices (Gillespie 2001). Aggregate supply is the total amount of goods and services produced at a given price level in an economy. When there is a fall in the aggregate supply of goods and services caused by an increase in the cost of production, cost-push inflation occurs. Cost-push inflation essentially means that prices have rose by an increase in the costs of any of the four factors of production that is; labor, capital, land or entrepreneurship given that firms are already managing at maximum capacity. With increased costs and maximized productivity, firms cannot sustain profit margins by producing the same quantity of goods and services. Consequently, the increased costs are borne by consumers, causing an upward shift in the general price level. The graph above shows the amount of output that can be attained at the given price level. As production costs escalate, aggregate supply falls from AS1 to AS2 (given production is at maximum capacity), causing the prices to increase from P1 to P2 and total output to decrease from Q1 to Q2. Demand pull and cost push inflation can occur together, since price rises can be caused both by increases in aggregate demand and by independent causes pushing up costs. Similar is the case with the UK’s economy. The UK Consumer Prices Index (CPI) annual inflation rate went up to 4.5% in April, from 4% in March (BBC 2011). As always, there are elements of both types of inflation in the UK’s economy. With the ongoing recovery and a slight increase in demand, there is a small level of demand pull inflation. However, the majority of the effect is cost-push. The increase in VAT is one of the major reasons of inflation in this economy, as well as increases in non-discretionary items such as fuel, utilities, housing and food. These are all necessities whose price hikes act more like an additional tax. The figure below shows the change in the UK’s annual quarterly rate of inflation over the last 15 years. b) Keeping inflation down to a desirable moderate level is an important contributive factor to sustain economic growth. This is because it serves as an incentive for increasing output, investments and unemployment. A rapid rate of inflation disrupts regular economic life leading to a wider income gap, falling output and unemployment. However, the remedy for such inflation depends on the cause. Therefore, government must diagnose its causes before implementing policies. Government policies may pull the rate of inflation down through contractionary fiscal and monetary policies. Monetary policy covers government changes in either the supply of ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Macroeconomics Part 2 Essay Example | Topics and Well Written Essays - 1500 words”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1426386-macroeconomics-part
(Macroeconomics Part 2 Essay Example | Topics and Well Written Essays - 1500 Words)
https://studentshare.org/macro-microeconomics/1426386-macroeconomics-part.
“Macroeconomics Part 2 Essay Example | Topics and Well Written Essays - 1500 Words”, n.d. https://studentshare.org/macro-microeconomics/1426386-macroeconomics-part.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Macroeconomics Part 2

Faith and Works - Comparison of James 2:14 and Romans 4

While the apostles James and Paul agree that Faith connotes belief in God and Works connotes good actions, James contends that faith and works are both essential for salvation, while Paul asserts that faith is the only requisite.

James is unequivocal in his declaration that “faith by itself if it has no works, is dead” (2:17). However, he does not discount the importance of faith. His contention is that both are essential and one, without the other, is futile. He is addressing Christians, who, we may assume, are already among the congregation of the faithful, by virtue of their professed belief “that God is one” (2:19). Therefore, James accepts that faith is a precondition for salvation but asser...
7 Pages(1750 words)Assignment

Rewiev of the Article: Management of Type 2 Diabetes

...CRITICAL REVIEW 2006 CRITICAL REVIEW Colin G. Pooley, Catherine Gerrard, Sally Hollis, Stephen Morton and John Astbury. 2001. “’Oh it’s a wonderful practice ... you can talk to them’: a qualitative study of patients’ and health professionals’ views on the management of type 2 diabetes,” Health and Social Care in the Community, 9(5): pp.318–326 Introduction The article under review focuses on the problems associated with provision of care for people with type 2 diabetes. In the introductory paragraphs Pooley and his colleagues clearly state the purposes of their study, namely: to identify the issues which both patients and practitioners perceive as highly essential to the effective management of the diabetic condition, reveal the extent...
8 Pages(2000 words)Case Study

The Battle of Alamo as a Part of the Texan Revolution

...The Battle of Alamo The Alamo battle was fought in the year 1836 in the months of February and March between the Texan army and the Mexican. This battle was a part of the Texan revolution and a part of the Mexican government to take over Texas because an army of Texan dwellers and the United States had driven away the Mexican troops the year before. On February 23, the Mexican forces advanced to take over the Texan troops, which were stationed at the Alamo. The Texan army kept working on improving their defenses. The early hours of March 6th 1836, the Mexican troops prepared for a final attack on the Texan troops. The Texan troops fought off the initial attack as well as the second. However, during the third attempt the Mexican forces...
9 Pages(2250 words)Essay

Macroeconomics and Trade Policys

Keynes argued that prices and wages do not determine the level of employment, as many classical economists suggested, but instead the level of aggregate demand for goods and services (Case & Fair 683). Keynes realized as well during the Great Depression that the government could intervene in the economy to attain specific employment and output goals by either increasing or decreasing taxes and government spending.

For example, raising taxes will decrease the disposable income of households and thus effectively decreasing consumption. When the government decreases consumption, the household demand for goods and services decreases thus it would only seem reasonable that the amount of output that the economy would also...
7 Pages(1750 words)Article

What Is Macroeconomics

While microeconomics is concerned with the factors underpinning the economic life of individual entities like families and small businesses, macroeconomics looks into the various elements that move or determine the economy in its entirety or what some call an aggregate economy. Macroeconomics is useful because it allows a predictive view of how market forces affect the economy and advises governments appropriate economic policies and gives private individuals and business entities a glimpse of what the future holds economically.
The term macroeconomics did not exist prior to the Great Depression but there was a collective set of theories that were used to study the various workings that influenced the aggregate economy. Econo...
8 Pages(2000 words)Assignment

Intermediate Macroeconomics and Macroeconomic Coordination

...CHAPTER 04 (MACROECONOMIC COORDINATION) We know that when GDP, APE & ASF are unequal, than an interplay occurs (Macroeconomic coordination process) which bridges the gap between these variables. If there is a disparity between ADF & ASF, there will be an automatic reaction among money users & suppliers which restores the magnitude of these variables to equality generally known as funding adjustment. Similarly, if there is a difference in the values of GDP & APE, it will trigger the suppliers of goods & services to act together and bring the figure close to equality. This process is called output-price adjustment. The purchasers of the domestic output can be classified into three groups. Group 1 involves individuals having sufficient money...
6 Pages(1500 words)Assignment

Music as a Part of Human Civilisation

...We suck young blood” Is Radiohead’s summary of the recording industry a fair one? Introduction “And the night shall be filled with music, /And the cares that infest the day/ Shall fold their tents like the Arabs/ And as silently steal away” - Henry Wadsworth Longfellow. Music, a form of arts, is an expression of human thoughts, feelings, and emotions, through the sound medium, and is thus as Eric Olson had once famously claimed “Music is what life sounds like”. The term music has derived from the Greek word mousike which means ‘arts’ that have created by the 3 Greek goddesses or Muses (Mneme, Melete and Aoide) (Scheinberg, 1979, 2). Though music varies according to social norms and cultural traditions, there are certain common...
9 Pages(2250 words)Article

Do Women Prefer Part-Time Jobs as Compared to Men

...Do Women Prefer Part-Time Jobs as Compared to Men? Registration Number Degree Module Number of Words: 2,044 Part I Literature Review The OEDC Employment Outlook Report (2002) revealed that more women are participating in the corporate world as the number of male employees decline. Because of the gender wage gap between the two sexes, male employees tend to work for shorter number of hours as compared to female employees who works more than 45 hours/week (OECD 2002). According to Kuhn (2000), the preferred allocation of time between work and leisure significantly affects the type of employment men and women would consider. Since full-time employment requires employees to spend fixed number of hours at the office, more women who...
8 Pages(2000 words)Research Proposal

Has Indonesia Accepted Corruption As Part Of Its Culture

...Has Indonesia accepted corruption as part of its culture? Table of Contents I. 3 II. Introduction 3 III. On Indonesia and Corruption as Partof Its Culture 5 A. The View from Business 5 B. The View from the West- Indonesias Corruption Culture 7 B. The View from the Inside 11 IV. Conclusion 15 References 15 I. Abstract This paper attempts to answer the question Has Indonesia accepted corruption as part of its culture?. To answer the question, the paper first introduces the concept of corruption and situates the level of corruption in Indonesia against corruption in other parts of the world. From there the paper explores various perspectives of corruption in the country, namely perspectives from the business community, views...
13 Pages(3250 words)Case Study

Should College Students Do Part Time Jobs

... Should college do part time jobs? The debate on whether college should do part time jobs is one that has caused heated debates among various stakeholders in the education and business world. However, so as to have a clear picture of the theme, it is vital to understand and assess both sides of the coin as every issue has its demerits and strengths. An analysis of the theme from one side would indeed create a lot of confusion that emanate from a one-sided view of the entire theme. This essay will then assess the negatives and positives of the college learners taking part in part time jobs. Finally, the essay will take the stand that the college learners ought to be given a chance to engage in any activities that would give them an extra...
7 Pages(1750 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Macroeconomics Part 2 for FREE!

Contact Us