Micro-Economics of England - Essay Example

?Question England has experienced the double dip depression since the start of the year The metamorphosis caused unanticipated consequences onthe economy. There has been a difference of opinion among the leading economists of UK that whether the double dip depression has ceased to exist or not. There are abundant signs which are pointing towards positive glimpses because there has been a little growth in the overall income of UK and the statistics are revealing that double dip depression is now being diminished from the UK’s economy(Alderman & Shelburne, 2011). But the other side of picture is also being supportedby many economists. They are of the view that UK is still in the grasp of double dip depression. According to a study, in the year 2008 peak the growth rate of economy was less than 20.1% and in the year 2010, the overall growth rate is around 6.1% which shows a serious plunge during the great depression. International monetary fund issued a forecast about the growth rate in between 0.6% to 0.8 % and this is not considered as a gratifying rate. Since 2008, the government of UK has stimulated up to 380 billion pounds into the economic machinery to increase liquidity rates but due to the lack of “trickle down” effect, the money has not shown its benefits and didn’t reach the core level of the industries. Many unconventional and out of the way step and initiatives are being taken to solve the problem of liquidity. Massive job lose statistics showed that there were around 750,000 public sector jobs that were cut off but this problem has been sorted out after the pact between democrats and conservatives. During the nine months of double dip depression, the economy of UK shrank up to around 1.1 pc (Kirby et al, 2011) and there is now a rise in the growth that shows that depression has ended. The economists are feeling the fear that the depression can come because economic depressions re-appear and do not go away easily. The measures by the ONS say that the economy grew by 0.7per capita and many other independent sources for example a renowned economist named as Samuel Tombs is supporting the view that growth will touch around 0.6pc. Till 2012, depression was still badly affecting the UK’s economy as this was the consequence of bankruptcies of major banks like Lehman brothers and the stock markets of UK were falling to the lowest records since the great depression. The measures from NIESR says that double dip depression was still there until September 2012 as after pumping thousands of dollars in the banking systems , there was no rise in the growth of the economy (Hay, 2012). Question 2 There are mainly four categories of unemployment, as follows 1) Structural Unemployment 2) Frictional Unemployment 3) Cyclic Unemployment 4) Seasonal Unemployment (Boyes& Melvin, 2012) The first type of unemployment is when the competent work force is available but there is a huge lack of demand for them. This kind of unemployment is highly proliferated in the world. The second type refers to the unemployment that is caused due to high “switch rate” of employees between different jobs. The third type is because of the effects of overall growth of the economic conditions and fourth type is because of the fluctuations of international economic trends and developments. Diamond Mortensen Pissarides (DMP) model illustrates the unemployment as a function of limited variables ad the rate of unemployment is directly proportional to the number of variables. If people have limited means and skill sets, unemployment will expand automatically. This model is regarded as the most practical one. According to DMP model, the bargain rate between employee and employer is also affected due to unemployment rate. If unemployment rate is high, bargain will be low because hiring is a difficult process altogether. As shown in the above figure, if the productivity in decreased, there is also a decline in Nash’s wage line. A high rate of wage line depicts less unemployment and sound economic conditions. The unemployment rate of 6% is regarded as imperative by the economists because in the time of recession in 2008, the unemployment rate was touching 6 to 8%,that is the sign that massive unemployment is about to break and this happened as there was a surge in this rate after some months. If 6 % of people are unemployed then this depicts that there are serious problems and economy is going towards depression (Albarran, 2010). The following calculations can be done by the formulas L=U+E, L is labor force, U is unemployed workers and E is the number of employed workers. In the recession times the factor of U can get intensified and structural unemployment can accelerate but if this remains is a limit of 2% to 3 % then this is regarded as natural rate of unemployment. 6% exceeds the red line and must be rectified. Long term unemployment has affected the people in a very negative way. Especially those labors who used to work on daily wages suffered a lot. Many people have totally dependent families and if one person looses job the whole family can get economic paralysis and this can harm the society as a whole. People fall victim to inferiority complex and frustration. A study showed that there was 30% rise in assault and 9 % rise in crime rate due to unemployment. (Mitchell,2012) Long term unemployment is a burning issue for UK these days as according to a study, people who are a direct or indirect victim of unemployment issue, touches the figure of 2.75 million. The institute for the policy researches as shown that people from the age group 50 or above falling a prey to unemployment because of long term effects of these issues, they will pass the age of labor and will never be employed. This has the direct consequences and damage to the overall economy. The work force is depreciating and the working hand of the country is ceasing to exist. The government should regard reducing unemployment as one of the top priorities as this is the need of the hour. The increasing rate of unemployment can be highly detrimental for the nation as it has direct mutilating effects that can result in infliction upon society and economy. A number of issues are related to this grave and important problem of unemployment. There are a number of productive steps that the government should take in order to reduce the unemployment. The steps of monetary important include lending and borrowing money from the open and international markets to support the inflow of money in the local markets. This will help the industries to flourish and hire work force. Similarly in order to reduce the long-term unemployment, the skill set of individuals must be enhanced so that they can be employed in multiple fields. The UK government should organize workshops for hiring the cream of the work force so that they can use their skills to increase the output. The local union structure should be made strong to sort the problems of workers at the spot. Changing the trade policies, reviewing tax policies on imports and exports are some of the key measures. Question 3 The sub-prime mortgage-led financial crisis is regarded as the most detrimental financial crisis that came with much long term perniciousness for the economy. The International monetary fund said in a report published in 2008 that increase in mortgages and delinquencies caused around $565 billion dollars of loss to the economy. Delinquencies and mortgages occur because people cannot afford the expenses of daily life needs and they place mortgages. There was a great spread of unemployment due to mortgage led financial crisis and that is the sole reason it is regarded as the worst recession after the great depression. As the foreclosures and mortgage problems rose, the housing problems emerged and there was a rise in homeless people. The important detrimental effects include home related crimes, bond market depreciation, real estate problems. The cause of Lehman Brothers is also been regarded as an indirect result of this great crisis. The impact of sub-prime mortgage-led financial crisis became apparent in the world after 2008 when many areas were hit with depression effects in the economy. US government had outstanding amount of 2 trillion dollars. This also came in UK and many people faced residential crisis due to mortgage problems. Many banks and institutions in Europe faced dangerous consequences and effects of this crisis, German IKB Deutsche bank faced many huge losses to the exposure of its businesses in US. Similarly it faced mortgaged problems in July 2007. Similarly, a famous bank of France, named as BNP stopped all its US based transaction in order to save its customers from further damage from the mortgage crisis. (Gokay, 2012) Question 4 Inflation represents the loss of the value of the money. Inflation is the rise in prices of goods, products and services in the market. Rise of inflation represents the increase in purchase rates and depreciation of value. Deflation is the decrease in the prices of products, services and goods. Increase in deflation depicts rise in real value of money. Stagflation means when inflation is high and the rate of unemployment is also high and there is depreciated economic value of the money. This accompanies economic problems for the countries. Inflation occurs when there is a great difference between demands and supply, increase in unemployment, tight economic conditions of the country, tough policies regarding import and export and trade barriers. The government should sort ways to decrease the inflation, bridge the gap between demands and supplies. The policies of taxes must be revised so that new trade and business opportunities may open for the new comers. The foreign investment should also be encouraged because foreign capital is the key to decrease inflation. The foreign investors can only be invited if the import and export policies are soft and overall environment of the local market is favorable. In case of stagflation, the government should strive to escape the current monetary position and must try to pay heed to the local markets in order to find out the main cause of stagflation. More inflows should be regulated in the local markets to enhance liquidity ratios. To control inflation, the government should ponder upon the root cause. If the cause is gap between demand and supply, then the government should craft a policy to increase or reduce the demand. Similarly the production area must also be improved. If the cause if monetary fund and local markets then new policies must be made. To diminish stagflation, the two problems should be addressed separately. Firstly, the issues of unemployment should be solved. This will increase the cash flow in the market and automatically resolve the unemployment problem that is the basis of stagflation. The remaining problem which is of hyper inflation can be solved by letting the small industries to flourish and enhancing trade with foreign countries (Middleton, 2011). References Top of Form Top of Form Albarran, A. B. (2010). The media economy. New York: Routledge/Taylor & Francis.p160 Alderman, D., & Shelburne, R. (2011). The economic situation and construction sector developments in the UNECE region, 2010-2011. Notes. Boyes, W. J., & Melvin, M. (2012). Fundamentals of economics. Mason, Ohio: South-Western/Cengage Learning.p228 Gokay, B., (2012) UK Economy Falls into Double-Dip Recession | Global Research. [online] Available at: http://www.globalresearch.ca/uk-economy-falls-into-double-dip-recession/5313842 [Accessed: 29 Dec 2012]. Hay, C. (2012). Treating the symptom not the condition: Crisis definition, deficit reduction and the search for a new British growth model. The British Journal of Politics & International Relations. Kirby, S., Barrell, R., & Whitworth, R. (2011).Prospects for the UK Economy.National Institute Economic Review, 217(1), 46. Middleton, R., (2011), Inflation + Deflation = Stagflation ~ Lower Real Estate Values! | ZeroHedge. [online] Available at: http://www.zerohedge.com/article/inflation-deflation-stagflation-lower-real-estate-values [Accessed: 29 Dec 2012]. Mitchell, B.,(2012) British solution to unemployment – make them work for free | Bill Mitchell – billy blog. [online] Available at: http://bilbo.economicoutlook.net/blog/?p=20443 [Accessed: 29 Dec 2012]. Bottom of Form Bottom of Form Read More