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Micro economics - Essay Example

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Question 1 England has experienced the double dip depression since the start of the year 2011.The metamorphosis caused unanticipated consequences on the 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…
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Download file to see previous pages 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 condition ...Download file to see next pagesRead More
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