Long-Term and Short-Term Interest Rates - Assignment Example

Micro and Macro economics Oil boom brings scar of workers in small towns http www.nbcnews.com/business/economywatch/oil-boom-brings-scarcity-workers-small-towns-940025 Chapter 1 terms and definitions: Opportunity cost Opportunity cost is the forgone alternative cost for another action. Scarcity Scarcity is limitation in supply. Scarcity is when a commodity is hardly there. For instance, land is a scarce factor of production (Mankiw, pp.55) Relevance In this article it is found out that the government and other traditional sectors are running short of labor. The scarcity has been brought about by the natural gas and oil boom. The laborers are forgoing other business jobs and offers for the oil jobs. In this case, there is scarcity in labor and the opportunity cost is the labor to be offered in other sectors of the economy. In the news article, there is scarcity in guards and prisoners at times just walk away from prison. As many laborers have opted to oil companies, there have been scarcity in housing and settlements in areas like Woodward. 2. What Are the Factors of Production for the iPod Touch? http://smallbusiness.chron.com/factors-production-ipod-touch-37951.html Chapter 2 terms and definitions: Technology It is a wide concept dealing with a species’ knowledge and usage of crafts and tools, and how it impacts the ability of a species to adapt to and control its environment. As defined in the society of humans, technology is as a result of engineering in science but many technological improvements go before the two notions. Factors of production These are the factors that are employed in the production of commodities with an aim of making economic profit. They are inclusive of Labor, land, entrepreneurship and capital. Without the factors of production there can be no any commodity as these factors are incorporated to yield an economic profit (Mankiw, pp.375) Relevance to article The technology in this article is the iPod touch. The factors of production include: Capital of Apple that outsources physical production in order to reduce costs. IPod touch also get materials from Samsung companies like Samsung. Another factor is labor of iPhone that is inclusive of stateside, internal employees who did the prototyping, design, sales and eventual marketing of the product. There were also external workers who worked in Asian countries. By employing external labor, the company has cut its production costs. Land for the Apple Company comprises of issues that affect available resources to suppliers of Apple in Asia inclusive of availability and cost of materials like glass and silicon. As they do not own factories, their rent is the amount they pay property owner. Lastly is the entrepreneurship where apple has managed to be popular in the entrepreneurship category. Apple encouraged the efforts to innovate the product line in the apple brand. In design terms, the iPod touch integrated a display that is multi-touch and other elements that increased the financial value of Apple. 3. Short of Money, Egypt Sees Crisis on Fuel and Food http://www.nytimes.com/2013/03/31/world/middleeast/egypt-short-of-money-sees-crisis-on-food-and-gas.html?ref=foodprices Chapter 3 terms and definitions: Law of demand The law of demand states that if the price of a good or service increases the demand will fall and if the prices of a good or service is decreased it leads to an increase in demand other factors kept constant (Mankiw, pp.67) Normal good A normal good is that good that its demand increases with an increase in the income of the buyer and demand decrease with a decrease in income of the consumer. A normal good behaves the in the same manner. Relevance to article In the article Egypt is running out of income meaning that the incomes of the consumers have fallen down. As Egypt imports fuel from other countries there is a shortage as there is low income by the country to purchase fuel. As there are fuel shortages, there is blackout in electricity. The shortages in electricity triggers increase in prices of food as a result of high costs in the production of food like bread. This means that bread in this country is a normal good as decrease in its prices lead to a subsequent decrease in demand. The article also satisfies the law of demand as it can be seen that as food prices increase the demand falls. 4. Mauritius Fin Min: 2013 inflation seen below central bank forecast http://news.yahoo.com/mauritius-finmin-2013-inflation-seen-below-c-bank-103640994.html Chapter 6 terms and definition Inflation Inflation is a sharp increase in the price of commodities in an economy making the purchasing power of individuals to fall. Monetary policy Monetary policy is the actions of a regulatory committee like central bank or currency board to growth rate or size of money that circulate in the economy. For instance, the central bank can increase interest rates to reduce money supply in the economy and a decrease in interest rates may be done to increase money supply. Relevance to article In the article, the rate of inflation in Mauritius is expected to fall below the anticipated rate by its central bank. The inflation on this country led to the drop of economic growth to 3.5% as construction firm contracted. The minister stated that growth of that economy was of essence but inflation had to be watched. The central bank therefore took initiative to reduce inflation to manageable levels. The central bank decided to opt for lowering interest rates in the near future. The lowering of the interest rates would pose negative effects on savings and inflation. Lowering of interest rates by the central bank would increase money supply in the economy as no individual will be willing to save and there will be an increase in inflation as the prices of goods will shoot due to increased money in the economy. 5. What China's sharp trade deficit means http://money.cnn.com/2012/03/12/news/economy/china_trade_deficit/index.htm Chapter 7 terms and definition Exports Export is a factor in the international trade where by goods produced by a country are shipped outside that country for the purpose of sale to where they are being dispatched to. Sales of exports add revenue to a country. Imports An import is a factor in international trade where a country buys goods and services from other countries. A country spends its funds to purchase materials and other goods that they do not produce (Mankiw, pp.672) Relevance to article In the article China announces a huge trade deficit. The deficit comes as a result of importing more than what it exports. China is well known for being a major exporter for very many years. It has been exporting more than it imports. Although in this article it imported more goods than it exported leading to a negative balance of trade. This was triggered by a fall in importation of goods by America from China by 7.3 billion dollars. In this case, America has been purchasing goods meaning that they have been importing goods while China exports as it had been selling goods to America. 6. Analysis: Labor Force Survey http://www.dailymaverick.co.za/article/2013-05-07-analysis-labour-force-survey/#.UYj5tNhFlOw Chapter 8 terms and definition Labor force The labor is the total number of individuals in search of jobs in an economy. Unemployment It takes place when an individual who is in search of a job and is not able to get a job. It is often used as a measure for economic growth. Unemployment increases with low rate of labor absorption by an economy. Relevance to article In the article it can be noted that there if growth in the labor force as the economy is unable to absorb the people seeking for employment. As much the economy of this state creates a certain number of jobs every year it is still unable to absorb job seekers and the discouraged individuals who are in search for jobs. The job seekers as a whole are the labor force while the situation of being not employed is what is referred to as unemployment. In the article there is cutting down of interest rates that decreases unemployment rate and increases labor force. 7. Infrastructure Investments Drive Productivity, Report Finds http://cwf.ca/news-releases/infrastructure-investments-drive-productivity Chapter 9 terms and definition Productivity It’s a measure of efficiency of a person or a machine in converting inputs into useful output. The inputs include labor and capital. Infrastructure Infrastructure is simple physical structure of a nation or business. It is a necessity to an economy’s prosperity and growth. Infrastructure includes such things as roads, railway and social amenities. Relevance to article In the article it is stated that making investments in the Canada’s infrastructure leads to the ultimate productivity of Canada. In the article it can be noted that Canada has been recommended to continue on strategic and sustained investment in public infrastructure. Weight should be given to public infrastructures that are able to boost the economy. The article points out that it would be useless to carry the investment of infrastructure as it will lead to low productivity. This means that with well-established infrastructures, there will be increased productivity due to reduced costs and increased efficiency. The increased productivity is what leads to an economic growth that translates to a prosperous nation. 8. United States Government Debt To GDP http://www.tradingeconomics.com/united-states/government-debt-to-gdp Chapter 13 terms and definition Debt GDP ratio It is the amount of an economy’s debt in compared to the GDP. The economy’s debt is the amount that a government owes its creditors. Government debts can be categorized into gross and net debt. The gross debts are like government bonds, currency swaps, pensions and insurance. Net debt is the difference between financial assets owned by the government and gross debts that the government owes its creditors. Public debt It is a borrowing by the government to fund expenditures that have not been cleared by revenues from current tax. Relevance to article In the article the US is anticipated to have a debt that is equal to 101.6% of the GDP in the year 2012. In the history of America the Debt GDP ratio has always been averaged at 60.8%. The public debt as a percent of Gross Domestic Product help investors knows the ability of a country to clear it debt in the future (Mankiw, pp.571) 9. Money supply grows 11.4% in March http://www.philstar.com/business/2013/05/01/936788/money-supply-grows-11.4-march Chapter 14 terms and definition Money The basic definition for money is that it is an exchange medium. Money can also be described to be a unit of account, a transfer of immovable goods, means of saving the buying power and value standard. It is in the form of coins and paper. Money is an instrument that is given in exchanged during transaction. It has value and therefore, it can be an exchange medium or it can also store value. Money supply Is the entire currency stock in liquid instrument in an economy in a particular time. An increase in the supply of money in the economy leads to more spending of money hence increase in prices and reduced interest rates while a decrease in the money supply in an economy lowers money spending and hence increase interest rates. Money supply depends on the central bank as it is the one that controls the flow of money in and out of the economy. Relevance to article In the article it can be noted that money supply rate has increased by 11.4%. the central bank of this economy slashes down the deposit account to allow money to be supplied to the economy. It is found out that the increase in the money supply sustained economic growth as more money was invested. The central bank of this economy makes sure that the money that the commercial banks can hold is increased. It also makes sure that rates on borrowings are reduced as the rates on capital are increased. With the slashing of SDA deposits and reduction of interest rates on borrowing the money supply will be increased due to increased borrowing. If there is an increase in money supply there will be more money in the economy. 10. What Are the Risks of Low Interest Rates? http://www.pbs.org/newshour/rundown/2013/05/what-are-the-risks-of-low-interest-rates.html Chapter 15 terms and definition Short term interest rates It is the rate at which the short term loans are achieved between financial institutions. Long term interest rates It is the rate at which the long term loans are achieved between financial institutions in duration of more than one year. Relevance to article The article states that there are long term and short term interest rates. The article states that the government can cause manipulation of short term interest rates but it is unclear for long term. The critiques of the topic of the article thinks that lowering interest rates at 7% would lead to high speculation and would encourage more borrowing as individuals speculate rise in asset values in future. With the low rates, people who save earn very low returns. The Fed eases long term borrowings by creation of electronic money that is used to purchase the treasury bonds there by lowering long term rates for the borrowers who want to make long term investments. This has been impossible as the Fed have been unable to manipulate the long term rates that could see people buy houses at low interest rates. It can be deduced for the article that short term interest rates can be manipulated by the Fed through buying of treasury bonds while the long term rates cannot be easily manipulated (Mankiw, pp.745) Work cited Gregory Mankiw. Principle of economics. Cengage learning, 2011 Read More