Economics Discussion - Assignment Example

Economics Assignment Student’s Name Institutional Affiliation Section A 1- Why Does Pay Tend To Rise With Age? Is This Fair To Younger Workers? Indeed, one of the most overlooked discussions for the existing differences in income between workers lies in the concept related to the life cycle. It is affirmed that workers income tend to grow spontaneously as workers mature and gain extensive work-related experiences and attains its overall peak at near retirement age (Aubert & Crepon, 2007). This is quite unfair for the younger workers that deserve even more remuneration especially since they are the most active and thus, productive in their work It is quite normal to expect that the aspects related to workers’ immediate pay and productivity to assume a positive correlation; however, this relationship tends to weaken as workers get near their retirement ages. Research indicates that the aspect of mental health declines with the age and thus, it is illogical to pay old workers more as compared to the younger workforce whose level of education is sometimes unmatched (Aubert & Crepon, 2007). In fact, for fear that the old workers do not engage intensive education in their life time then it is expected that their respective old age will be even less productive for an entity. Of particular interest to note, Aubert and Crepon (2007) note that some of the workers’ immediate capabilities decline in a much faster rate in comparison to their colleagues. In essence, most studies indicate that people’s numerical and reasoning capacities are their top notch in the period between early 20s and 30s (Aubert & Crepon, 2007). On the contrast, other capabilities like ones that focus on knowledgeable attributes like verbal abilities will certainly improve with the aspect of age and that indicates that one should therefore compensate the other in terms of pay. For most of the workers, declines capabilities will definitely result to a lower level of expected productivity rates; hence only a lower number will be able to acquire technical expertise; knowledge and that capacity to press on despite different sets of pressure. But even so, these attributes in most cases do not account to any returns or benefits considering the fact that experience counts more in determining the level of pay; and experience emanates from being an old worker. The stipulation is however; facing imminent level of challenges especially since nowadays technological advancements seeks to put a premium of aspects of adaptability while allowing significant discount rate on matters experience. It is for this reason that even those younger workers that tend to outperform their productivity targets can only experience limited remuneration returns. In the academics sector and other related occupations, studies indicate that the old academicians tend to publish less journals hence recording lower rates of productivity in comparison to the younger ones yet they receive the most accreditations and returns (Lallemand & Ryckx, 2009). For the young academicians, their level of production output that is essentially measured in terms of quality seems to be at its peak when they are between the ages of 30 and 40 and later declines at 50 onwards. Following this line observation, it thus means that income for most of the developed economies across the globe tend to attain the optimal degree for workers at some point in their early 50s; regardless of the fact that their productivity has already declined enormously (Lallemand & F. Ryckx, 2009). It thus follows that the younger workers are underpaid for their high productivity contributions while the older ones are overpaid for their lower production capacity. This dilemma of work is justified by different scholars that have come up with different explanations; for one, it is argued that newer workers might be more productive but on the average, their respective personal capacities might be deemed uncertain and a risky affair thereby opting to pay more for an old worker that has managed to acquire enough skills and experiences that would position productivity at a much safer position. It is further put forward that treating older workers with better and more pay is set to improve on employee loyalty amongst the younger workers (Lallemand & F. Ryckx, 2009). However, in my opinion, these justifications are rather baseless given that employee loyalty would only be viable in a labour market that experiences a challenge in measuring the level of output at hand; and also, in cases where these workers are not likely to shift to other entities. In a perfect competitive labour market, there should be no known reasons for the existing age-related pay productivity gap to be present since entities pay employees in accordance to their respective marginal productivity capacities (Lallemand & F. Ryckx, 2009). It therefore goes without saying that in the event that an entity witnesses a possible productivity shock and that aspect of wage fails to adjust then new workers should be fired until the point where equality of productivity and wages are both restored (Lallemand & F. Ryckx, 2009). On the other hand, if it witnesses positive productivity shock and wages fail to adjust then new workers should be hired until the proposed equilibrium is attained. It is for this reason that the younger workers are indeed unfairly paid. 2. For what reasons may one country experiences a persistently faster rate of economic growth than another? The debate on how some countries have made great strides to accomplish economic growth while others have continued to witness a decline in their economic capacity remains much alive. Such Asian countries like Malaysia is the current example of a country that has experienced a propelled economic growth despite it having been on the same economic level with sub-Saharan African and Latin America economies at one time. The discussion below put forward aspects that are credited with improved economic growth in one country in a comparison to others in the world. The Solow model, which is by far, a neoclassical model, ascertains that in the event that a country’s national savings degree improves, the resultant effect will an improved level of economic growth in short run as this development seeks to shift base to a rather new equilibrium point (Sachs & Warner, 1997). On the contrary, it is noted that the long run equilibrium growth does not rely on the savings rate or even an increase in the population of a country. Notably, for cases where all countries have access to similar technological advancements then it is expected that they would all experience a steady-state economic growth rate for the long run period. However, this is not necessarily the case as developed nations would always have an upper hand in terms of technological prowess in comparison to the underdeveloped world, which explains the low economic growth rates. Just like the aspect of savings, countries that make strides to improve on their underlying investment rates will definitely gain a lot in regards to a higher economic growth rate since, for this case, the economy would seek readjustments to a new higher economic growth platform; however, whenever the adjustments occur; the economic growth rate will be relapsed to its original steady-state level (Sachs & Warner, 1997). From this model, it can be learned then that countries with far much perfect savings, technology and investment policies will likely attain a steady-state economy and that, also that those whose income level have not attained a steady-state position will definitely grow and develop its economy more faster. The rate of human capital, which is expounded by education levels, is a factor that promotes long run economic growth rate of a country in comparison to another. This happens whenever one country values the aspect of education and thus, makes efforts to channel investments towards that sector as well as physical capital investment rates. Investments towards the education sector fosters the opening up a path that allows policies to affect wealth given the fact that when education policies that focus on improving educational-based investments transforms the economy of to a steady-state level for a long run (Sachs & Warner, 1997). The historical case of Ireland is a perfect example of how a relatively small economy that once witnessed unbearable labour migration, developed later to a rather prosperous market economy after it concentrated in shifting its competitive advantage towards the production of commodities that were solely based on skilled forms of labour (Sachs & Warner, 1997). A country that equips its masses with skilled labour is set to record massive economic growth rate since its people are well-equipped with skills that will help them survive through tough economic times. A country that focuses on providing a favourable business environment for purposes of triggering investments is likely to achieve and sustain a permanent economic growth rate than its counterpart that does not do so. According to Sachs and Warner (1997) , countries show their commitments to providing a favourable business environment in a number of ways that include; provision of tax relief incentives for international investors; making efforts to possibly eliminate or reduce the level of government bureaucracy that relates to investments from foreign investors and, also making sure to operate sustainable and operational efficient capital market that allows free and fair access to all components of capital needed for production. A country with a better mode of transport and communication platform is likely to experience a propelled economic growth for the longest period possible. The ability of a country to provide reliable and affordable model of transport has been noted to play a key role in facilitating the urban poor to have access to the perfect opportunities in such countries like Latin America (Mankiw, Romer & Weil, 1992). In Nepal, improved level of transport and communication channels has fostered the immediate convergence of agricultural and non-agricultural wages across a different set of regions in the past few decades. In this regards, it can thus be successfully argued that infrastructural-based reforms that relate to both efficient provision of transport and communication is set to foster the existing labour markets participation for some specific groups of people within a country hence improve on its overall economic growth rate. Mankiw Romer, and Weil (1992) note that countries whose workers are better motivated accomplish a high level of economic growth rate for the long run period. Motivated employees translate to intense productivity levels that are later witnessed in their total productivity output degrees and low turnover rates. In fact, it is argued that better motivated employees improve on overall production capacity of a country since the lower turnover rates do not result to time and resource wastages in any way. Motivations for workers for such successful countries would greatly involve fair remuneration and other forms of incentives as well as fair taxation systems from the government for both public and private-based workers. Another important factor that could result to one country experiencing almost perfect economic growth in relation to its counterparts lies in the discovery of new raw materials like oil. Some few decades ago, Middle East countries like Saudi Arabia were at par in economy prowess as most of its counterparts in both Latin America and Sub-Saharan Africa, however; this changed tremendously for the better with the discovery of the new raw material; oil (Lane & McQuade, 2014). Saudi Arabia’s economy doubled in its economic growth as the demand for this new raw material grew across the globe thereby increasing its foreign currency reserves and attaining a rich-country status to this date. Section B 1- Why does GDP include net exports instead of simply exports? As exposed to just exports which refer to the amounts of commodities for which a country sells to international markets, the gross domestic product constitutes the next exports. In matters gross domestic product (GDP), net exports take the center stage. In this case, a net export, which is represented as NX in the GDP function, is the underlying value of an economy’s total exports less the values that relate to its total imports. In essence, it is employed in the GDP function to compute the economy’s aggregate level of expenditures or thereby gross domestic product within an open economy. Of particular interest to note, net exports is equal to the amounts for which foreign-level spending on a host economy’s products and services surpasses its own local spending on foreign-based commodities and services. Net export is also known as a balance of trade within the GDP function. Thus, a positive value of net exports specifically ascertains that there is a trade surplus while the negative value is an indication of trade deficit. Thus, it is crucial to note that gross domestic product involves net export as opposed to only exports because there is a need to eliminate the value of total imports from these exports in order to come up with a rather certain and reliable amount that can fairly explain GDP concept. Most notably, value of total imports are lessened the exports given the fact that all imported goods and services are included in the other GDP components like government spending, consumption and investment and thus, it should subtracted to prevent the possibility of including foreign supply as domestic-based. 2- What Would Be The Effect Of A Fall In Money Supply On Aggregate Demand, GDP And Inflation? A fall in money supply within a given economy comes about as a result of contractionary monetary policy. It is important to note that a decline in the level of this money supply results to a decrease in the nominal output level, which is basically referred to the gross domestic product (GDP), which is a result of an imminent decline in overall consumer spending (Chu & Lai, 2013). Due to these changes, the aggregate demand curve is pushed to the left. It is noted that whenever prices of both goods and services are able to readjust in a future period as a result of monetary fall, this is expected to reduce the level of inflation within that timeframe (Mallick & Sousa, 2012). Considering the fact that the overall nominal interest rates are the total of real interest rates as well as expected inflation percentages, the possible reduction in the inflationary expectation is set to reduce the aforementioned rates. Within any open economy, the expected level of inflation rates could result to the market participants to expect the economy’s exchange rate in comparison to other major currencies to strengthen, which result to inflation rates falling below the foreign-based nominal interest rates. References Aubert, P. & Crepon, B (2007) are older workers less productive? Firm-level evidence on age-productivity and age-wage proles, mimeo (French version published in: Economie et Statistique, 2003, 368, 95-119 Chu, A. C., & Lai, C. C. (2013). Money and the welfare cost of inflation in an R&D growth model. Journal of Money, Credit and Banking, 45(1), 233-249. Lallemand, T. & Ryckx, F. (2009) Are older workers harmful for firm productivity? De Economist, 157, 273-292. Lane, P. R., & McQuade, P. (2014). Domestic credit growth and international capital flows. The Scandinavian Journal of Economics, 116(1), 218-252. Mankiw, N. G., Romer, D & Weil. D. (1992). “A Contribution to the Empirics of Economic Growth.” Quarterly Journal of Economics 107 (2), 407–437. Mallick, S. K., & Sousa, R. M. (2012). Real effects of monetary policy in large emerging economies. Macroeconomic Dynamics, 16(S2), 190-212. Sachs, J, & Warner. A. (1997). “Economic Reform and the Process of Economic Integration.” Brookings Papers on Economic Activity 1, 1–95 Read More