Macroeconomics Tutorial Test Essay

Question 1. (i) Identify and briefly explain the main features of the business cycle. (2 marks) Business cycles are usually characterized by periods of transition from peak to trough and then from trough to peak. The peak of a business cycle is the high point of GDP prior to a downturn whereas a Trough is the low point economic activity prior to a recovery. The period in which the economy is moving from a peak to a trough is called a contraction and the period in which the economy is moving from a trough to peak is an Expansion. (ii) Explain the concepts of (a) potential output and (b) the output gap. (3 marks) Potential Output (y*) or full employment output is the level of GDP an economy can produce when using its resources, such as labour and capital, at normal rates. This is not the same as maximum output. Potential output grows over time with growth in labour and capital and with growths in technology. At any point in time, the difference between the economy’s potential output and actual output is called the output gap (y – y*). A positive output gap, which occurs when actual output is higher than potential output and when resources are being utilised at above-normal rates, is called an expansionary gap. This is related to firms operating above normal capacity and can lead them to raise prices (inflationary). On the other hand, a negative output gap, which occurs when potential output exceeds actual output and when resources are not being utilised, is called a contractionary gap. This is re lated to capital and labour not being fully utilised (cost in terms of forgone output). (iii) Explain the concept of Okun’s law. Discuss the implications of Okun law for policymakers. (5 marks) Okun’s law states that each extra percentage point of cyclical unemployment is associated with about a 1.6 percentage point (for Australia) increase in the output gap, measured in relation to potential output. The quantitative relationship is (y-y*)/y* = -B(u-u*). This describes how an additional percentage point of cyclical unemployment is associated with a B percentage point decline in the output gap. The output losses associated sustained in recessions, calculated according to Okun’s law, can be quite significant. Calculations using this relationship depict that output gaps and cyclical unemployment may have major costs. Therefore, we can conclude with the fact that the public and policymakers have concern in relation to contractions and recessions. Question 2 (i) Discuss the role played by fixed (or sticky) prices in the Keynesian model of income determination. Briefly explain what would happen if prices were fully flexible in the short run. (2 marks) New Keynesians assume prices and wages are fixed or sticky, meaning that they do not change easily or quickly with alterations in supply and demand, so that quantity adjustment prevails. When prices are sticky, higher aggregate demand raises production, and this raises incomes. If prices were fully flexible in the short run, economy’s resources would be fully employed and thereby the economy would return to the natural level of real GDP. Firms would stop producing when price is lower than production cost, so there would be less competition. (ii) Explain the concept of Planned Aggregate Expenditure (PAE). How does PAE differ from Actual Expenditure? (2 marks) Planned Aggregate Expenditure is the total planned spending on final goods and services. In equilibrium, planned expenditure and actual expenditure must equal in the economy. The difference between planned and actual expenditure is unplanned inventory investment. When firms sell fewer products than planned, stocks of inventories increase. Because of this, actual expenditure can be above or below planned expenditure. (iii) Use the Keynesian aggregate expenditure model and appropriate diagrams to explain the following: – The paradox of thrift – The effect on equilibrium GDP of an exogenous increase in exports. (6 marks) Question 3 (i) Explain what is meant by the multiplier? Why, in general, does a one dollar change in exogenous expenditure produce a larger change in short-run output? (3 marks) The income-expenditure multiplier, or the multiplier for short, is the effect of a one-unit increase in exogenous expenditure on short-run equilibrium output. For example, a multiplier of 3 means that a 6-unit decrease in exogenous expenditure reduces short-run equilibrium output by 18 units. Therefore, a one dollar change in exogenous expenditure produce a larger change in short-run output as initial amount of expenditure leads to raised consumption spending resulting in an increase in national income greater than the initial amount of spending. (ii) Explain the role played by the marginal propensity to import in determining the size of the multiplier. Other things equal, how does an increase in the marginal propensity to import affect the size of the multiplier? (3 marks) The marginal propensity to import is the change in imports divided by the change in disposable income. It decides the slope of the aggregate expenditures line and is part to the multiplier process. Similar to taxes, the marginal propensity to import tends to lower the size of the multiplier as demand for domestically produced final goods and services falls. An increase in the marginal propensity to import increases the value of the denominator of the equation, which then decreases the overall value of the fraction and thus the size of the multiplier. (iii) Use a diagram to illustrate the concept of short-run equilibrium in the Keynesian aggregate expenditure model. Suppose the economy is initially not in equilibrium, explain the process by which the economy adjusts to equilibrium. (4 marks) Question 4 (i) What are the main instruments of fiscal policy? Explain how each might be used to close an expansionary output gap. (4 marks) Main components of Fiscal Policy: – Government expenditure: Government spending of goods and services, investment and infrastructure directly affects total spending. If too much or too little total spending causes output gaps, the government can help to guide the economy toward full employment by changing its own level of spending. – Taxes or transfer payments: In contrast, changes in tax or transfers do not affect planned spending directly. When disposable income rises households should spend more. Thus tax cut or increase in transfers should increase planned aggregate expenditure. Similarly, an increase in taxes or a cut in transfers, by lowering households’ disposable income, will tend to lower planned spending. This stimulates spending and eliminates contractionary gap. (ii) Explain what is meant by the government budget constraint. Indicate how it provides a link between fiscal policy and public debt. (3 marks) Government budget constraint is the term given to the concept that government spending in any period had to be financial either by raising taxes or by government borrowing.We can denote government expenditure undertaken by the government in period t by Gt and transfer payments by Qt. Therefore, the total spending activities of the government can be noted as Gt+ Qt. Also, the government has three means at its disposal to finance this expenditure: 1. Taxes available to be spent by government it time t – denoted by Tt. 2. Issued security when government borrows money – This is a financial asset that obliges the government to repay the loan, and pay interest, over some designated time period. Bt-2 is the stock of securities that the government still has owing at the end of the last period. Any new borrowing that the government unde rtakes in period t will be denoted as Bt – Bt-1. The stockpile of debt that accumulates when government continues borrowing money is called the public debt. 3. Interest needed to pay on government’s stock of debt – in any time t the government pays interest of rBt-1 where r is the real rate of interest. Government expenditures (purchases, transfer payments and interest payments) in any period need to be funded by taxes or by borrowing. This is the Government budget constraint summarized as below: Gt+ Qt + rBt-1 = Tt + (Bt – Bt-1). If we rearrange this so that gross taxes are on the left-hand side, the link between fiscal policy and the stock of public debt becomes readily apparent: Gt+ Qt – Tt + rBt-1 = (Bt – Bt-1). (iii) Explain the difference between discretionary fiscal policy and automatic stabilisers. Which one of these will be the main influence on the size of the structural budget deficit? Explain. (3 marks) Discretionary fiscal policy refers to deliberate changes in the level of government spending, transfer payments or in tax rates. Automatic stabilizers refer to the tendency for a system of taxes and transfers, which are related to the level of income to automatically reduce the size of GDP fluctuations.

Leadership Essay Example | Topics and Well Written Essays - 2000 words - 6

Leadership - Essay Example In order to decide on the most effective approach, the manager must consider the experience and skill levels of employees, the kind of work involved, the organization’s environment and the manager’s natural or preferred style (Schriesheim, 1982). While positive leadership commonly give rewards such as independence and training to employees with an aim of increasing employee morale, negative leadership emphasizes giving penalties. A close analysis of the company’s management has revealed that most supervisors in the company have preferred the application of transformational management over other management styles. The impacts of this management style theoretically include improved employee morale and performance according to Bass (1998). It is however unclear whether its application in the company has and will continue to yield positive fruits. It is in this respect that the organization seeks to carry out a research to make certain whether or not the transformational management style is effective in practice as it is claimed to be in theory with regard to this company. The research will be limited to the company and its employees and will therefore preclude the involvement of other persons or parties. While mention of several management styles will be made, the research will be biased towards the application of transformational leadership vis a vis autocratic leadership. Further, the research will mainly concentrate on determining the effects of supervisors’ application of transformational leadership on employees and their performances at work. In this respect, the research will focus on measuring the impacts of the management style in terms of employee commitment, absenteeism and performance as well as production turnover. In appreciation of the fact that management style of an organization’s leadership has significant and measurable impacts on its (the organization’s) performance, there is a

Challenges Faced By Media in Africa Assignment Example | Topics and Well Written Essays - 2000 words

Challenges Faced By Media in Africa - Assignment Example All these are responsible for collecting and relaying it to the people. According to (Louw, 2009) advancement in technology has led to development of new forms of mass media. The internet is an example of the advancement in technology. For a mass media to optimally perform its duties there should be managers who check that there is a smooth running of activities on a daily basis. In the media industry there exists different sectors that’s make up the media industry as a whole. These include the print, television, social, radio media and many others. Managers have a big role to play in all the sectors. Taking the case of the print media, (Hadland, 2007) states that managers are responsible with ensuring that there is at least information that is relayed to the magazine readers in a daily basis. Streamlining of activities is performed by the managers and the management at large. The managers are responsible for ensuring that he information that the readers get is authentic and t hat it also does not infringe on the right of any person in any way. They also have to ensure that the participating people in the sector do perform their duties as delegated to them, without the managers the running of these sectors would have been very difficult. With the changing technological inventions managers have to ensure that their sector get to move with the present forms of technology that affects their sectors. Managers should have strong creativity and thinking to ensure that their strategies and objectives are attained. They should also be able to troubleshoot problems and offer solutions to them in a timely manner. Furthermore, they should be able to ensure that their sectors do run in their expenditure limits, to optimize outcome. Managers in a media industry are usually problem solvers (Begoyan, 2012). This is because for any publication to get through in the printing media, approvals are mainly made by the managers. They help solve the problems that could arise fr om their work. They have to first analyze the contents of their work and ensure that it does not break any laws stipulated. Managers are also responsible for assigning work to employees in the media sector, with any conflict in work arising they are the ones to check and ensure that normality is brought back. Also when a problem arises because of any publication managers are the ones to air out the issues concerning the problems and not the other employees. Similarities and differences do exist between the problems that exist between the media industries in Africa and other parts of the world such as the U.S. Taking an example of In Africa and other parts of the world; the print media face a lot of challenges on their day to day activities. Problems that mainly exist in Africa are mainly communication, economical, political and social. These are discussed hereunder: Communication According to (Watkins, 2005) Communication Media mainly used by the print media sector are roads. They u se this to deliver their work to the readers in the different parts of the countries. Poor delivery of magazines books and news papers are categorized by poor roads. Some countries in Africa especially the sub-Saharan regions, have very poor terrain, this renders the places impassable and therefore delivering some of the print media materials like newspapers become a very hard task to accomplish because of poor infrastructure in many parts of Africa.

Research Papre Essay Example | Topics and Well Written Essays - 2000 words - 1

Research Papre - Essay Example This process gets more aggravated when the people cut more trees, which are absorbers of carbon emitted. If we look at history of earth, we can notice that the earth has cooled and heated alternatively in a gradual span of time. The climate of the earth change according to the intensity of sun light receive or due to shift in the orbital movement of earth. However, in the recent times, one force which has alleviated the heating process of earth is humanity. As per (wiscombe,2012)â€Å"The global average surface temperature rose 0.6 to 0.9 degrees Celsius (1.1 to 1.6 ° F) between 1906 and 2005, and the rate of temperature increase has nearly doubled in the last 50 years†. Global warming can be described as a swift increase in the temperature of earth due to a vast release of greenhouse gas into the atmosphere due to the burning up of fossils by humans. The greenhouse effect is a natural phenomenon where in the infrared radiation emitted by atmosphere heat up the planet’s surface. The term â€Å"greenhouse effect† derived from an analogy where the heating up of air inside a greenhouse is compared with the air present outside the greenhouse. Apart from earth, the planets Venus and Mars also experience greenhouse effect. Naturally earth receives heat in the form of radiation from sun and 30% of this incoming energy is solar radiation. The 70% of remaining solar energy is absorbed by the land, ocean and atmosphere of the earth. This natural process occurs in order to give the earth a temperature which is of a stable state and not to allow rapid heating or cooling in the earth’s atmosphere. Generally speaking, only one percent of the earth’s atmosphere is comprised of greenhouse gases .But this greenhouse gas has a feature of trapping heat in the atmosphere and creating a warm blanket of air around the planet. This is what is known as â€Å"green house effect†. Without this greenhouse

Essay on International business finance report

On International business finance report - Essay Example REPORT TO IBF Respected Directors, IBF London (U.K) Introduction IBF Supplies Plc is a London based large manufacturer and distributor of office supplies. A recent forecast shows decline has been shown in the demand for office supplies in the UK. At the same time it is anticipates a strong demand for office supplies in Eastern Europe, Asia and Africa over the next several years. Hence, executives of IBF have started exploring the overseas markets and are planning to establish foreign subsidiaries in new markets. Before entering the market certain aspects are to be considered. These aspects include: Financial and non-financial factors The potential risks and possible external strategies to manage such risks. Other strategies available other than establishing a foreign subsidiary Financial and non-financial factors First of all it is to be made sure that whether the selected countries are going to produce the desired results or not. It is a good thing that IBF has anticipated a strong demand in Eastern Europe, Asia and Africa for the type of goods it manufactures but again a detailed research needs to be done before taking any final decision. Developing a foreign subsidiary means establishing company’s branch outside the country to run as a separate entity than IBF the parent company itself.  There are a lot of things that need to be considered like the political stability of these selected countries, their legal systems, the fiscal policies, the monetary policies, availability of labor that is skilled, logistics infrastructure etc (Terpstra and Sarathy 2001). It is a good thing that IBF has a proactive approach but still there are a lot of things that are of utmost importance before any final decision can be taken. The financial situation of the company happens to be one very important factor to be considered before IBF can take any decision. The tax bracket is to be kept in mind before actually deciding to expand the business to a new area. The net wor th and the objectives of the company happen to be of critical importance. The level of risk that the company can afford to take is also a point of significant importance. While considering the financial factors, IBF needs to take a decision regarding choosing one of the two financing techniques or may be both the techniques. These two financing techniques are debt and equity financing. If IBF chooses debt financing to raise funds it means that the company will borrow money from another source like bank. IBF will have to return the loan with interest and it can be short term or long term. The other way is that of equity financing. In this way IBF can raise finance by selling off its business part to some other party like the investors or the venture capitalists. The company need to decide whether it is going to be generating funds locally or by the parent company. A detailed PESTEL Analysis is required that includes things like political factors etc. The forecasting regarding the exc hange rates and the taxation agreement needs to be done before taking any final decision. It is to be kept in mind that these foreign subsidiaries are going to be exposed to volatility of exchange rates. IBF will need to evaluate its risk associated with exchange of foreign currency through monitoring

Case Analysis of Staples, Inc., Study Example | Topics and Well Written Essays - 1000 words

Analysis of Staples, Inc., - Case Study Example Furthermore, this paper will comprise framing strategy that may help the firm to deal with all the factors in order to achieve its goal efficiently and smoothly (Fred, 2009). Analysis External Factor Evaluation (EFE): EFI is considered to be the strategic administration tool often used by all organization to assess current business condition of the firm. It is considered to be an important process as the end result helps the firm to visualize the threat and select all the opportunities that tends to arise. In accordance to case the EFI of Staple Inc. is stated below: Figure: 1 External Factor Evaluation (EFE) of Staple Inc. On the basis of the above mentioned figure, it can be stated that the factor of low currency value offers an opportunity for the company as the export policies of the government would be modified or directed to increase the foreign currency in the country. Such initiatives of the government would provide the organization with an opportunity to expand its business. The company’s strategy of diversifying its business and creating new products has also offered it with an opportunity to expand its product and service line and effectively meet the needs of discriminating customers. Moreover, the crisis in the economic condition would help the organization in terms of brand awareness as foreign company would be reluctant to invest in such economic condition. Consequently, the organization will be able to attract large base of customers. The factor of the firm size can also be considered as a positive factor as it helps in creating brand awareness as well as it will act as a barrier for new entry of firm (Meredith, Forest & Fred, 2009; Fred, 2009). On the other hand, the increasing competition due to the entry of new firms in the industry has imposed significant threat. The firm is further unable to penetrate into the local market as it is primarily focus on meeting the public needs. Moreover, frequent change in the government policies has s trongly deterred the ability of the organization to expand its business. Another important threat factor includes constant innovation in technology. The rapid advancement in technology has resulted in rapid obsolescence which has further contributed towards increased costs for the organization (Meredith, Forest & Fred, 2009; Fred, 2009). Internal Factor Evaluation (IFE): IFE consists of all the factors that relates directly or indirectly to the organizations functioning. The main motive behind evaluating the internal factor of an organization is to major weakness and the strength that exist in the operating area of a business. The IFE of Staple Inc. is represented below. Figure: 2 Internal Factor Evaluation (IFE) of Staple Inc. On the basis of the above illustration, i.e. Internal Factor Evaluation (IFE), it can be asserted that the factor of being one of largest distributor of office goods acts as an opportunity for the firm. Moreover, its stable financial position has also contrib uted towards smooth functioning of its business operations. Additionally, the marketing and advertisement activities executed by the firm have significantly benefited it to attain increased brand awareness and has further facilitated in seeking greater competitiveness. At the same time, large number of retail stores situated at different locations

How a person should be Essay Example | Topics and Well Written Essays - 1250 words

How a person should be - Essay Example Another approach in the direction of understanding truth goes with the name of interpretive analysis of situations and the conclusions that individuals and groups draw from their experiences are indeed identified as truths. But, in the view of this group’s conceptual understanding, the nature of truth wholly and solely depends on one’s experiences alone. The final approach towards gaining understanding of reality is called postmodernism that simply states that nothing is in-definitively true and vice versa and therefore, the gathering of information is going to determine the truths and facts of the present time. There was a time in past, when scientists believed that world is flat like a table and if ships were to go far into the sea then, they may fall from the edge of the world. However, with the passage of time, the featured belief changed and so did the human behavior towards reality (Klein pp. 26). The knowledge always changes, modifies, and transforms the basic se t of beliefs from which the complete social value system is based and because of this reason, when beliefs go through the process of change, then, the societal behaviors mold in such a way so that they can represent the newly formed assumptions. The Plato developed a way that thrived on gathering people’s opinion about a particular matter and then, the group attempted to develop a consensus and that agreed upon statement was given the status of divinity. But, if people’s experiences are recommending against the general statement then, it means that the reality is outdated and needs modifications. Thusly, the major and the most important approaches towards reality are based on human interpretation of events. The scientific experimentation technique introduced by early Muslim scholars was based on the due principle of experimentation and it supported the notion of experimentation via that the statements about reality can be proven and disproven (Rorty pp. 1). The real ch ange in the community occurs on a cognitive level and then, a new thought is shared slowly and gradually with others (Gladwell pp. 2). Ultimately, it reaches the people who have the appropriate level of power and authority needed to bring the change. Therefore, a small change in a thought pattern leads to a major one. But, nobody cares to tell the name of a person who originally gave the seed of change and because of this reason, real thinkers of the community remain unknown and unsung in most number of the cases. In the modern scientific literature, the researcher is free to fabricate hypothetical statements about an issue but he or she has to prove it with the help of empirical experimentation in order to derive generally acceptable statements. Nevertheless, the above-mentioned approach can be taken as monistic evaluation of interpretive assumptions about reality. The trend of change in human belief system over the passage of time is supporting that nothing is true forever and tha t is an elementary assumption of postmodernism (Rorty pp. 2). The previous discussion highlighted the fact that not all of the approaches towards reality are hostile to each other but they are indeed complimentary. The monistic way of thinking helps humans in standardization of realism so that public can understand and comprehend the world around them in a shared manner. The interpretive analysis of the situations helps