Essay on A14 PM101 W8 tutorial

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Business
Economics
PM 101
Week 8 :Tutorial

ESSAY DEADLINE
11TH OF APRIL
WE ARE IN WEEK 8
ONLY 1 WEEKS LEFT

Week 7 Review

• Demand
• Supply
• SCP
• Pest
• Porter

Multiple choice and True/False questions Week 8

The major macroeconomic issues
• economic growth
• unemployment
• inflation

Then inner flow, withdrawals and injections

Withdrawals






Net saving(S)
Net taxes(T)
Transfer payments
Import expenditure(M)
W=S+T+M

Injections





Investment (I)
Government expenditure(G)
Export expenditure(X)
J=I+G+X
Sloman, J., and Jones, E. (2011) Economics and the Business Environment, 3rd Ed., Harlow,
Pearson.

Withdrawals
• Net saving(S):Saving is income that households choose not to spend but no to put aside for the future.
• Net taxes(T):When people pay taxes(to either central or local government),this represents a withdrawal of money from the inner flow in much the same way as saving, only in this case people have no choice.

Transfer payments: When people receive benefits from the government ,such as working tax credit ,child benefit and pensions, the money flows the other way.
• Import expenditure(M):Not all consumption is of home-produced goods. Households spend some of their incomes on imported goods and services.
Sloman, J., and Jones, E. (2011) Economics and the Business Environment, 3rd Ed., Harlow,
Pearson.

Injections
Investment(I):This is the flow of money that firms spend which they obtain from various financial institutions-either past savings or loans, or through a new issue of shares.
Government expenditure(G):When the government spends money on goods and services produced by firms.
Export expenditure(X):Money flows into the circular flow from abroad when residents abroad buy our exports of goods and services.

Sloman, J., and Jones, E. (2011) Economics and the Business Environment, 3rd Ed., Harlow,
Pearson.

http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries/1W?display=map

The circular flow of income
INJECTIONS

Investment (I)

Factor payments Consumption of domestically produced goods and services (Cd)

Export expenditure (X)

Government expenditure (G)
BANKS, etc

Net saving (S)

GOV.

ABROAD

Import
Net
expenditure (M) taxes (T)

WITHDRAWALS

The Multiplier
What is the multiplier?
How we use it?
What is the multiplier process?

The Business Cycle
The four ‘phases’ of the business cycle:
The upturn: In this phase, a stagnant economy begins to recover and growth in GDP resumes. Business confidence begins to grow.
The expansion: During this phase there is rapid economic growth, the economy is booming. Rapid growth in consumers demand creates a climate of business confidence and firms respond by producing more.
The peaking-out: During this phase, growth slows down or even ceases. The slowdown, recession or slump: During this phase, there is little to growth or even a decline in output.
Sloman, J., and Jones, E. (2011) Economics and the Business Environment, 3rd Ed., Harlow,
Pearson.

Unemployment and the labour market
Causes of unemployment:
• Equilibrium unemployment:
 The difference between those who would like employment at the current wage rate and those willing and able to take the job.
• Disequilibrium unemployment:
 The aggregate supply of labour must exceed the aggregate demand
 There must be a ‘stickiness’ in wages. In other words, the wage rate must not immediately fall.

Sloman, J., and Jones, E. (2011) Economics and the Business Environment, 3rd Ed., Harlow,
Pearson.

http://data.worldbank.org/indicator/SL.UEM.TOTL.ZS/countries?display=map

Disequilibrium unemployment

Average (real) wage rate

ASL

Disequilibrium unemployment W2

B

A

We

ADL

O

Q2

Q1
No. of workers

Equilibrium unemployment

• Frictional (search) unemployment: Occurs when people leave their jobs, either voluntarily or because they are sacked or made redundant, and are then unemployed for a period of time while they are looking for a new job.
• Structural unemployment
 Changing…