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英国指导assignment Answers to in-text Questions in Economics (7th edition)
Chapter 15
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417 How does the ILO/OECD definition differ from the economist’s definition? What is the significance of the phrase ‘available for work at current wages’ in the economist’s definition?
There are two differences. The first concerns the word ‘actively’. People may genuinely want work and be ‘available’, but because they have been out of work for a long time they have become dispirited and are thus not actively seeking work. They would not be included in the ILO/OECD measure, but many economists would consider that they should nevertheless be counted as unemployed.
The second difference is that the economist’s definition would normally include the phrase ‘available for work at current wage rates’ to highlight the fact that any change in wage rates would make a difference to the number available for work. A person currently without work, but not seeking work at current wage rates, and hence not counted as unemployed, may choose to look for work if real wage rates rose, and then would be counted as unemployed. The point here is that the labour force (and hence the number available for work) varies with the average wage rate (see curve N in Figures 15.4 and 15.5). The ILO/OECD definition assumes that we are talking about current wage rates and hence leaving the phrase out makes no difference to the measured unemployment level or rate.
418 1. If the number unemployed exceeded the total annual outflow, what could we conclude about the average duration of unemployment?
That it would be greater than a year.
2. Make a list of the various inflows to and outflows from employment from and to (a) unemployment; (b) outside the workforce.
指导英国assignment Inflows to employment:
(a) From unemployment:
The two items in the bottom left corner of Figure 15.2.
(b) Outside the workforce:
School/college leavers.
Immigrants.
Returners to the labour force: e.g. parents after raising children.
Outflows from employment:
(a) To unemployment:
The three items in the top left corner of Figure 15.2.
(b) To outside the workforce:
People who retire.
People who are made redundant, who are sacked or who resign, and choose not to look for a new job.
People who temporarily leave their jobs: e.g. to raise a family, or to attend further or higher education
People who emigrate.
People who die.
422 If the higher consumer expenditure and higher wages subsequently led to higher prices, what would happen to: (a) real wages; (b) unemployment (assuming no further response from unions)?
(a) Real wages would fall back again: the wage rate would fall back towards We in Figure 15.3.
(b) The lower real wages would cause consumer demand to fall (assuming that profit earners spend a lower proportion their profits than do wage earners of their wages) and thus shift ADL back to the left again. But unemployment would fall, because firms could afford to employ more workers at the now lower real wage.
In other words, there is a movement back towards the original position in Figure 15.3 of We.
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423 If this analysis is correct, namely that a reduction in wages will reduce the aggregate demand for goods, what assumption must we make about the relative proportions of wages and profits that are spent (given that a reduction in real wage rates will lead to a corresponding increase in rates of profit)?
That the proportion of profits that is spent is smaller than the proportion of wages that is spent. Thus a redistribution from wages to profits will reduce total expenditure.
On a diagram similar to that of Figure 15.6, illustrate how a growth in labour supply can cause disequilibrium unemployment.
The ASL curve will shift to the right. If wages are inflexible downwards, this will cause an excess supply of labour at the given wage rate.
From 2004, with the accession of eastern European countries to the EU, there were significant flows of migrants from eastern to western Europe. Does such immigration create disequilibrium unemployment?
Not if wage rates are flexible downwards. If wage rates are inflexible, then ceteris paribus the immigration will create unemployment: for example, if they are migrating to take up jobs at the minimum wage rate. If, however, these migrants come at a time of a booming economy (i.e. of expanding aggregate demand), the demand for labour will also be increasing and the extra supply of labour may allow the vacancies to be filled with no rise in unemployment, even with flexible wage rates.
Why are Wo and Wa curves rather than straight lines?
The Wo curve starts at a relatively low level, as firms are initially optimistic about finding appropriately qualified workers without having to pay very much. But then as time goes past, firms will have to offer more if they are still unsuccessful in recruiting. But the extra they are prepared to pay will level off as they reach the maximum wage they can afford. The Wo line therefore does not continue to rise at a constant rate.
The Wa curve starts at a relatively high level, as workers first coming onto the labour market may be optimistic about getting a high wage. But then as time goes past and they still have not got a job, so they will be prepared to accept a lower wage. But this will level out as a minimum is reached which would only just make it worthwhile doing a job rather than remaining on benefits. The Wa line therefore does not continue to fall at a constant rate.
429 1. Do you personally gain or lose from inflation? Why?
You will have to answer this for yourself! Whether you gain or lose will depend on (a) whether your income tends to go ahead of, or fall behind inflation; (b) whether you are a net borrower or saver, and whether the rate of interest is above or below the rate of inflation (if it is below, then the real rate of interest is negative and thus borrowers will gain and savers will lose); (c) just how inconvenient you find it to update your information on prices so that you can decide whether items are good value for money. If you are in receipt of a student grant, you are probably a loser, given that grants have not risen to compensate for inflation.
2. Make a list of those who are most likely to gain and those who are most likely to lose from inflation.
Gainers: powerful companies; members of powerful unions; property owners (if property is rising in value more rapidly than prices generally).
Losers: those on incomes fixed in money terms (e.g. savers living on interest on their capital: the real value of their capital will be being eroded by inflation); workers with no bargaining power; people on state benefits, where these benefits do not rise in line with prices; students.
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435 With the eurozone classed as a single economy with a single inflation rate, explain whether the above problems apply between the different countries using the euro?
If some parts of the EU expand faster than others, their prices are likely to rise, which may then spill over into parts not suffering from excess demand.
440 Why is the US current balance approximately a ‘mirror image’ of the Japanese current balance?
Because the USA and Japan have a high proportion of their trade with each other. Many US imports are Japanese exports and many Japanese imports are US exports. Thus a Japanese trade surplus is quite likely to correspond to a US trade deficit. Similarly, many of the income flows into and out of each country are from the other. Thus Japanese investments in the US lead to income flowing from the US (a debit on the US current account) to Japan (a credit on the Japanese current account). Clearly, however, the current accounts are only an approximate mirror image of each other, given each country’s trade with other countries.
441 1. Why may inflows of short-term deposits create a problem?
Because they may be very rapidly withdrawn again and thus can contribute to instability of the exchange rate. To prevent sudden outflows of deposits (arising, say, from a fear by depositors that the exchange rate is about to fall) governments may be forced to raise interest rates: something they may otherwise prefer not to do.
2. Where would interest payments on short-term foreign deposits in UK banks be entered on the balance of payments account?
As a debit on the investment income part of the current account. Payments of interest, profits and dividends are all elements in this part of the balance of payments account.
442 With reference to the above, provide an assessment of the UK balance of payments in each of the three years illustrated in Table 15.6.
In 1997, the current account deficit was a modest £0.9 billion, but there was, nevertheless, quite a large balance on trade in goods deficit, albeit offset by a trade in services surplus. With the recession of the early 1990s and the consequent slowing down in the growth of imports, the trade in goods deficit had been reduced but never quite eliminated. Then with the recovery in the mid 1990s, the trade in goods account went further into deficit, not helped in 1997 by a high exchange rate for sterling. The deficit on the trade in goods account was offset by a surplus on the trade in services account and net income flows (the returns on the high levels of overseas investment by the UK). On the financial account, UK investment abroad exceeded foreign investment in the UK, helping to maintain the surplus on the net income flows part of the current account. The deficit on the investment part of the financial account was largely offset by a large short-term inflow of finance, attracted by relatively high UK interest rates.
By 2004, there had been a substantial deterioration in the trade in goods account (to £57.9 billion), accounted for by the rapid growth in imports into a booming UK economy, but only a modest increase in exports, given the high exchange rate (see Table 15.7). There had, however, been a modest increase in the surplus on the balance on trade in services account since 1997. There were also substantial net income inflows, both of which helped to reduce the current account deficit, which nevertheless still stood at a deficit of £25.7 billion. The net investment flows in both directions had increased substantially since 1997, but the overall effect was a deterioration in the investment balance to £56.5 billion. A substantial increase in short-term financial inflows, however, (thanks to relatively high UK interest rates) outweighed the deficit on the investment part of the account and resulted in a financial account surplus of £27.0 billion.#p#分页标题#e#
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443 How did the pound ‘fare’ compared with the dollar and the yen from 1960 to 2008 and with the lira from 1960 to 2001? What conclusions can be drawn about the relative movements of these three currencies?
Taking the period as a whole, the pound depreciated against the US dollar and substantially against the Japanese yen, but appreciated against the Italian lira (until it ceased to circulate in 2001). There were, however, fluctuations around this trend. There was, for example, an appreciation against the dollar between 1994 and 1998 and between 2002 and 2007, and against the yen between 1994 and 1998 and between 2000 and 2007. The there was a substantial depreciation of the pound against both the dollar and the yen in 2008.
The movements mean that over the period as a whole there was a decrease in demand for the pound relative to the dollar and yen, but an increase in demand for the pound relative to the lira. This in turn would suggest, other things being equal, that the rate of inflation was higher in the UK than in Japan and the USA but lower than in Italy. There are, however, other possible explanations for currency demand and supply shifts: these are examined on pages 444–5 of the text.
445 Go through each of the above reasons for shifts in the demand for and supply of sterling and consider what would cause an appreciation of the pound.
A rise in UK interest rates relative to those abroad.
A lower rate of inflation in the UK than abroad.
A fall in UK incomes relative to those abroad.
Better investment prospects in the UK than abroad.
Speculators believe that the rate of exchange will appreciate.
UK goods become more competitive (in terms of quality, etc.) than imported goods.
446 What problems might arise if the government were to adopt this third method of maintaining a fixed exchange rate?
It could invite retaliation from other countries, whereby they imposed restrictions on UK exports to them. By reducing the total amount of international trade, it would reduce the benefits that flow from it. (For a discussion of the benefits of trade and of the advantages and disadvantages of trade restrictions, see Chapter 24, sections 24.1 and 24.2.)
425 What is likely to happen to the exchange rate during phase 2 if the government (a) seeks to maintain a stable rate of interest; (b) raises the rate of interest to dampen the growth in aggregate demand?
(a) In phase 2 interest rates will tend to rise. If the government attempts to keep interest rates constant, the exchange rates will tend to depreciate.
(b) The higher interest rate will encourage short-term capital inflows and help to prevent the exchange rate depreciating. If the interest rate is raised sufficiently, the exchange rate will actually appreciate.
448 1. Was there any five-year period when all four indicators were better than in the previous five years?
1994–8
2. Which macroeconomic problem(s) has/have generally been less severe since the early 1990s than in the 1980s?
英国指导assignment Inflation and, since the mid-1990s, unemployment.
3. Why could the world as a whole not experience a problem of a current account balance of payments deficit?
Because every import to one country is an export from another, and every outflow of investment income or transfer of money from one country is an inflow to another. Thus when all the current account deficits and current account surpluses of all the countries of the world are added up, they must all cancel each other out.
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