Priyanka's Econ Blog

Economic Growth April 6, 2011

Filed under: Section 5,Uncategorized — priyanka821 @ 11:28 am

a) Explain 3 institutional factors that may contribute to potential economic growth in developing countries?

Economic growth refers to an increase in a country’s total output of goods and services. It is measured by changes in real GDP (i.e. the increase in GDP after inflation has been removed).

Banking system : With a strong banking system, the country can have a higher savings rate thus overcome the poverty cycle

Political stability: If there is political instability, then it is difficult for economies to grow and develop. If businesses are to expand or foreign investment is to come in, then they need predictability and a strong politcal structure.

Education: This is essential for there to be a productive work force. Training, and basic education can greatly contribute to economic growth as this would mean labor is being used at its most efficient.

Infrastructure: A good quality social infrastructure is vital for economic development, but in the developing world the infrastructure is often very poor. Developing infrastructure can also produce jobs for those who are unemployed.

Taxation structure: Sometimes the government is corrupt and doesn’t take money from the rich. It could also be a physical problem which means that it is hard to reach the communities in the rural area.

b) Evaluate the view that economic growth will lead to economic development.

Economic growth refers to an increase in a country’s total output of goods and services. It is measured by changes in real GDP (i.e. the increase in GDP after inflation has been removed).

Development is an increase in the ability of a country to produce goods and services thereby offering the opportunity for a higher material standard of living. Development is not the same as economic growth as development is an increase in the potential for an economy to grow, not growth.

– Income distribution may not be equal as measured by Gini coefficient and the Lorenz curve. This means that though the country is getting richer, it is only represented in the small proportion of the population.

-Economic development indicates an increase in income per capita as this would mean that each person is benefiting from the improved economy.

-Economic development brings qualitative and quantitative changes in teh economy where as economic growth only increases the quantitative values of an economy.

-Economic development relates to using previously unused or underused capital in an economy where as economic growth relates to allocative efficiency.

-Economic growth does not take into the black market which may b ethe reason for a family’s welfare. Economic growth also doesn’t take into account sustainable development, diseases and birth/literacy rate.

-While economic growth may lead to eventual economic development the outcome is not guaranteed. This is because the wealth may be unequally distributed which means the majority of the citizens are not benefiting. However, normally economic growth leads to an increase in tax revenue.  Assuming that the government is not corrupt, the government could provide merit goods and public goods. This includes infrastructure and education which in the long run should pay off as better economic development and have a positive feedback loop for more economic growth.

 

Evaluate a country’s decision to join a free trade area (FTA) January 19, 2011

Filed under: Section 4,Uncategorized — priyanka821 @ 12:29 am

This question expects the candidate to evaluate the advantages and disadvantages of joining a FTA and then come to a conclusion. This question cannot be answered by looking at only one side of the argument. This question should take about 35 minutes.

Definitions

FTA: Exists when an agreement is made between countries, where the countries agree to trade freely among the member of the group, but are able to trade with countries outside the FTA in whatever ways they wish.

Real Example: ASEAN which is a FTA consisting of Asian nations.

Bullets from 3A

  • Free trade is trade that occurs between countries without any barriers or hindrances
  • This means that firms are able to sell directly into a country as easily as the firms within that country are able to trade
  • The firm exporting into the country should not face any additional barriers, taxes, regulations or any other obstacles that prevent them selling their goods/services
  • Free trade at an international level means that this freedom is true for trade between all countries. In this way, countries gain the benefits from competition that exist where the national markets are free from barriers and restrictions
  • Economic theory tells us clearly that this is likely to deliver significant benefits, but it is far from being universally true
  • However, completely free trade may have a number of costs for some economies. These may include:
  • Adjustment costs – changes in comparative advantage may require adjustments in the structure of industry and these may take some time. While they are taking place there may be employment costs from the changeover.
  • Environmental costs – free trade may lead to firms relocating to where environmental and other regulations are most lax. This could cause long-term environmental problems.

To evaluate this question:

*Define free trade

*Give 2 or 3 of the strongest arguments FOR joining a FTA

*Give 2 strong arugments against it (protectionism)

*Define protectionism

*Come to a conclusion as to what the value of FTA is for a country


 

PBL May 31, 2010

Filed under: Uncategorized — priyanka821 @ 12:20 am

Today we had our presentation for the Problem Based Learning. We found out who the presenter was 1 minute before our presentation, and it was me. I was really stressed because I hadn’t looked through the slides since the night before. I had to improvise and sound like I knew what I was talking about which was difficult. Overall, though I think my presentation was average but I think I could have done better if I was better prepared.

I personally don’t like PBL because I feel like only a few people get the advantages of it. It is a group project and many times the workload goes to only a few students and not the entire group. I wouldn’t want to do PBL learning again because its stressful to present. If we were to just solve the issues without presenting, I think that PBL would be better used. The presentation causes a lot of  stress to only one member of the group (the presenter), and the workload is not fairly distributed.

 

China’s Growth & Inflation May 13, 2010

Filed under: Uncategorized — priyanka821 @ 12:24 am

It is no doubt that China has conquered the market in the recent decade. However, it seems like their economy is overheating. This means that the economy’s inbuilt stabilizers such as higher taxing, and unemployment falling are not sustainable. Every country should have have an inflation percentage of 1 -3% to indicate economic growth however, China’s inflation has picked up rapidly since March and April. This is not unexpected as inflation is a given with the rate at which they are expanding. So should China turn to monetary policies which will increase interest rates to fight inflation or should they use fiscal policy to increase tax rates  which will decrease consumer’s disposable income and therefore decrease aggregate demand? Currently the Chinese government is waiting to see how the crisis in Europe will play out before they make their decision.

However, they are considering monetary policy. The People’s Bank of China has already taken a number of steps to curb growth, including raising reserves that banks are required to hold. Next  could be raising interest rates, which have remained unchanged since late 2008, and even letting its currency, the yuan, rise in value.

THE RISE IN PRICES OF PRODUCTS

A reason why China’s economy is experiencing inflation is the high cost of productions. The high costs of productions push the SRAS (Short run aggregate supply) inwards, meaning less output and higher prices. The high cost of productions also include wages. Though foreign companies invest in China’s market because labor is cheaper, the value of Yuan has been rising lately which may mean more payment to workers.

The figure above considers the change  interest rates, production and labor, and Consumer Prices Index % (CPI) over the last 11 years. A steady trend is set of the inflation rate moving upwards. By 2008 the inflation rate is approximately 8.5% and still rising today. The healthy 1-3% of inflation is far past. Though the high inflation means immense economic growth, the citizens of China will be faced with high prices for essential needs. Furthermore, poverty prevails consistently in the rural areas of China and increasing taxes will only cause stagnant demand and a further crisis.

What do you think the Chinese government should do? Should they use Fiscal or Monetary policy?

Comment below :).

For more information visit:

Chinese Inflation

 

Since Rhodesia… April 25, 2010

Filed under: Uncategorized — priyanka821 @ 8:14 am

On April 18, 2010 Zimbabwe celebrated its 30th anniversary of being independent of white rule. There was real optimism at the time as Rhodesia was a war torn country, and there were high expectations for Robert Mugabe. However, clearly the economy has not be sustainable and various measures of economy, not only GDP as we have learned that it is flawed, show us that conditions may have deteriorated since Mugabe’s reign.

The graph above indicates the low GDP growth suggesting very little growth of the economy. Ever since the new millennium, the GDP has been in negative making Zimbabwe the world’s fastest shrinking economy. The lower GDP also indicates less economic growth and unstable conditions of the country.

The HIV rates, which can be used as a measure of Standard of Living, had increased and then depleted since the turn of the century. The optimists say that people started having fewer partners, however, pessimists say that the rates were falling because those infected with HIV were now dying. Regardless, thousands died each day.

By the end of the decade, the entire economy was in ruins due to droughts and unfair distribution of wealth. Teachers and doctors did not show up to work, as schools did not have text books, and hospitals had no medicine. Zimbabwe’s life expectancy is one of the lowest in the world. The infant mortality rate also suggests a decrease in population in the years to come.

Zimbabwe will face another challenging revolution before it becomes economically stable. Through the GDP and other standard of living indicators, it is clear that the civilians of Zimbabwe need help.

For further information please visit:

BBC – Thirty Years of Zimbabwe

 

Section 2 Examination Reflection March 30, 2010

Filed under: Uncategorized — priyanka821 @ 11:54 pm

I think I can improve my score on the data response question. I went too in depth about certain topics, but did not cover a wide range. This is why I did not do as well as I had expected. I think I had prepared well enough for this test, it was just a matter of writing the examination paper. I also thought that we had 80 minutes for this exam, and I had only started the evaluation when I found out that we had 60 minutes. I was really stressed and I panic wrote everything. I need to work on improving my time management during the test and check the time constantly during the test. Furthermore, for the definitions and diagrams, I feel like I did well. I  forgot to explain the curves for the Normal Profits in Perfect Competition so I lost a point there. Next time I will have remember to explain the curves to get full marks.

 

Externalities of Oil in Uganda February 18, 2010

Filed under: Uncategorized — priyanka821 @ 8:44 am

Extracting oil from the African grounds has always been a subject of controversy. Just recently, Tullow Oil, a Britain based oil firm has made a “secret” deal with the government. But what are the externalizes? Locals in the area are exposed to more green house gases, causing the temperature in an already hot region to rise. Furthermore, the environment is being affected by the constant extraction. The firm however, protests that the deal is standard and would ensure environmental protection. Sealing this deal may also public upheaval as rebels often fight for a fairer share in the wealth of oil for its own people, such as in Nigeria. These upheavals may lead to deaths, commotion and noise pollution, of which all are negative externalties.

The oil extraction destroys the environment and releases carbon dioxide. There is a social cost for this because (MSC>MPC). There is a loss for society as the oil is over extracted, thus even members of society who do not use the oil, experience the cost for this. Market failure would occur at point Q, where the oil is being over extracted. Q* is the optimum for oil extraction. As price goes up, according to the Law of Demand, the quantity demanded will go down, the extraction and consumption of oil will be limited.