confused! please help (1 Viewer)

[aditya]

a few questions peeps:

1) ok, when people are talking about full employment they refer to the NRU (natural rate of unemp) - this is reffered to as the supply-side theory as the rate at which it levels of at is determined by cyclical factors - i.e. the amount of fluctuation expereinced throughout the economic cycle. So, what are these supply -side factors - and when explaining the suppl-side factors, would I be correct in saying that you cant refer to demand, as it has had little to no influence on the whole scenario?

2) could someone elite please explain to me as elitely (complicately ) as possible the concepts of crowding out crowding in?!?!?!! PELASE

3) this might seem dumb, but wat are the automatic stabalisers - i can thnk of one generally, the transfer payments... for those that become unemployed, leaving them not sooo poor, just relatively poor. yeh what are the others, it would be good if u could elaborate!!! THANKS


(i-color ur the best, could u please help!!!)

 

[ToO LaZy ^*]

1. don't really understand the q.

2.
crowding-out: "the crowding out effect argument is related to the eocnomic ideology that claims the private sector is more efficient than the public sector. by having a large PSBR there is a reduced availability of funds for private sector use. a consequence of a large PSBR is an increase in interest rates, which ensures that the private sector is crowded out." (from excel book)

in simple english, this simply means that when the gov over-borrows from the private sector, this will force interest rates up which gives incentives for domestic borrowers to find cheaper funds elsewhere i.e. overseas.

crowding-in:
the crowding in effect is the tendency for an increase in gov spending to increase investment

3. there are two main automatic stabilisers:
- unemployment (the one you mentioned)
- progressive income tax- when incomes are rising rapidly during a boom, workers are pushed into a higher marginal tax bracket (fiscal drag or bracket creep), which boost gov revenue and dampen down the boom

 

[Rorix]

elitely (complicately ) as possible

soooo, you're not very good at eco, are you?

 

[aditya]

well, obviously not as good as u

ok so when the governemtn over borrows, u mean it sells lots of NEW government bonds/securiies/ hedges or wateva the fk they're called to the private sector???? ok, so this reduces the supply of money in the overnight money markets and hence drives the rate of interest up.... causing investors to borrow from oversaes...

riht?
ok, so what effect does thi shave on investment? thats the releveant question isnt it? crowiding in/out is all about investment? yeh?

 

[Rorix]

writing in the correct 'niche' as its called doesn't involve being as complicated as possible

 

[Teoh]

crowding out means that the govt. borrows all of its money from the private sector. When this happens, other firms and business have no funds to borrow, as the govt. has taken them all away.
This means these firms and businesses have to look overseas to loan from, increasing the CAD, and increasing supply of money --> ^ interest rates.

I think.
In lamen's terms.

 

[i-color]

Crowding out: think of one big circle that is split into government and private sector --> when govt budgets for a deficit, govt must borrow from private sector (ie financial sector etc) to finance this deficit......which leaves no room for households and bsuinesses to borrow to invest --> this literally "crowds out" private sector and households etc to borrow overseas, increasing our foreign debt etc.

This is just basically what Teoh said before....

With your natural rate of unemployment --> full employment means when cyclical unemployment =0 and all the unemployment we have is just structural unemployment...soo I dont' really understand your question either. hahaa.

 

[aditya]

lol... have u ever heard of supply side economics? like the term being used? like there were supply side economists, i think friedman, and demand-side side economists which was nairu, with keynes - i remember my teacher once telling us the perfect response for one of our in class essays - and it was on economic growth and its relation to unemployment - was a bs question far out... it was more like 2 essays in one, but anyway... he said to explain it firstly froma supply side economists view then a demand side ???

look in the leading edge textbook if u have it and if u could be bothered.... under the first chapter in the last topic.... roles of policies or policy objectives, then turn the page and look right at the end of the sub heading full empoyment.... please!!!

im sure u know it, just call it a different thing...

 

[SoCal]

I wish I had my Macroeconomics book here so I could explain this more thoroughly, but basically there are two factors that affect aggregate supply, demand-pull inflation and cost-push inflation. I will try to explain it as thoroughly as possible for you.

Demand-pull inflation will shift the aggregate demand curve to the left, which will increase the price level and cause a temporary increase in real output. However, in the long therm, nominal wages will increase to compensate for the higher price level and the short-run aggregate supply curve will shift to the left, resulting in an even higher price level, with real output returning to its previous level. So the ultimate result is a higher price level.

Cost-push inflation*** will shift the short-run aggregate supply curve to the left. This increases the price level and temporarily decreases real output, which results in a recession. This will, in turn, lead to a reduction in nominal wages which shifts short-run aggregate supply back to its original position. So the predicament that the government finds itself in is whether to increase aggregate demand by increasing government spending to get the economy out of recession, which will increase the price level to an even higher level (this is a recurring problem), or leave the economy in recession and let time correct the situation.


*** Cost -push inflation are brought about through increases in the cost of manufacturing a good. This can be caused by taxes, which are ultimately passed onto consumers in the form of higher prices and shifts in the aggregate supply curve to the left.

Shifts in aggregate supply can also be caused by high marginal tax rates and transfer payments which reduce incentives to work, save and invest, leading to less productivity and a decrease in aggregate supply.

 

[aditya]

ohhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh now its coming back to me.... that curve, for resource/labour use, how it starts of flat, depicting the level of minimum wages/transfer payments and then as supply increases, the curve begins to become straihgt? ok cool...

so those are the supply side factors... wow nice...

but i dunt get y we would deal with supply side and demand side factors so seperately... demand influences supply no doubt? i mean if there was no demand, then there would... ok stop right there.... this is what keynes' argument is isnt it1!!!!! ohhhhhhhhhhhhhh nice work boys!

thanks alot merethrond, if u find that book be sure to post some more yeh!!! thanks mate

 

[SoCal]

The curve you are talking about is the supply curve, which starts off horizontal and slowly become vertical at the full-employment level of output. Then as demand increases, the demand curve shifts to the right, increasing supply and the price level (at the curved part or the supply line).

Yeah, the Keynesian's and Supply-Side Economists are two separate trains of thought. Supply-Side Economists say that supply creates its own demand and Keynesian's say that demand influences supply.

I won't be getting that book back until the end of the session, sorry.

 

[aditya]

no worries, thanks anyway

its pretty tricky.. i mean at first supply-side sounds dumb, but i think in reality, keynes is what businesses follow... mainly because there are opportunities to invest, new investment products are making it the opportunity cost even higher... very nice...