Question

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Event	Type of inflation
a) In the 1980s, the UK experienced rapid economic growth. The government cut interest rates and also cut taxes. House prices rose by up to 30% whereby causing a positive wealth effect and a rise in consumer confidence. This increased confidence led to higher spending, lower saving and an increase in borrowing.
b) The European trades union demand for higher wages and because wages are the most significant cost for many firms, it resulted in higher prices for goods and services.
c) In early 2008, there was a spike in the price of oil to over US$150 per barrel in the U.S. This situation has resulted in a significant impact on most goods in the economy.
d) When the Central Bank prints more money, we would expect to see a rise in inflation. This is because the money supply plays an important role in determining prices. if there is more money chasing the same amount of goods, then prices will rise.
e) As the price of imports increase, prices of domestic goods using imports as raw materials also increase, causing an increase in the general prices of all goods and services.

Indicate the type of unemployment for each event shown below:

Event	Type of Unemploment
a) In 1970s, dayang's mother was a worker in the typewriter manufacturing industry in America. In 1982, she became unemployed because of increased popularity of personal computers which reduces the demand for typewriters.
b) FedEx (Federal Express) is the package delivery company in the United States.longki is a FedEx employee who is hired for the Christmas season and laid off after Christmas.His brother, Alex works in an amusement parks and laid off during the winter months because less people will visit the parks during this time.
c) Lita is a new graduate from Havard University who got a late start in the job market. She graduated in February 2016 and now is looking for employment after her graduation.
d) Kenel is an auto worker at Toyota automotive manufacturing in Malaysia. He was laid off during a recession, because people are buying fewer cars. When people buy fewer cars, the auto makers don't need as many employees to meet the consumer demand.
e) The rise in unemployment for stable workers after the development of gasoline-powered automobiles and the resulting long-term decline in horse-and-buggy transportation.

1.2.

a) What is the main problem with a barter system? Give an appropriate event/situation that indicates the problem.

Main problems:

Event/Situation:

b) During World War ii, cigarettes were used as money among prisoners of war camps. Considering the attributes that good money should possess, why would cigarettes emerge as money among prisoners?

           i)State any THREE (3)attributes of cigarettes as money in the prison.

            The attributes of cigarettes as money in the prison:     

           

          ii)Briefly explain why each attribute mentioned in (i)makes cigarettes emerge as money      

              among prisoners. (3 mark)

               Explanation:

Thanks really appreciated your help dear expert Ms/Sir

Answer 1

a - demand pull inflation

b - wage push inflation

c - cost push inflation

d - demand pull inflation

e - cost push inflation

Demand-pull inflation

This occurs when AD increases at a faster rate than AS. Demand pull inflation will typically occur when the economy is growing faster than the long run trend rate of growth. If demand exceeds supply, firms will respond by pushing up prices.

Cost-push inflation

This occurs when there is an increase in the cost of production for firms causing aggregate supply to shift to the left. Cost-push inflation could be caused by rising energy and commodity prices.

Wage Push Inflation

Rising wages tend to cause inflation. In effect, this is a combination of demand pull and cost push inflation. Rising wages increase costs for firms, and so these are passed onto consumers in the form of higher prices. Also rising wages give consumers greater disposable income and therefore cause increased consumption and AD.

a - Technological unemployment

b - seasonal unemployment

c - voluntary unemployment

d - cyclical unemployment

e - structural unemployment

Barter system means exchange of article in place of another article.

These are the main problems of barter system -

Lack of double coincidence of wants - It is not necessary that both the parties are ready to exchange same article, which they want to exchange.

Lack of Common measure of value - In this system, it is not easy to measure the all different varieties of goods in place of another good.

Lack of storage - In this system, it is not easy to store goods, due to high holding cost.

For example - A farmer wants to purchase a Car and in return he wants to give his agriculture produce, so it is not necessary that the seller of car wants agriculture produce, may be he wants something different

cigarettes emerge as money among prisoners -

Although cigarettes are not really durable, they had some other characteristics necessary for a usable exchange currency, such as relative uniformity, desirability, and light weight. Most captured American soldiers were addicted to nicotine (thanks to the free cigarettes provided to soldiers courtesy of America’s tobacco companies, who surely had only the troops’ best interests at heart as they provided them with the opportunity to develop a life-long substance abuse habit).

In fact, this addiction helped perform role of “driving” demand for the cigarette-currency, similarly to the way taxes drive demand for modern state-issued currencies: addicted soldiers had to get their smoke, and so they would always be willing to accept at least enough cigarettes to satisfy their cravings. Non-smoking soldiers would likewise be willing to accept cigarette-money, because they knew that their addicted confederates would want cigarettes. Similarly, citizens of modern democratic countries need the state-issued currency in order to pay taxes, and so they will always be willing to accept at the very least a sufficient amount of state-issued currency in order to fulfill their tax obligation.

In addition, cigarette-money had an additional feature to make it attractive to those who spend their days worrying about the ever-present phantom of hyperinflation: every time a prisoner smoked a cigarette, that cigarette was necessarily destroyed and the cigarette-supply was thereby reduced, thus ensuring that the quantity of cigarettes could not increase too rapidly. Similarly to Bitcoin, cigarettes were thus a naturally deflationary currency.

Thanks