Econometrics

Econometrics of France – General overview of the economy, identifying the main aggregate demand components that drive GDP growth

Econometrics – France is acknowledged due to its efforts in fighting poverty and improving employment among the citizens (Ciccone & Jarociński, 2010). The country is comprised of many sectors which work collaboratively to provide services and products to her citizens (Facchini & Melki, 2013). The country has been a member of IBRD since 1945 and was among the first country to receive their loan. The country has a population of over 66.8 million people as per the 2015 report. In overall, the country’s GDP was $2.4 trillion in 2015, which the country reported that it was growing at an annual rate of 1.2%.

Analyzing key econometrics such as GDP may not generally be the most pertinent synopsis of accumulated monetary execution for all economies, particularly when generation happens to the detriment of devouring capital stock (Ciccone & Jarociński, 2010). While GDP gauges in light of the generation approach are for the most part more dependable than assessments incorporated from the pay or consumption side, distinctive nations utilize diverse definitions, techniques, and reporting guidelines (UKDS, 2016). World Bank staff survey the nature of national records information and now and then make acclimation to enhance consistency with worldwide rules. All things considered, noteworthy disparities stay between universal guidelines and real practice (Sly & Weber, 2016).

Numerous measurable workplaces, particularly those in creating nations, confront extreme confinements in the assets, time, preparing, and spending plans required to deliver solid and far reaching arrangement of national records insights. Among the challenges confronted by compilers of national records is the degree of unreported financial action in the casual or optional economy. In creating nations a huge share of farming yield is either not traded (on the grounds that it is expended inside the family unit) or not traded for cash (Sly & Weber, 2016).

Private usage has usually been the driver of money related improvement in France and it coordinated the impact of the fiscal crisis in 2009. Regardless, in 2012, private use contracted unprecedented for over two decades in the aftermath of the crisis, amidst purchaser assurance levels that had debilitated and direct money related improvement rates (Facchini & Melki, 2013; Ciccone & Jarociński, 2010). After government use, which has remained by and large stable in the earlier decade, wander is the greatest portion of France’s budgetary advancement.

Econometrics theory was the GDP portion that was hit the hardest by the fiscal crisis in France and changed wander dove 9% in 2009. Taking after a ricochet back to 1.9% advancement in 2010, hypothesis has lamented starting now and into the foreseeable future and it contracted 0.8% in 2013. Moreover, France is a net shipper, in any case, the outside division littly affects the economy (Ciccone & Jarociński, 2010).

Quickly, organizations are the guideline benefactor to France’s economy, with more than 70% of GDP originating from this section. Immense subdivisions of organizations join the sparing cash and budgetary, security and tourism parts. Creating speaks to somewhat more than 10% of France’s GDP and France is an overall pioneer in the avionics, auto and lavishness stock undertakings (Ciccone & Jarociński, 2010). Disregarding the way that agriculture speaks to around 2% of French GDP, it is seen as a fundamental industry in France and is frequently the beneficiary of government gifts or protectionist plans (Facchini & Melki, 2013).

Econometrics – How well the country has managed to achieve the four macroeconomic objectives of high and stable economic growth, low unemployment, low inflation and avoidance of large balance of trade deficit.

There is a run of the mill see, as regularly as could be expected under the circumstances watched or reported by different economists is that France has a unique approach to her economy and operations. In fact, France is delineated as a something close to a revolt economy, where institutions and different staffs are in frequent strikes especially on matters that affect them collectively (Ciccone & Jarociński, 2010).

Like most myths, the intellectual economy myth – , in light of current conditions, executed by people with a grievance, or by people who have visited the country due to either economic interest or their personal interests. Different economic overviews or rather arguments have come up and each shows different result from the previous For each one of its deficiencies – and its qualities – however, all the economists tend to concur that France economy is healthy and well performing above average especially when compared with the G20 terms (UKDS, 2016).

Changing France is to an unprecedented degree troublesome to the time when some are imparting that nothing not another French resistance is required. According to a 2013 econometrics report by IMF, Hollande government was aiming to to cut down different demands by the French economy (Facchini & Melki, 2013); however this was qualified by a notice that more should be done to cut open spending, instead of raise responsibilities. Hollande has vowed to go basic on costs, to forsake putting any further un-convincing weight on French industry (Sly & Weber, 2016).

The failure of changing the current situation in France, has become one of the primary challenge that is undermining the country from attaining effective budgetting (Facchini & Melki, 2013); However, the approach that the government have left many economists talking, for instance, a 2013 report argued the following statements in regard to the France government.  

a) The working hours in most businesses located in France are mostly shorter than the time that European countries work. For instance, when in Germany the average working hours per year are 1904 while in France they are 1679.

b) Most employees in France retire earlier than employees in Germany, the typical retirement age in Germany is 62.3 while in France it is 60.3 and 64 in the United Kingdom.

c) In France, the employees take many events, and holidays off work than employees in Germany and UK do, specifically they take 7 days more than Germans do and 36 days more than British employees do. However, despite all the fact, the France economy remains competitive (UKDS, 2016).

One of the fundamental issues identified with France’s work markets is unmistakable and interminable business district that affiliations end up in when they endeavor to end a man from staff. Many say the fear of putting in two years in a business tribunal is a colossal execute for all the more little affiliations, who are in this way more slanted to spread brief contracts instead of persevering ones. While attempting to settle this Hollander will ensure to past what many would consider workable for a laborer to hold up a disagreeing of out of line dismissal, which starting now remains at two years after they were surrendered.

In an offer to urge boss to contract more staff, Hollande game-plans to offer a “securing prize” to self-representing endeavors. The course of action is to give some place among 1,000 euro and 2,000 euro for every power who is chosen with a remuneration of up to 1.3 times the national scarcest wage. The show is kick-start shrinking by adjusting the gathering coordinated wander holds commitment costs that may startle away executives, with Hollande’s party as to it to be much speedier than changing France’s social obligation laws for low paid labourers (Sly & Weber, 2016).

The report released by the business serve in France exhibited that the strategy approaches will target low-talented authorities, and will especially focus on change divisions, for instance, mechanized and environment. The spending strategy for plan has been connected by 80 million euro in 2016.

The present year’s measures will cost €2 billion, which the mister of reserve said would be “reimbursed in full” by meander holds from elsewhere. Hollande ensured that the measures would not be financed by cost rises.

A blend of fitting optional measures and altered stabilizers has padded the effect of the emergency. The meander force diminishment presented in the 2010 spending course of action is comparably welcome, yet extra spending ought to now be confronted. Laying out and plainly passing on a significant multiyear leave system is a need. The required solidifying addresses a chance to re-adjust open funds by cutting wasteful spending, developing legacy, property and carbon strengths and progress changing the favourable circumstances framework.

Identify and critically analyse 3 economic/political/demographic trends (Econometrics) that the country is experiencing and what the implications of these trends could be in the future.

Demographic trends in France

In 2030, the number of inhabitants in France will achieve 67.9 million, an expansion of 5.8% from 2015 (UKDS, 2016). Moderately high, yet declining, birth and ripeness rates, close by positive net movement, imply that France’s populace will build speedier and age slower than most nations in Western Europe in 2015-2030. France is a standout amongst the most urbanized nations in Western Europe and this will keep on being the situation in 2030 when 91.8% of its aggregate populace will be comprised of urban occupants.

The long haul steadiness of richness and birth rates (right around 800,000 yearly births, regardless of slight falls in 2011 and 2012) implies that the base of the French populace pyramid is still very expansive (Baltagi, 2011)While characteristic increment is still unmistakably positive, the maturing procedure is reflected in a rising number of yearly passing’s  as the populace with the most astounding dangers of biting the dust becomes bigger.

The diminishing in first social unions is measured by the entire of rates (total first marriage rate) or the general probability of first marriage. Some place around 1972 and 2012, the total first marriage rate tumbled from 91.7 to 46.6 first social unions for each 100 men and from 94.8 to 47.5 first social unions for every 100 women (Baltagi, 2011). Probability data show a strong decrease in the degree of social unions between never-married individuals up to age 50: it tumbled from 90 first social unions for each 100 never married men in 1972 to 53.5 in 2012, and from 93.4 first social unions for every 100 never-married women to 56.3 for that years

  1. (i) Estimate the consumption function for your chosen country and comment on your results

Yt = a + bXt

            Where Yt is aggregate consumption of the country in year t;

                        Xt is aggregate income (GDP) of the country in year t;

                        a is the linear intercept and b is the slope coefficient

[Note   Aggregate Consumption (Y) = GC + PC (government consumption expenditure plus Household consumption expenditure) (Year 2015)

Y = 23.9 + 07

    = 24.6

(ii) Write the estimated regression equation and comment on the results of the regression analysis

Taking values from the graph, we make a table consisting values of the recent 5 years (Excel Sheet below)

Econometrics Data
Econometrics Data

Use the formula

Where a=a and b = b

a = -138.67

b =-515.123n

Insert the values in the equation

            Yt = -138.67  – 515.123 Xt

            (iii) Calculate the confidence interval for b at 95% confidence interval. 

-512 * (1 – 0.95)

CI = 25.6

            (iv) Test the statistical significance of b

                        Exposes the error index

                        CI – Y

                        25.6 – 24.6

            = 1.0

            (v) Test the statistical significance of the model

The values are close to the mean of X have less leverages that outliers towards the edges.

(vi) Identify whether the error terms of the model are autocorrelated and/or heteroskedastic.

The error was auto-correlated, with 1.00 error index, which was explained by the value estimation and rounding off

References

Baltagi, B. (2011). Econometrics (1st ed.). Berlin: Springer.

Ciccone, A. & Jarociński, M. (2010). Econometrics & Determinants of Economic Growth: Will Data Tell?. American Economic Journal: Macroeconomics2(4), 222-246.

Facchini, F. & Melki, M. (2013). Efficient government size: France in the 20th century. EconometricsEuropean Journal Of Political Economy31, 1-14.

Sly, N. & Weber, C. (2016). Bilateral Tax Treaties, Econometrics and GDP Co-movement. Review Of International Economics.

UKDS,. (2016). Econometrics UKDS. Stat Metadata Viewer

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Climatic Alteration United States Economy

An Exploration on How Climatic Alteration Has Affected the Economy of the United States

The impact of climatic alteration varies considerably across the US due to the size of the nation, economies, different topographies, and ecosystems. The implications of the climatic alteration will likely put immense strains on public financial plans more especially the cost of maintaining road and rail networks and increasing replacements. Depending on the climatic alteration, economic losses translate into lost tax revenues, and federal officials have raised taxes in the United States to help sustain safety and sufficient provision of goods and services.

One of the most noteworthy impacts of climatic alterations in the US may be related to water supply (Inslee, 2016). The continued economic, as well as population growth, has exacerbated existing and future stresses placed on supplies. Substantially, the nature of climatic alterations all over the nation make the net effects of worldwide warming on the agricultural sectors doubtful. Financial impacts on the agricultural sector vary by region particularly areas where precipitation levels are likely to remain stable. Ideally, warmer temperatures result in augmented threats of severe drought by increasing the pace of evaporation.

This dissertation explores how climatic alteration has affected the economy of the United States and the impacts caused include water scarcity, wildfires, energy, and infrastructure stress, flooding, and Hurricane intensity. Moreover, the rise in sea levels, temperatures, the occurrence of extreme precipitation conditions alternated with periods of elongated droughts will also be the centerpiece of discussions in this context.

The study presents projections of climatic effects on the US, by means of information obtained from existing data and modeling exercises that fall into one of the two quantification designs. Policy makers are pursuing clarifications to help in avoiding the worst implications of climatic alteration while transitioning the country to a green energy compliance system. On the other hand, the U.S global change study program lately released a wide-ranging report describing some of the major impacts of climatic alteration.

Climatic Alteration Economics
Climatic Alteration Economics

Dissertation Objectives

  • To identify the economic effects of climatic alteration that occurs all over the country
  • To classify the economic impacts and how they are strewn across regions and within the economic landscape and society
  • To determine the adverse climatic alterations and the most affected sectors that supply crucial goods and services to society
  • To determine how Climatic alteration impacts will place vast strains on public sector budgets and how their occurrence dictates EPA’s priorities and financial situations.

Dissertation Contents

1 – Introduction
Background information on the Study
Problem statement of the study
Purpose of the Study
Dissertation objectives
Study questions and statement of hypothesis
Statement of hypothesis
Significance of the Study
Limitation of the study

2 – Review of the Literature
Introduction to literature review
Review of the principles and concepts
Climatic theories
Anthropogenic worldwide warming theory (AGW)
The Bio-thermostat theory
Cloud formation and Albedo theory
Human-related forcing besides greenhouse gases
Planetary oscillation theory
Solar Variability
Economic theories
Adam Smith and the invisible hand of capitalists
Karl Marx and the exploitation theory
The Keynesian concept of government intervention in the economy
Review of the empirical literature
Summary of the literature and the emerging issues

3 – Study Methodology
Introduction to study design and methodology
Areas of study
Study design
Targeted climatic zones
Targeted economic zones
sample areas of concern and sampling mechanisms
Data collection methods
Data collection procedure
Framework for data analysis and presentation

4 – General Overview
Scope of the results
Data analysis criteria
Findings/results
Statewide Findings
Overall economic findings
Alternative representation of data

5 – Results Interpretation, Recommendations and Conclusions
Interpretations of the results
Recommendations
Conclusions

References

View This Dissertation Here: Economics Dissertation Climatic Alteration

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Circular Flow Model Economics Report

Circular Flow

Title: Economic Circular Flow. Everyday expenditure is determined by the current treads on the economic status of a country. The prices of commodities has been influenced greatly by the prices treads of the energy generating fuels such the prices of the petroleum products. In addition the economic stability of a country is another key factors that determine the prices. For example in a country that is experiencing inflation, the prices of most commodities are relatively high, a fact that is contributed by poor performances in exchange rate earnings.

In most cases, the interest rates are mostly determined by the central bank. They are used as the main monetary tool that is used by policy makers and the economist to control the supply of money in the economy thus regulating the inflation rate in the economy. The central bank is there to issue loans to the commercial banks so that they can circulate the money to the citizens. In addition the commercial bank gives the commercial banks the directives on the minimum rate at which they are going to lend their customers. Therefore the federal system is the main determinant of the interest rate irrespective of the market forces on demand and supply of money.

Basically interest rate are use as incentive as well as disincentives to the people willing to take loans from any commercial banks. As an incentive, the commercial banks well give out loans at an affordable interest rate that will attract many business and other people willing to take a loan. This will increase the aggregate money supply in the economy. This is commonly used in case an economic stimulus is necessary. On the other had high interest rates discourages business taking loans.

The action leads to reduced business transactions and hence less amount of money circulation in the economy. The action is used during the period of inflation. When the interest rates are high, the prices of commodities are also relatively high, the consequence is high cost of financing the loans. For this reason people tend to purchase commodities that are of lower prices, this is always subject to quality. During my purchased the interest rate were lower therefore the price of my vehicle was relatively low. At the period the interest rate was about 14% compounded on reducing balance.

The price of gasoline was relatively lower compared to the previous prices. In every economy the prices of the petroleum products greatly influence the prices of other commodities. This is due to the transportation of commodities from the area of manufacturing to the market. Lower prices of gasoline in during the time of the purchase therefore ensured that the prices were lower and affordable. The prices for the crude oil and other related products were also low. Therefore even the maintenance of the vehicle was cheaper. When I made my purchase the prices of gasoline were dropping which was an implication that the future prices are going to be lower. This was just a prediction that is always necessary thing to do before buying any consumable good.

Securing a loan requires collateral and other securities. Most banks will. Always give loans to individual who after a careful appraisal shows the ability to pay the loan. In addition to this banks prefer giving loans to the people who are employed or business people who show to have a sustainable businesses that can be able to finance the acquired loan. I went for a loan after I was employed having considered all the above factors. These are the once that led to a successful loan application.

During the recession period the economy is characterized by high inflation rate meaning that the prices of most commodities are considerably high. During the purchase the interest rates were lower a probable recession times. The lower interest rates in the commercial banks were to encourage more people to take loans. This is a move that facilitates the increment in the supply of money circulation in the economy. In addition to this reduced interest rate facilitates more investors to borrow loans to set up more investments. This action is there to improve the production business cycle that improve the production of an economy.

During recession period there are chance of unemployment and therefore it’s risky to take a loan during the period. However when taking a loan it is important to reconsider other sources of income that can fund the loan once the source of income is suddenly withdrawn. Before making my decision on whether to take the loan or not I had considered other factors that will finance my loan in case of such uncertainty.

Due to the great recession of 2008 that the country realized its impact the government is still operating on with the fiscal expansionary policy measures despite of the deficit that the country was experiencing. Fiscal policies involved reduction on taxes and adjustments on government expenditures. The tax relieve lowered the prices of the vehicles greatly which gave me a good opportunity to purchase a good Car of my choice.

In addition the international monetary fund study had realized a possibility of positive multiplier effect on the expansionary fiscal policies that had been set. The effect was subjected unemployment and future output. More output and employment implied better future of the economy. These were encouragement to the foreign and local investors, consequently there were prospects of high future productivity. This gave me a prediction that there is a larger probability of retaining my source of income as well as creation of more sources that will cater for the maintenance and financing my loan.

The united state environmental protection agency has been trying over the years to fight the environmental pollution has been a problem in our cities and towns. One of their effort is to encourage the vehicles and other fuel users to purchase machines that are fuel saving and those that operate with complete combustion of fuel to minimize the release of carbon monoxide to the environment.

These efforts should not be ignored as the implication on pollution is both health and economic problems, a fact that a well productive economy is composed of healthy people. For this reason I had to choose a simple vehicle that has low fuel consumption capacity.

The emissions such as carbon dioxide causes acid rain that has adverse effects on metallic structures which most of our houses and other structures are made of. In addition there is adverse effect on agriculture which is one of the source of raw materials for our industries. The emissions also may cause diseases after inhaling these poisonous diseases. This consequently minimizes the production level of the nationals and hence lower GDP.

Basically the circular flow model is made up of two sectors which determine income output and expenditure. Equilibrium state is arrived at when the tendency of income levels, expenditure and output does not exist. This is an implication that income, output and expenditure are equal. The buyer expenditure in this case becomes the sellers’ income. The income gained from sale of their product is also spent to pay for other factors of production. During the processes, there is transfer of income to the owners of these factors. These expenditures consequently leads to the circular flow of payments.

The Circular Flow Model

Circular Flow Model
Circular Flow Model

For many years the position of the circular flow economy has greatly influenced the prices. This is due to the monetary and fiscal policies that an economy takes either to control inflation or to correct a recession. Introduction of injections and stimulus of the economy also influence the expenditure. When the interest rate are high the money in circulation is reduced thus most consumers will have little money to consume. In addition due to uncertainty people will tend to hold money due to fears of the deflation and recession. Uncertainty about future tend to influence people to either hold money or use money in making future investment.

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Economic Prediction Price Elasticity Model

Economic Prediction and Price Elasticity

Economics models are false and so government should ignore their predictions. Explain, discuss and evaluate the accuracy of this statement.

Price Elasticity – Economics models are the tools which economists use to predict future economic developments by measuring past relationships among variables such as household income, consumer spending, employment, interest rates, tax rates etc. and forecasting how changes in some of these variables will affect other variables. An economic model is said to be complete if it can accurately forecast many of the variables future course, however, no economic model can be complete in true sense. There are several forces outside the model that affect the calculation and forecasting of variables. There are two ways by which these outside factors affect the forecasting and economic predictions. The input errors are concerned with inaccurate assumption of outside variables and model errors which explains the deviation of the equation of economic model from the assumption to the actual. Hence, it can be said that economic models are subjective approximations of reality and are designed to explain the observation.  Therefore, the model’s predictions should be moderated so that it can accommodate the effect of random data variables (Deming, 2000).

Many researchers believe that economic theories and models simply provide ways to look at systems and determine how changes in variables affect the overall outcome. It also explains advantages and disadvantages of various economic models and systems. However, predictions and subsequent policy decisions are made after following value judgement of policymakers or the government. Therefore, the government should view at economic model only as a framework which provide insight of a contextual theory. More empirical evidence and real life economic parameters should be considered while making policy decisions based on economic predictions (Godley & Lavoie, 2006).

No economic model can perfectly predict the real future. A good example of the economic model’s failure is to predict the reasons for the global financial crisis of 2008. The prevailing economic model was deficient to provide sufficient attention towards the relationship between demands, wealth, and excessive financial risk taking. There were considerable research which had been conducted to uncover the same and also a new behavioural equation was added to the existing economic models. The true test of the new model will happen when it will effectively flag financial risk levels that would need a precautionary policy change. This is an ongoing process which consist of constructing, testing, and revising models and outside forces so that economists and policymakers can predict the future course of economy (Taylor, 2009).

Government neither can overlook economic models’ forecasts nor make predictions completely based on them. It has also been seen that economists seem to put aside political factors outside their equation. Politics among other outside factors is the most important factor that helps to determine the outcome of economic policy. In view of these analysis, it is suggested to use structural models which makes several “what if” economic analysis on several input combinations. In this way, the policymakers would have substantial information on various numerical variables and the forecast can be recalculated whenever required (Diermeier, Eraslan & Merlo, 2003).

Identify estimates of the price elasticity of demand for at least three different products

The “law of demand” suggests that the higher the price of a good, the lesser demand from consumers. This is the fundamental law of all economic models to predict the economic forecasts. In order to predict consumer behaviour in more details, economists use several techniques which evaluate the sensitivity of consumers’ demands with respect to changes in price. The most commonly used technique is known as “price elasticity of demand”. In simple terms, it is the proportionate change in demand given a change in price. For example, if a one unit decline in the price of a product produces a one unit increase in demand for that product, the price elasticity of demand is said to be one (Green, Malpezzi & Mayo, 2005).

Price Elasticity
Price Elasticity

Numerous studies suggest that the majority of consumer goods and services falls in the price elasticity of between .5 and 1.5. Essential products to everyday living, which have fewer substitutes, typically have lower elasticity for example, staple foods. Since, staples such as cereals are necessities in the diet, and are usually cheaper so that people safeguard their income for spending on such essentials when prices increase. Furthermore, lower income households tend to have higher price elasticity for food items than high income households. As food products occupies a large share of total income in these households, price changes have a substantial impact on the allocation of budget. On the other hand, magnitude of the elasticity for animal source foods such as fish, meat and dairy are higher than staple cereals as these are considered as luxury food items and there are always many substitutes available for consumption of these food choices (Andreyeva, Long & Brownell, 2010).

Goods with many substitutes, or are considered luxuries as are not essential, or whose purchase can be easily postponed, have higher elasticity. For example, the demand of automobile is considered as elastic as there are three kind of substitution takes place. In response of a unit price change, consumer of a new car can delay the purchase, or can choose to purchase another category of car or chose not to buy a new car and use another mode of transport. Furthermore, in case of buying a particular model of car, it would be highly elastic demand as there will be a lot of substitutes. On the other hand, demand for cars in rural areas would be inelastic over the longer run. Because there are very few alternative mode of transports available (Parry, Walls & Harrington, 2007).

Another example can be taken from health care services, where the demand for health care expenditure is found to be price inelastic. A range of price elasticity estimates it to be -0.17, which means that a one unit increase in the price of health care will lead to a 0.17 unit reduction in health care expenditures. Moreover, the demand for health care is also found to be income inelastic as it is in the range of 0 to 0.2. The positive sign of the elasticity suggests that there will be increase for health care demand as income increases, however the low magnitude of the elasticity indicates that the demand response would be relatively very small (Duarte, 2012).

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References

Andreyeva, T., Long, M. W., & Brownell, K. D. (2010). The impact of food prices on consumption: a systematic review of research on the price elasticity of demand for food. American journal of public health100(2), 216-222.

Deming, W. E. (2000). The new economics: for industry, government, education. MIT press.

Diermeier, D., Eraslan, H., & Merlo, A. (2003). A structural model of government formation. Econometrica71(1), 27-70.

Duarte, F. (2012). Price elasticity of expenditure across health care services. Journal of health economics31(6), 824-841.

Godley, W., & Lavoie, M. (2006). Monetary economics: an integrated approach to credit, money, income, production and wealth. Springer.

Green, R. K., Malpezzi, S., & Mayo, S. K. (2005). Metropolitan-specific estimates of the price elasticity of supply of housing, and their sources. The American Economic Review95(2), 334-339.

Parry, I. W., Walls, M., & Harrington, W. (2007). Automobile externalities and policies. Journal of economic literature45(2), 373-399.

Taylor, J. B. (2009). The financial crisis and the policy responses: An empirical analysis of what went wrong (No. w14631). National Bureau of Economic Research.

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The Economic Environment Project

The Economic Environment

The circular flow model of the economy

Title: The Economic Environment. The firms in this model are the businesses while the households are the consumers. The firm is responsible for the production function while the households are responsible for consumption. In his book Waste to wealth: The Circular Economy, Lacy Peter states that households in the circular flow model provide labor in exchange for payment and offer this payment in exchange for the goods and services produced. The circular flow model entails the government, consumer and business elements. The firm produces goods and services to meet the consumer demand. Households purchase these products and pay to the firms. Additionally, households also provide the labor necessary to produce the goods and services. Therefore, one cannot exist without the other. This is key to any economic environment.

The financial sector such as banks and micro finances are important to the Circular Flow Model of the economy in many aspects despite being greatly ignored. This sector is responsible for ensuring that money flows across the firms, households and the government. The financial sector allows households to save money gained from working in the firms.

This money is also used for investment purposes in factors such as the fixed assets used by the firms to produce goods and services. When the government and the households save, the money is directed towards the financial market. In order to ensure the continuance of the economy, financial sectors invest this money by lending it to the households, firms and the government hence making the flow continuous (Chand, 2016). This is critical to the economic environment. Furthermore, the financial sector determines the amount of money in the market hence the inflation rate at any one moment. The circular flow model of the economy would be incomplete without the financial sector.

Gross Domestic Product (GDP)

The GDP of a nation is the total market value of goods and services produced in the nation. GDP is effectively measured through market prices. During different times, prices tend to change especially because of inflation. Therefore, comparing the nominal GDP over different times may not be helpful as comparing the real GDP of New Zealand’s economy. Instead, real GDP, also known as the GDP in constant prices may be used to compare the market value of goods and services. Real GDP helps compare the GDP during different periods at the same set of prices. While the nominal GDP is equal on both the production and expenditure sides, the real GDP differs on the production and the expenditure mainly due to changes in relative prices between imports and exports.

Economic Environment Dissertation
Economic Environment Dissertation

One statistic that should be considered when making an international investment or expansion is the Foreign Direct Investment (FDI) rate. By understanding the level of FDI in a foreign country, it is possible to establish how competitive the market in the foreign country is. One may also use the inflation rate of the country as well as the unemployment rate to determine how suitable the new market is for the expansion. The inflation rate determines how strong or weak the local currency is hence affecting the amount of money required for the initial investment. Additionally, constant changes in the rate of inflation may be an indication of an unstable economy. On the other hand, the rate of unemployment can help predict the potential demand and supply for the goods or services. The inflation rate may also help project the cost of labor for the new branch internationally.

The Business Cycles and Business The Environment

New Zealand’s recent annual GDP was 173.75 billion US dollars while the value stood at 0.28% of the global GDP. The GDP growth rate is at 2.50%. The inflation rate has been at a steady of 4.75% since 1918 to 2016. On the other hand, the unemployment has been at an average of 6.13% since 1985 to 2016. However, the rate of unemployment fell to 5.1% during the second quarter of 2016. Although the New Zealand economy has past the peak phase, it is expected to continue growing at a healthy rate while creating new jobs.

A housing bubble occurs when an increase in demand leads to a significant increase in the house prices (Roberts, 2008). Unlike most goods and services, replenishing the supply of houses takes time hence creating a bubble with soaring house prices. Eventually, the bubble bursts due to the increase in supply and a decrease in demand. Such an event would cause the New Zealand economy to slow down significantly.

When an economic recession occurs, the number or frequency of economic environment activities decline significantly (Roubini, 2011). Some businesses are able to continue operating as long as they are able to cover their fixed cost. However, other businesses not able to cover the variable cost including labor have to shut down rather than operate at zero profit. Scarcity of supply due to high production cost leads to high prices, meaning that consumers are unable to purchase goods and services. Firms selling second hand goods, companies dealing with bankruptcies or debt problem benefit during recession. The market is also more efficient and consumers get the best value in the market.

References

Chand, S. (2016). The Economic Environment and Circular Flow of Income in a Four Sector Economy.

Lacey, P. (2015). Waste to wealth: The Circular Economy and Economic Environment. Palgrave MacMillan.

Roberts, L. (2008). The Great Housing Bubble: Why did House Prices Fall? Monterey Cypress, LLC.

Roubini, N. (2011). Crisis Economics: A Crash Course in the Future of Finance. Penguin Books.

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