This study material on economics covers various topics such as types of unemployment, money supply, Australian monetary system, demand for money, banking in Australia, inflation, and types of inflation. It includes solved assignments, essays, and dissertations.
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Running head: ECONOMICS Economics Name of the student Name of the university Author note
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3ECONOMICS Answer 1 The various types of unemployment are : a)Cyclical unemployment: this type of unemployment takes place when the workers lose their jobs due to downturns in the business cycle. b)Frictional unemployment: this type of unemployment takes place when worker has left his job and is in search of another one. c)Structural unemployment: structural unemployment results when there is a mismatch between the available jobs and the level of skills of the unemployed (Ezzy 2017). d)Natural rate of unemployment: this is the lowest level of unemployment an economy can reach. Answer 2 Money is a kind of item which is generally accepted for the services or goods in a particular country. There are four types of money which is fiat money, fiduciary money, commodity money and commercial bank money. Money is the medium of exchange which is accepted during making any kind of transactions (Brunnermeier and Sannikov 2016). Money also acts as store of value, unit of accounting and medium of exchange. The measures of money supply are M0, M1, M2 and M3. Answer 3 The Australian monetary system does not require any minimum reserves of its banks. One of the main policy of the Reserve Bank of Australians to maintain an inflation rate of around 2 percent which does not hamper the economy. There is absence of regulatory requirement for banks for holding exchange settlement funds in Australia(Bade and Parkin 2015). The domestic market operations made by the Reserve Bank are mostly carried out by
4ECONOMICS the Domestic market Department. Currently the fiat monetary system prevails in most of the countries. The national currency in Australia is the Australian dollar (AUD). Answer 4 The demand for money is known to be affected by many factors such as income level, rate of interest along with inflation rate. Money is demanded for carrying out everyday transactions. The three reasons for holding money is precautionary motive which states that investment in cash rarely lose value. Another is the transaction motive which states that money is useful for conducting transactions every day (Keynes 2018.). The third one is the speculative motive which states that it provides a return to the money holders. The other type of financial assets except money are stocks, loans and bonds. Stock is one of the famous financial asset which is a piece of paper that represents something of a value. On the other hand bond is a fixed income security which is a debt instrument created for the purpose of raising capital. When the rate of interest rises, the opportunity cost also increases which result to the decrease in the quantity of money demanded. Therefore, it can be said that when the interest rate rises, the price level increases leading to increase in the decrease in money demand. Figure1Impact of interest rate in money demand. (Source: Keynes 2018.)
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5ECONOMICS Answer 5 The banknotes of Australia are produced by the Reserve Bank of Australia. They account for more than 90 percent of the value of Australian currency. The banking in Australia is mainly dominated by mainly four major banks which are commonwealth bank of Australia, national Australia Bank, Australia and New Zealand Banking Group and Westpac Banking Corporation. These four banks are the pillars of Australia and the government will be rejecting any mergers between the big four banks. The banks in Australia have a loan book which over 200 percent of GDP and the creation of credit is still growing the loan book (Manalo, Perera and Rees 2015). The credit creation in the private banks have increased a lot and have added more than around $US30 to the economy. Answer 6 The increase in the level of price of the services and goods in an economy over a period of time is termed as inflation. It is also termed as the quantitative measure of the rate at which the average piece level of the basket of goods in the economy will be increasing over a period of time. It is measured in various ways depending on the types of goods and services that is considered. A small amount of inflation is always considered good for the economy since, it helps in raising production. Inflation will also leads to increase in demand which will be triggering more production in the economy (HUSSEIN. and STUDENT 2017). A small amount of inflation also makes easier for the debtors who is known to repay their loans with money which is less valuable than the money which they borrowed. This will increase borrowing and lending and will again lead to rise in the increasing level of spending.
6ECONOMICS Answer 7 Inflation are of mainly two types which are the demand pull inflation and cost push inflation.Demand pull inflation mainly results from the cut in the rate of interest, rise in money supply and higher wages. The cost push inflation on the other hand takes place due to high expectation of inflation, devaluation and higher wages. One of the major cause of inflation is consumer confidence which states that when there will be low rate of inflation, consumers will be spending more money as they will become confident.This will drive up the prices since producers will be charging more leading to inflation. Another cause is reduction in supply which is one of the basic causes of inflation.When the demand for commodities increases, the available supple decreases (Brunnermeier and Sannikov 2016). Therefore, when fewer items are available, consumers have to pay higher prices which leads to inflation. The falling price of oil means there will increase in demand for oil more rapidly compared to the productive capacity. In the short run, the business cannot help in raising the production as supply does not increase so fast. Therefore, the equilibrium of the economy moves and rises resulting todemand pull inflation.
7ECONOMICS Reference list Bade, R. and Parkin, M., 2015.Foundations of microeconomics. Pearson. Belongia, M.T. and Ireland, P.N., 2015. Interest rates and money in the measurement of monetary policy.Journal of Business & Economic Statistics,33(2), pp.255-269. Brunnermeier, M.K. and Sannikov, Y., 2016.The I theory of money(No. w22533). National Bureau of Economic Research. Ezzy, D., 2017.Narrating unemployment. Routledge. HUSSEIN, A.A. and STUDENT, M., 2017. EFFECT OF INFLATION RATE ON STOCK MARKET RETURNS IN UGANDA SECURITY EXCHANGE. Keynes, J.M., 2018.The general theory of employment, interest, and money. Springer. Manalo, J., Perera, D. and Rees, D.M., 2015. Exchange rate movements and the Australian economy.Economic Modelling,47, pp.53-62.