Factors of production are land, labor capital and entrepreneurship. Households are the owners of factors of production and the firms are users of factors of production. Firms use households (factors of production) to pay factor incomes which is rent, wages, interest and profit. Firms will use factor of production to produce output in the way of goods and services, which will be purchased by the household. In this way household incur their expenditures.
2.0 Body
Circular flow diagram is the visual model of economy which shows how money flows through the markets among household and firms. Circular flow model consists of four separate models which each sequentially adding sectors or markets and also thus providing the greater complexity and realism. The four flows are flow factors of production from households to firms, flow of incomes from firms to household, flow of output of goods and services from firms to households and lastly flow of expenditures from households to firms. 2.1 Circular Flow Diagram http://wpcontent.answcdn.com/wikipedia/commons/thumb/b/b8/Circular_flow_of_goods_income.png/350px-Circular_flow_of_goods_income.png
Above circular flow diagram divides the economy into two sectors which is one concerned with the producing goods and services, and the other with consuming them. All the four flows which has been stated as been illustrated in the circular flow above. In the diagram the outer flows of incomes and expenditures are flows of money and the inner flows of factors of productions and outputs are the flows of goods and services.
2.1.1 Households
Households have the main function because they are the workers and also consumers. So they provide labour to firms and compensated with wages from the firms. Other then that as consumers they also buy goods and services from firms which constitutes as consumer expenditure.
2.1.2 Firms
Firms are the producers of goods and services. Labour and capital is the input of the production process. Labour comes from households where wages are paid and the capital investment can be funded either by retained profits or borrowing from the financial sector.
2.1.3 Relationship between Households and Firms
In a daily life example we are consumers who are working for a firm to earn wages. Because we working for the company the company makes profit and increase their production in their goods and services. When we are the households we receive wages from firms and we use it to buy goods and services produce by firms.
3.0 Withdrawals and Injections
Withdrawals take place when there are movements of funds out of the circular flow in income. The three important things in withdrawals are Savings (S), Taxation (T) and Imports (M). In Savings households wont be spent all the factors income received on the current or even immediate consumption. Households also prefer to keep some for future or deferred consumption. For example households make their saving in the form of deposits at financial institutions such as banks.
Taxation is where households have to pay to the government as taxes from their income. For example when household receive their wages their will be a deduction column as their income tax. Imports is where households willing to buy goods and services from abroad rather than consuming domestically produced goods and services.
An injection takes place when there are movements of funds into the circular flow of incomes. The three important things in injection are Investments (I), Government expenditure (G) and Exports (X). In Investments households saved income which was deferred consumption there are later invested back in the circular flow/economy. In government expenditures government use all the taxes received from households and then it's creates in flow of funds back into the circular flow. For example government expenditure includes road building, construction and more. Government use the total taxes which had collected from household to build road, hospital, buildings and other. In exports firms may sell some of their goods and services to foreign countries. In the economy expenditure from the foreign countries by foreigners becomes an injection.
3.1 Withdrawals and Injections diagramUntitled.jpg
4.0 Total Withdrawals equal with Total Injectionsmmmm.jpg
In the terms of the expanded circular flow of the income model the state of equilibrium takes parts when the total withdrawals that occur in the economy. It can be proven as:
Savings + Imports +Taxes = Investment + Government Spending + Exports
OR
S + M+T = I + G + X
5.0 Conclusion
Households and firms has a very strong relationship where each and another cannot be work with one. Households need wages so they have to work for firms and firms need to produce goods and services, so they need household to work and also buy their goods and services.
QUESTION 2
1.0 Introduction
The fluctuations in the level of the economics activities of a country over time are often be the best illustrated by the Business Trade Cycles. Business trade cycle is also known as the periodic fluctuation in the rate of the economic activity as it been measured by levels of employment, prices and also production.
2.0 Body
The four main concepts in business trade cycles are full employment, unemployment, recession and inflation. Full employment takes place at the level of economic activity when all available at factors of production are fully utilized. In the business trade cycles, there is upward swings and also downward swings. The periods of adversity are alternate with the periods of business prosperity. Every boom is followed by a vice versa and also a slump. This business trade cycle is simply means that the whole course of trade or even business activity which is passes through all the phases of prosperity and also adversity.
3.0 Business Trade Cycle Diagram mk.jpg
3.1 Phases in Business Trade Cycle
Economists actually divided the business cycles into two main phases which is depression and recovery then boom and slump. Boom and slump mark turning points in the cycles.
3.1.1 Depression
In this phase, the whole economy will be in depression mode and the business is at the lowest stage. Other than that the general purchasing power of the community is very low. In the productive activity, both production of consumer goods and the production of capital goods are at the low level. There are some of the main characteristics in depression. Depression makes the amount of production and trade shrinks. It is also increases unemployment and the overall prices become decreases. All the profits and wages decreases and the income of the community fall at a very low level. Other than that aggregate expenditure together with the effective demand also goes down. For example if a firm receiving a new investment or replacement investment they will make it delay as long as they are possible to go for it. Other than that in stock markets the prices of all shares and securities will be fallen to a very low level. Even in practically all the construction activity no matter in buildings or machinery comes to an end.
3.1.2 Recovery
Recovery is also known as expansion. In this phase the depression period comes to an end. In recovery phase all the economic situations become favourable. As money become cheap it makes the other materials and also factors of production easy and cheap. Here the aggregate demand becomes low aggregate supply. Other than that the productive activity also has been increased and the entrepreneurs also have sufficient financial backing. This makes the further investment and production increased. For example when a construction company ends all their projects in depression phase, now the same company will start receiving orders and employing more employees to create more income and employment. Lastly the whole economy will be moving faster towards the boom phase.
3.1.3 Boom
Boom is also known as peak phase and it is a turning point in trade cycle. This phase is the highest point in economic recovery. In this phase there is a large number of production and also trade. There is also a high level of employment and also the job opportunities in limited amount to permit a good deal of labour mobility. Aggregate Demand will be equal with Aggregate supply. Overall it makes the prices rise. Other then that it also makes a rising structure in interest rates so then a bullish tendency rules makes stock exchanges. For example when a construction company starts to make more profit and inverse more the will improve their business and may need more employees. So then it makes the company offer more employment and it also makes the company get high level of investment.
3.1.4 Recession
Recession is the sharp slow down in the economic activity, but slight different from depression which is more severe and also pronged downturn. Aggregate demand is low then aggregate supply. As the depression created the conditions of recovery, it is similarly and the boom conditions generate their own checks. All the idle factors have been employed and also further demand must raise their prices, but the quality is also inferior. In this phase there should be less efficient workers which have been taken for higher wages. The interest rates will rises and also other materials. Finally the costs have started to upward swing.
4.0 Conclusion
Macroeconomics is mainly associate to the balance between Aggregate Demand and Aggregate supply in the whole economy/country. If the aggregate Demand becomes higher than Aggregate Supply the excess demand will be cause inflation. If the aggregate Demand becomes lower than aggregate supply, then the insufficient demand will cause recession and unemployment.
QUESTION 4
1.0 Introduction
In economics, the person who is able and also willing to work but unable to find a paying job is considered as unemployed. Unemployment divided into two which are long term and short term unemployment. Long term unemployment is generally considered as the great social evil and short term unemployment is just for a limited time in the level of cost. In long term the cost are very high which is not same with the short term where the cost are relatively low. In short term many of them will lose some of their earnings, although a few who receive the large redundancy payments may benefit in financially from having lost their job.
2.0 Body
The cost of unemployment includes the financial cost, personal cost, societal cost, economic cost and also cost to the government. All the cost of unemployment is one of the big disadvantages where will cause a very big problems. Because of being unemployment, it is not only affecting the person as it is also affecting the surroundings of the unemployed person.
2.1 Cost of unemployment
2.1.1 Financial Cost to the Unemployed Person
This is one of the direct costs due to the lost in their earnings, measured as the difference between the previous wage and current unemployment benefits. One obvious cost is the loss of income which could be earned by the person been in a job. Offset against this is the value of any benefits which could the worker might receive and any value placed on the extra free time which an unemployed person has at his/her disposal. For most of the unemployed it is likely that they will be one of the net financial losers. For example when a person now working for RM1500 salary for 8 hours and his friend working for RM2500 salary for 8 hours then he also will start to measure the differences and he will resign his current job to get his friend job. At that time he just resign his job without know whether there is still empty places at his friend company or not. This situation makes him to be unemployed for some time and also make him face difficulties in financial matters during that time.
2.1.2 Personal Cost of being Unemployed
The cost of unemployed is not finish until there. It is also affect the self-esteem and the spirit of the individuals. The long time as they are unemployed it may result in stress-related illnesses, social problems like smoking, alcohol. Drugs, crime like petty and serious and also extra. For example when a person is been unemployed for some time he will definitely feel depresses and he will start to get himself into the social problems like smoking and taking drugs or alcohol. Other than that their depression also makes them commit suicide and mental instability. Areas with high unemployment tend to become in run down condition. Shops run down after their business. Households don't have any spare money to look after their properties and also their gardens. At last this makes the increases in vandalism and further destroys in the environment.
2.1.3 Societal Cost of Unemployment
Some of the evidence suggests that many of the unemployed people and their families suffer in a number ways. As longer they are unemployed the higher it affects their families and friends. This situation leads to the domestic violence and separation, abandoned families/children and also extra. For example, in a family when the husband has been unemployed for long time then the family will be having difficulties in financial matter. He will be having difficulties to earn money, buy groceries, even he cannot support for his children studies also. This makes the husband and wife have misunderstand and finally its end with separation and divorce.
2.1.4 Economic Cost due to lost of national output/growth.
In the actual lose to the whole economy first there is the loss of all the output which those workers now unemployed could have been produced if they been in work and the economy had been produced more goods and services which would had been available for the consumption. Other than that there are the social cost like increases in violence and depression which are borne by the unemployed and also the communities in which they live.
2.1.5 Costs to the Government
In one hand, government has to pay out higher benefits and on the other hand, government losses revenue because all those workers would have paid taxes if they had been employed. At last taxpayers not only pay more taxes to cover the government spending, they also have to pay high because they have to make up the taxes that all the unemployed would have been paid if they had been in work.
3. 0 Conclusion
Cost of unemployment effect all the part of a person life and also to the country economy and government. To reduce unemployment in society people should do earlier preparation or should be well organized about their carrier and savings.
QUESTION 5
1.0 Introduction
The causes of being unemployment will greatly vary according to the situation whether the person is working or not. Unemployment can be happen even the person is currently working, yet had given signal to stop working in some company for some reason. Sometimes it can be voluntary with the person's choice to become unemployed.
2.0 Body
The causes of unemployment can be divided into two major categories which is equilibrium and disequilibrium unemployment. There are five types of unemployment in equilibrium unemployment and three types in disequilibrium unemployment.
3.0 Equilibrium Unemployment
Equilibrium Unemployment is where can be caused because of people who are economically independent or the wages are too low for thus people don't feel the need to be employed.
3.1 The causes of Equilibrium/Natural Unemployment
3.1.1 Frictional (search) Unemployment
It occurs during people leave their jobs like resign voluntarily, made redundant and also those temporarily unemployed while they are looking for a new job. Sometimes employers may be not offering their job to the first that applied, as they will search for other candidates. This unemployment takes place when both parties do not have the perfect knowledge as they move from one job to another. It is cause of immobility factor which is geographical and occupational immobility. Geographical immobility is where labour is unable to relocate to the job and occupational immobility is where labour unable to perform their job because of lack of knowledge, skill or even experience For example the unemployed will find a better offer without accepting the first offer.
3.1.2 Structural Unemployment
It takes part when all the structure of economy changes caused by expanding industries experiencing growth when other industries are contracting and also need to reduce their demand for the labour. This unemployment takes part because of the change in the demand pattern, which is cause by a change in taste, fashion or even competition from substitutes such as produced by other domestic industries or from the imported alternatives. For example, there is no more use and fashionable to wear the furs or the decline in the coal mining industry, so then consumers' shift to alternative source of fuel.
3.1.3 Technological Unemployment
Takes part when the technological advantages resulted in the labour saving technical progress that allow all the same level of output to be produced with lesser units of labour. It is also often caused by the structural employment during the changes of method in production. The current employee will become redundant because of technological unemployment.
3.1.4 Regional Unemployment
The structural unemployment which takes part within the particular region will be causing regional unemployment. For example when the decline in coal mining industry takes part it makes the decline in the coal mining at the whole region.
3.1.5 Seasonal Unemployment
Takes part during the demand for labour changes according to the time period. For example for a fisherman cannot go to sea if there is rainy/monsoon season, a tourist guide will only have work during school holidays or off-peak season and then farmers will be unemployed during non-harvesting or monsoon/rainy months.
4.0 Disequilibrium Unemployment
Disequilibrium Unemployment is where usually due to the imposition of the minimum wage laws by the government which is means there will be higher demand for jobs then the supply.
4.1 The Causes of Disequilibrium Unemployment
4.1.1 Real Wage Unemployment
Takes part when the trade unions use their monopoly power to demand wage stage higher than the market stage or even when the government sets the national minimum wage stage higher than the market equilibrium. This can be also known as "disequilibrium" unemployment. The wages will be also falls down and could be caused by minimum wages, or the trade unions.
4.1.2 Growth in Labour Supply Unemployment
Takes part during the labour supply become higher without any associated increase in the demand for the labour will cause of the equilibrium wage stage to fall below the average real wage rate. If the real wage rate is "sticky" downwards then the disequilibrium unemployment will takes place.
4.1.3 Cyclical Unemployment.
This unemployment goes hand in hand with the business cycle. As the GDP become higher then the lower will be the cyclical unemployment at the peak of the business cycle and then the vice versa is also true when the economy is in the trough of the business cycle. During this time the firms will be maintain the same levels of employment and also output to build up their stocks, but it will eventually cut back production, resulting in the unemployment. Once the country economy out of the recession, then it starts to recover, then the employment rates will be starts to rise as the gap between real output and the potential output narrows once again. For example in a recession when the aggregate demand falls then there will be a fall in the output, and therefore firms will be employ less workers because they are producing less goods.
5.0 Conclusion
Other than these causes, there are also other causes too, especially for young graduates. For example when a degree graduate when a job with the basic wage of RM 1500, it will make him/she not satisfied with the wages compared with their studies. So then they will decide to find another job. This makes them become unemployed till they find the rite and best suit job for them. As the causes of being unemployed is higher people and government should be more alert and they also should know the disadvantages of being unemployed.
