Economics and Philosophy

Sociological: The culture of a society is they way of life of its members; the collection of ideas and habits which they learn, share and transmit from generation to generation’ (R. Linton 1945).


Non-sociological: 1) High culture
2) Culture as a state of mind
3) Culture as Civilization

What's the difference?

Discuss the proposition that whilst class may have lost its force in the collective sense, nevertheless class remains potent both in the creation of individual identity and in the formation of culture

1500 words +-10%

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The French and German economies both grew by 0.3% between April and June, bringing to an end year-long recessions in Europe's largest economies.

Stronger exports and consumer spending, as well as government stimulus packages, contributed to the growth.

The data came as a surprise, with few analysts expecting Germany and France to start to recover so soon.

But economic activity in the eurozone fell by 0.1%, showing the region as a whole is still in recession.

It was the fifth consecutive quarter of economic contraction in the eurozone, but was a marked improvement on the 2.5% drop recorded in the first three months of the year.

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Last economics lesson...

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Aggregate demand is the total demand for country’s goods and services in a given price level over a period of time. Formula is AD=C+I+G+(X-M).

If the economy is experiencing high level of unemployment, government is likely to boost the aggregate demand by different demand-side policies. Increase of any component of aggregate demand will lead to an outward shift of the AD curve. One of the effective ways of reducing unemployment is cut in interest rates. As we know investment is the function of interest rates. Therefore it would lead to an increase in investment. Part of the borrowed money people would invest for opening new businesses, therefore creating new jobs for unemployed. Also government can use expansionary fiscal policy. Increase government spending and decrease taxes. All the above would lead to an increase in AD and therefore created jobs would reduce unemployment. However if AD would rise too fast it may cause demand-pull inflation.



As you can see above the demand pull inflation.

Therefore reduction of unemployment would be unsustainable. For that reasons managing AD is very important in order to maintain stable and low inflationary growth.

Also increase in Aggregate Demand wouldn’t reduce frictional, voluntary or structural unemployment. Frictional unemployment (looking between jobs). Structural unemployment. - People without the right skills for the labour market. Voluntary unemployment - when benefits are too high they encourage people to remain on benefits rather than work.

In conclusion I’d like to add that to maintain sustainable economics growth with low rate of unemployment it is necessary to use both demand-side and supply-side policies.

Why does the Aggregate Demand curve decreases?

Aggregate Demand is a total demand for a country’s goods and services at a given price level in a given period of time.
There are several reasons for decrease in Aggregate Demand curve. To explain them initially we need to know the formula for AD= C+I+G+(X-M).

Where:

• C- consumption

• I- investment

• G- government spending

• X- export

• M- import

Thus, a decrease in any components of AD will lead to downward slope of the AD curve.

Consumption may be decreased because of decrease in disposable income. As we know consumption is the function of disposable income. If disposable income decreases, consumption will also decrease. There are many ways that consumption can decrease. An increase in taxes would have this effect. Similarly, a decrease in income--holding taxes stable--would also have this effect. Finally, a decrease in the marginal propensity to consume or an increase in the savings rate would also decrease consumption.

The second component which might lead to a decrease in AD is Investment. We can say that Investment is the function of interest rates. Therefore if the interest rate rises, investment is falling. It is likely that people are likely to save money rather than borrow with high interest rates. Therefore it also causes the Aggregate Demand curve slope downward.

The term variable that will lead to a shift in the aggregate demand curve is Government expenditure. G is one of the fiscal policy measures. If the government decides to cut spending, it may lead to a decrease in AD.

The fourth term that will lead to a shift in the aggregate demand curve is NX(e). This term means that net exports, defined as exports less imports, is a function of the real exchange rate. As the real exchange rate rises, the dollar becomes stronger, causing imports to rise and exports to fall. Thus, policies that raise the real exchange rate though the interest rate will cause net exports to fall and the aggregate demand curve to shift left.

Also AD may decrease because of fall in consumer confidence. A decrease in consumer confidence brought on by concerns that the economy might be headed for troubled times, which then prompt the household sector to spend a smaller proportion of disposable income on consumption.



Why does Aggregate Demand slope downward?

Aggregate Demand is a total demand for a country’s goods and services at a given price level in a given period of time.

The formula is AD= C+I+G+(X-M).

There are several reasons for downward slope of the AD curve:

• The Real Balance effect states that the inverse relationship between the price level and the quantity demanded of Real GDP is established through changes in the value of monetary wealth

• A fall in the price level causes purchasing power to rise, which increases a person’s Monetary Wealth. As people become wealthier, the quantity demanded from the GDP rises.

• A rise in the price level causes Purchasing Power to fall which decreases a person’s monetary wealth

• The Interest Rate Effect states that the inverse relationship between the price level and the quantity demanded of Real GDP is established through changes in household and business spending that is sensitive to changes in interest rates.

• The International Trade Effect states that the inverse relationship between the price level and the quantity demanded of Real GDP is established through foreign sector spending, which includes US spending on foreign goods and foreign spending on US goods.