28/02/2013 § Leave a comment
#2. 25 marks.
a) What are the costs of a high rate of inflation?
Inflation is an increase in the average price levels of goods and services in a nation over time. If the rate of inflation is less than 2%, the economy could be expecting disinflation and eventually, deflation. The healthy rate of inflation is considered to be 2 – 3%. Inflation rates over 3% are then high and can have negative consequences such as the loss of purchasing power. An increase in inflation can take away from the income of a household. Even if a worker’s income increases, if the inflation right in the economy is higher than that of the worker’s income increase, then they’ve lost much of their purchasing power and have essentially become poorer than they were before the inflation rate increased.
High rates of inflation also lower real interest rates for savers, who are interested in fixed-interest assets, such as government bonds or savings accounts. As inflation rises, the interest rate earned on savings would fall. A high inflation rate also creates higher nominal interest rates for borrowers, meaning that during times of high inflation, banks would raise their nominal interest rates that they charge borrowers – obviously they want to earn more profit and in this case, we could say that inflation rates and interest rates are linked. This means that borrowers pay more, making it more expensive for firms or households to borrow money from banks.
Finally, higher interest rates reduces a nation’s competition with the rest of the global market. High inflation within the country makes the domestic output look far less attractive to foreigners therefore they’d stop importing goods from that domestic country. That nation with the high inflation (hey, that rhymed) would experienced reduced profit from their Exports/Imports sector. Similarly, the high inflation rates would make imports look more attractive to the domestic citizens instead of their own domestic goods.
b) “What is wanted is not inflation or deflation but price stability.” Discuss.
We learned that with the Phillips curve comes the NAIRU, or the non-accelerating inflation rate of unemployment. This is the level of unemployment in the economy that works well when the nation is producing at full employment. The key to the NAIRU is that price levels are stable, they are not pressured upwards or downwards. Based on the LRPC and the neoclassicist point of view that, when left alone, an unstable economy will be able to correct itself as the unemployment rate will always be able to move back to its natural rate of unemployment. This is the part of the LRPC that is neither perfectly elastic or inelastic – it’s around in the middle. Straying away from this middle would cause either inflation (a rise in the average price levels) or deflation (a decrease in the average price levels).
We know there are more losing stakeholders than there are winning stakeholders when it comes both inflation and deflation. The winners during times of inflation are borrowers, flexible income earners, and importers, but the losers are the lenders, fixed-income earners, savers, and exporters. The lenders are the ones who received less money the borrowers paid them back because inflation had lowered their interest rates. The fixed-income earners have an overall reduced income and purchasing power. The savers also experience lower interest rates and can’t save as much as they used to. And exporters lose business because other nations won’t buy from them.
The costs to deflation are multiple, including rising unemployment, falling investment, falling consumption and increased savings, and increased debt burden on households. Deflation clearly diminishes the confidence and animal spirit among firms, which plunges the economy into a deflationary spiral that only pushes the AD further back as well as bumping prices lower and lower (as AD moves left – backwards – price moves downwards). Consumption, net exports, investments are all key factors that push the AD back and continue the deflationary spiral.
That being said, since both inflation and deflation can be extremely harmful and costly to an economy, it’s safer to maintain stable prices. For countries that really want to focus on economic growth, they should definitely try and maintain the healthy inflation rate of 2 – 3% but nothing more or less unless they’re willing to experience the negative consequences of deflation or inflation.
27/02/2013 § Leave a comment
Cloning, just like most everything else in the world, has its upsides and downsides. The point of cloning is to produce an identical copy of genes, cells or organisms and is especially beneficial if the set that is copied has desirable combinations of characteristics. Products of cloning are obviously called clones, specifically defined as a grope of genetically identical organisms or a group of genetically identical cells derived from a single parent cell. Plants are more easily cloned than animals – they’re cloned through pieces of root, stem or leaf. In livestock, eggs can be fertilized to develop into a multicellular embryo. The cells in the embryo can then be separated while they were all pluripotent, aka capable of developing into any type of tissue. The first successful mammal cloning from adult cells was Dolly the sheep.
Scientists are currently trying to develop ways to make cloning useful in a medical sense. There is already therapeutic cloning in humans that can replace tissues or even organs that have been lost or damaged. There are huge controversies and ethical issues with these processes, though. On one side, the benefits of therapeutic cloning are:
- the embryonic stem cells can be used to save lives and reduce suffering
- cells can be removed from non-developing embryos that would have died anyway
- cells are removed when the embryo doesn’t feel anything
On the other side, the arguments against therapeutic cloning are:
- every embryo has the chance to be a human being and so should be allowed to develop into one
- more embryos produced than needed; some need to be disposed of (killed)
- always the danger of stem cells losing control and developing into a tumor
Finally, the Human Genome Project (HGP) is an international project that aims to locate all of the genes on the human chromosome. It was assumed that there were about 100,000 genes on the human genome but there are really only between 25,000 to 30,000. Should the scientists succeed in mapping the entire human genome, they’d be able to identify genetic diseases, which means they could produce drugs based on the DNA sequences. This project could potentially open a whole new set of doors for evolutionary scientists and geneticists. I mean, I think it’s pretty cool.
26/02/2013 § 1 Comment
This is the introduction to my career as a forensic scientist. I can feel ittttt. There are ways scientists can use DNA to identify the individuals who own that particular genome. DNA profiling starts with the PCR, or the polymerase chain reaction. PCR is a technique that can amplify small quantities of DNA without having to use up the limited sample available to the scientist (like if I were only able to retrieve a portion of one strand of hair). The stages of PCR involve denaturing the DNA sample available with heat to separate the two strands. Next, a primer is allowed to bind to the DNA, creating multiple copies. Temperature is an important factor in PCR, starting off with a high temperature to denature the strands, then slowly cooling down to allow the primer to do its job.
Gel electrophoresis is used for DNA profiling. We did this during one of the labs (DNA!) and used a thin sheet of gel as a molecular sieve for the DNA fragments. An electric field is then applied to the gel and since the particles are either positively or negatively charged, they would naturally drift to either side of the gel. The size and charge of the fragments determine how far they go. Large and less charged fragments don’t travel far, unlike the small and highly charged fragments.
DNA profiling, as mentioned above, is used in a lot of forensic science, like in analyzing evidence obtained from crime scenes to solve a case, or determining who the father of a child is. Profiling works because all organisms have their own satellite DNA, which are short sequences of bases that are repeated many times. They vary between individuals in terms of how many repeats occur. The patterns on a gel would definitely show a difference between two samples.
25/02/2013 § 1 Comment
Another large and important part of genetics is its use in biotechnology and genetic engineering. Scientists can genetically modify the genes of an organism by transferring genes between species. You ask, “But how! Switching genes between two different species!? That’s absurd!” It’s not, actually, so pipe down. It’s completely possible because as we learned units ago, the genetic code is universal. You and I (humans – or at least I hope you’re human) share the same genetic code that a lobster has. How does that make you feel.
Because the genetic code is universal the base sequences can code for all of the amino acids that make up the proteins in whatever species. Organisms that have transferred genes are called genetically modified organism (GMO). These are not limited to walking, talking, breathing organisms but especially to agriculture and livestock, like sheep, goat, and crops.
One method of transferring genes involves the usage of plasmids, restriction enzymes, and DNA ligase. What basically happens is that the restriction enzymes cut the plasmids (loops of DNA found in bacteria), so that there are two open ends where DNA ligase will fuse a copy of DNA extracted from human pancreatic cells. This is fed into a worthy host cell that will then be cultured in a fermenter. The new E.coli bacteria that this process has created will be used to make human insulin, which treats diabetics.
Other examples of genetic modification include:
- goats – to secrete an anti-clotting agent in their milk called anti-thrombin
- sheep – to produce a protein to treat emphysema
- multiple crops – to produce a protein that makes them resistant to herbicide
- golden rice – to produce ß-carotene as a solution to children’s blindness, caused by a vitamin A deficiency
25/02/2013 § Leave a comment
#1. 25 marks.
a) Distinguish between structural unemployment, frictional unemployment and seasonal unemployment.
Structural, frictional and seasonal unemployment are all part of a nation’s NRU: natural rate of unemployment. Even when a nation is producing at a level of full employment, there is a small amount of unemployment that is natural and that the nation desires.
Structural unemployment occurs when a worker loses his job due to the changing structure of a nation’s economy. His unemployment is normally the cause of globalization or the improving development of his nation’s economy. Naturally, as a nation further develops its economy and becomes more globalized and attuned to the financial ways of other, more modernized nations, some lines of work will have to be cut off since the type of labour or service they provide is no longer desired. The range of development usually starts from the labor farmers offer to the type of manufacturing work that factory workers offer, and finally to the type of work from large service sector that more educated and skilled workers can offer. We can see the clear increase of the level of skills and intelligence needed in the workers as the nation’s GDP develops. A factory worker then who used to work at a plant that contributed to the economy of a developed nation that is well on its way to further improve its economy might then get laid off naturally as the nation starts to diminish its need for factory workers and increase its need for service sector workers. The ways a nation can reduce its amount of structural unemployment would be to invest in public education and training for adult workers for the long run, to train the workers for the newer jobs, and to generally improve their education so that when it’s time for them to work, they will already be ready.
Frictional unemployment occurs when workers are in between jobs (looking for a new job) or entering the labour force for the first time. When (or if) I graduate from college and need to start looking for a job, I would be frictionally unemployed because I would be entering the labour force for the first time, looking for my first job. My family’s friend also recently quit one job voluntarily to look for another one because the previous job would mean that he and his family would have to move to Singapore and they preferred to stay in Japan. He was frictionally unemployed until he was able to find another job – luckily. The key to frictional unemployment is that the individual who is unemployed has skills that the nation’s current GDP makeup demand and there are jobs out there for that individual so they won’t stay unemployed for too long.
Seasonal unemployment occurs between the seasons, like with life guards, ski-lift operators, golf-course workers, etc. These are workers who are voluntarily unemployed whenever it isn’t their work’s season and who need to seek other employment between the seasons. These workers choose these certain jobs to allow for flexibility of time and location and in doing so, they voluntarily choose to be unemployed when it isn’t their season. Ways a nation can avoid seasonal unemployment, though it’s natural, would be similar to frictional unemployment: reduce unemployment benefits (so workers would be forced to find work faster) and improve the information symmetry between the employers and the unemployed.
b) To what extent is the existence of structural unemployment in a nation a sign of economic weakness?
As a form of natural unemployment, structural unemployment is the result of a changing and, more importantly, developing economy. When a nation experiences a bout of structural unemployment, the workers that are getting laid off and losing their jobs are the ones who can no longer offer what the developing economy requires of them. These typically consist of agriculture workers: farmers. An economy that starts to move towards manufacturing goods will no longer need the services of a farmer and agricultural workers would soon find themselves out of employment. However, the farmers’ misfortune can be part of the economy’s good fortune because though he loses his job and income, it means that the nation’s GDP is moving towards a more globalized makeup. One of the four main macroeconomic goals of a nation is economic growth and a growing and developing GDP indicates a clear move towards a better and stronger economy.
21/02/2013 § Leave a comment
#4. 25 marks.
a) Identify the components of aggregate demand and briefly explain two factors which might determine each of these components.
The four components that make up aggregate demand are the same as those that make up GDP: consumption (depicted by variable C), investments (variable I), government spending (variable G), and net exports (exports = X, imports = M). A simple equation to calculate the aggregate demand would then be: AD = C + I + G + (X – M). Two factors that determine these components are wealth, and interest rates. Wealth is the total value of the accumulated assets owned by an individual or household. Interest rates are the opportunity cost of spending money, wherein the borrower always pays beyond the set price. We can use the inverse relationships of the wealth effect and the interest rate effect to explain these. Whenever price levels are high, obviously the public would feel poor and are discouraged to spend anything, therefore the quantity demanded will decrease (shift to the left). Likewise, if the price levels are low, the public feels richer and would then spend more, shifting the demand curve to the right. Similarly, when interest rates are high, borrowers find the values unattractive and too much, and wouldn’t invest, therefore the demand for the good decreases, shifting the curve to the left. When interest rates are low, borrowers find the values more attractive and the quantity demanded increases, shifting the demand curve to the right.
b) Evaluate the likely impact on an economy of a substantial rise in the level of savings among the nation’s households.
Households’ savings count as supply. If a nation’s households start to save more, it would have a negative impact on the economy. We know from the circular flow model that in the banking sector of a nation, savings count as leakages into the economy, which is a loss of money. Clearly then, when households save more than they invest, more money will lie stagnant and not in use, which is unhelpful for the economy, slowing or stopping the flow. Japan does this very well, but it shouldn’t. The government tries to plug money into the economy to get more of a flow going but the tradition in Japan has always been to save instead of to buy or try new things and because of this, the money that the government once subsidized for the entire nation of Japan (it was a really expensive plan) ended up in everyone’s bank accounts or in their pockets and not to firms’ goods and services. On the other hand, it the banks start to receive all the money that households are saving and putting into their banks, they would be able to lend more to the borrowers who need it. If they have a bigger supply, this might mean that banks would raise their interest rates in order to make more out of their borrowers. Savings would then have a positive impact on a nation’s banks.