Campus

In the fulfillment of the course

“MACRO ECONOMICS”

BBA morning program

Submitted to:

By:

Name

Spring - (2019)

FINALTERM EXAMINATION 2021

ANSWER 01

DEMAND PULL INFLATION:

Demand-pull inflation occurs when total demand for a good or service exceeds total of the
supply. It usually begins with an increase in consumer demand. Sellers contracts such an expands
with more supply. But when extra supply is inaccessible the sellers raise their cost. That results
in demand-pull inflation. It involves inflation rising as real gross domestic product rises and
unemployment is the biggest down fall for the economy. This is often narrate as too much money
chasing too few goods. More precisely, it ought to be described as involving too much money
spent chasing too few goods. Since at it was only money that is spent on goods and services
which can cause inflation. This would not be anticipated to occur, unless the economy is already
at a full employment level.

GRAPH:

The total demand is increasing faster than the production. As shown in the graph below:

EXAMPLE:

During this pandemic covid-19 every individual was advised to use antiseptic liquid, sanitizer as
much as they can to protect their selves from corona virus so everyone was buying mostly Dettol
company antiseptic liquids and sanitizers in which the company faces demand pull inflation
because supply was getting inaccessible and in results they had to increase their prices of the
products.

ANSWER 02

VISIBLE TRADE
Visible trade in economics can be described as involving trading of goods which are tangible and
weighed and trade in products could be a raw material such as, food, clothes, oil, machinery, rice
or the finished products, such as smartphones or vehicles . These are actually recorded at the
ports because all these products are visible to naked eye. Visible trade can also be mentioned as
balance of import and export of the goods. It has two kinds

Visible exports

It is basically involved in selling of tangible goods which can be touched and weighed to other
countries.

Visible imports

It is basically involved in buying of tangible goods which can be touched and weighed from
other countries.

EXAMPLE:

JAPAN lack raw material such as crude oil, coal and other mineral but their visible trade consists
mainly of the finished goods such as, electronics, cars, machinery and processed food on the
other side, other countries such as SAUDI ARABIA and RUSSIA have export huge quantities of
oil and many other finished product so they both made a visible trade deals that Japan will export
the finished products to Saudi Arabia and Russia and these both countries will export the raw
material to Japan.
ANSWER 03

BALANCE OF TRADE

The balance of trade is defined as the difference in value over a time period between a country’s
imports and exports.

The balance of trade also can be explained as the country’s trade minus its imports. For any
economy current resources, balance of Trade is one of the most significant components because
it measures a country’s net income earned on worldwide resources. The current account
moreover takes into account all the payments across country borders. When the exports are less
than imports it is known as the trade deficit. In usual effect an economy with a trade surplus
lends money to the deficit countries whereas economy with a huge trade deficit borrows a good
amount of money to pay for the goods and services. In common, the trade balance is the simple
way to measure as all goods and services must pass through the customs office and all the goods
and services are recorded.

Formula of THE BALANCE OF TRADE is:

Balance of trade formula= country’s exports – country’s imports.

EXAMPLE

In 2020, The United States imported around $2 to $ 4 trillion in customer goods whereas they
were only exporting $1 or $4 trillion. That made around $915.8 billion deficit and it is the most
elevated goods deficit on the records.
ANSWER 04

HOW INVESTMENT IN EDUCATION MIGHT REDUCE POVERTY?

Education can play a vital role in reducing the poverty because due to lack of education our most
of the population are unemployed because they do not have enough knowledge about how to
work or how they can earn money for them and for their company. Our government should focus
on giving education to every individual especially in the rural areas so they can get reputable
jobs or start their own small businesses according to their education background. Around 171
million individuals might be lifted out of extraordinary poverty if all children left school with
essential reading skills. That is equally comparable to a 12% fall down in the world total.
Absolute poverty might be decreased by 30% from learning enhancements laid out by the
Education Commission.

If the government takes step to educate every individual then in results education increases
earnings by roughly 10% per each additional year of schooling. Educational fulfillments defines
that around half of the difference in improved development rates between East Asia and Sub-
Saharan Africa between 1965 and 2010.

In 2050, Gross domestic product (GDP) per capita in low-income nation would be almost 70%
lower than it would be if all children were learning and getting educated. Increasing tertiary
fulfillment by one year on average would increase sub-Saharan Africa’s long-term GDP by 16%.

Same as in Pakistan poverty is sometimes simply cause because of not having enough earnings
and having quality, or indeed in few fundamental cases in education, can ease such problems and
in order to attain the goal of widespread economic prosperity in Pakistan. More education
interprets into more esteemed skills and more wage as a result. Surely proper fundamental
education is the foremost viable and direct way to extend economic security for those who are
living in extreme poverty conditions.
ANSWER 05

CONTRADICTORY FISCAL POLICY

Contractionary fiscal policy is the approach when the government either cuts investing or raises
taxes. It gets its title from the way it contracts the economy. It diminishes the sum of money
accessible for businesses and consumers to spend.

The main purpose of Contractionary fiscal policy is to slow growth to a healthy economic level.
That is between 2% to 3% a year. An economy that develops more than 3% can make different
negative consequences. Such as, it can create inflation. That is when cost rises as well as fast in
clothing, food, and other necessities. Higher prices rapidly gobble up the investments and can
annihilate the standard of living.

It is unsustainable. Development at 4% or more leads to a recession. That particularly happens

with asset bubbles. It brings down the unemployment to below the natural rate of unemployment.
Employers struggle to find sufficient workers to meet market demand. That slows growth from
the production side.

GRAPH

EXAMPLE

Pakistan government should lowering the taxes and rising government spending. Or they should
increase the taxes and lowering government spending.
ANSWER 06
REASONS OF THE DIVISION OF LABOR INCREASES AND
ECONOMY’S LEVEL OF PRODUCTION
Economic growth is basically created by division of labor; it shows up as a result of interaction
between economic people and firms. Such an intuitively system is explained using a
disequilibrium approach. According to Adam Smith in Wealth of countries, high level of
division of labor is the main reason why developed countries have expand per capita income.
Division of labor depends on labor productivity, improving the workers adroitness, learning by
doing and capacity to save time through switching between diverse tasks. Division of labor and
capital accumulation is closely connected in growth process.

The main three reasons of the division of labor increases an economy’s levels of production are
mentioned below:

1. Difference in abilities: Each individual has their own characteristics that permit them to
superior in several activities than in others.

2. Learning through experience: Assuming that there are two individuals with the same
capabilities, dedicating an individual to an activity makes that person become a specialist in
carrying it out, as it allows him to permit skills and develop better strategies that simplify the job.

3. Time saving: The actual reality is that a worker is permanently devoted to a single task which
avoids the loss of time due to the section from one job to another.
ANSWER 07
ARE FIRMS PRIMARILY BUYERS OR SELLERS IN THE GOODS AND
SERVICE MARKETS? IN THE LABOR MARKET?
Firms are primarily the sellers in the goods and services market as while they are the buyers in
the labor market. They are the seller because they provide their offering as well as they become
buyer while look for suitable employees in the labor market. Goods and services market is a
place where buyers and the sellers contacts with each other to exchange their goods and services.
Firms are the mains sellers in goods and services market of what they actually produce. They sell
different goods and services which households buy in order to fulfill their basic conveniences
and their luxurious demands, whereas the labor market is the place where the laborers and the
workers associated with each other. Within the work advertise all the workers compete to
contract the finest and the laborers compete for the leading fulfilling work. The supply and
demand of work are within the market which is influenced by changes in the bargaining power.

GRAPH
ANSWER 08
MIX OF MONETARY POLICY, FISCAL POLICYAND STRUCTURE
REFORMS CAN SUPPORT STRONGER AND SUSTAINABLE GROWTH

Monetary policy and fiscal policy refer to the two most widely known tools which utilized to
impact a country’s economic activity. Monetary policy is primarily concerned with the
management of interest rates and the total supply of money in circulation and is by large amount
is carried out by central banks for example the U.S. Federal Reserve. Fiscal policy is a collective
term for the taxing and investing actions of governments. In the United States, the national fiscal
policy is decided by the executive and authorities branches of the government.

It means that both of the fiscal and monetary policy plays a big role in managing the economy
and both have direct and indirect effect on personal and household finances. Fiscal policy
involves tax and investing decisions set by the government and it will impact all the individuals'
tax charge or give them with employment from government ventures. Monetary policy is set by
the central bank and can boost buyers investing through lower intrigued rates that make
borrowing cheaper on everything from credit cards to mortgages.

GRAPH