Assignment one

The old and new role of Central banks

The Central bank have been constructed to serve as a lender to the last resort which mean his role
is to support the country by providing the stability to the financial market and this by standing
behind banks and lend them money to cover their supply shortage in other word the central bank
is a guarantee that prevent the country’s banking system from failing the central bank also
support the economic of the country by provide the country with currency which play an
essential part in the increasing the economic performance of the country’s market

If we talk about the old role of the central bank we can say central bank was constructed to serve
as bank that hold reserves of the commercial banks and provide the country with currency and
lend the government when it need supplies

Now the central bank have other functions to do one of them is to maintain the stability of the
market by controlling inflation rates by different policies he undertake between pushing or
pulling the money supply to or from the market as for example if the inflation rate increase the
central bank play his role by absorbing the excess funds from the market through many tools one
of the important tools used is to increase the interest rates so people begin to withdraw their
money from the market and deposit it in bank which will result in attracting excess money and
control the inflation on the other side if the market face recession that central bank begin to push
money to the market in order to refresh the market by supplying it with money to make it move

Types of inflation

Inflation can classify to four main types’ demand-pull inflation, cost push inflation, power
inflation and sectorial inflation.

1- demand-pull or excess demand inflation which occurs when the demand I the economy
exceed the supply and goods ad service will not be enough to be distributed among all
which is called then shortage as a result prices rise over the real value of the product .this
type of inflation is very important and one of the common types of inflation which
 always takes place in critical times especially in wars as materials and manpower grows
rapidly.
2- Cost-push inflation occurs due the cost of production increase which leads and pushes the
prices of the finished goods and service up. as an example like if the wages increase the
owner of the firm will not hold this burden alone but will transfer it to the consumers in
the form of an increase in the price of the products and service he produce or provide.
3- Pricing power inflation or what it called administered price inflation. It occurs businesses
become greedy and want to increase their profitability margins by increasing the price of
their products or service we can notice that this type we will not find in the time of
recession on the opposite it occur when the economy is growing rapidly and the sales
are strong. It might be called oligopolistic inflation as the owner of the business
(oligopolies) decide when they increase their prices and gin their profits an example is the
firms working on manufacturing cars.
4- Called sectorial inflation. Occurs mainly when the industry is a supplier for other
industries like oil and steel like what was happening in Egypt when “Ahmed Ezz” the
owner of “Ezz steel” and the prices of the steel increase the increase in the prices of any
of them will reflect on all the industries and business related to them.

Types of unemployment

There are many forms of unemployment:

1- Frictional Unemployment: This type of unemployment is due to the time passes between
leaving a job and moving to a new one and this is one of the easiest types of
unemployment as people ears become always seeking to find a new job or to move from
one place to another for better opportunities or due to a close of one job due to any reason
like for example if a factory close and all the workers become jobless they are searching
for a new one that is called frictional unemployment.
Sources of frictional unemployment include the following:
 People entering the workforce from school.
 People re-entering the workforce after raising children.
 People changing employers due to quitting or being fired.
 People changing careers due to changing interests.
  People moving to a new city and being unemployed when they arrived.

2- Structural Unemployment: The structural unemployment is a form of frictional

unemployment but it last longer it occurs because the skills experience and qualifications
of workers is not needed in the labor market may be either due to the advance in
technology and the workers skills don’t cope with the new advances.
Structural unemployment though to be a pretty significant problem mainly because it
tends to be largely of the long term variety and retraining workers is not a cheap or easy
task.

3- Voluntary unemployment: Voluntary unemployment occur when the person himself

don’t accept the job because of the wage or the salary offered which is less than what he
deserves this is due to that people have their pride and after a certain time they manage
themselves on a certain standard of life when they found that the salary offered is not
matching their skills and qualification they don’t accept it and begin to search for a
better job that’s why voluntary unemployment is one of the forms of frictional
unemployment.

4- Institutional unemployment: This form of unemployment show what the interference in

the labor market can cause unemployment the clear example is when the government
imposes taxes which will create market dead weight making the market reach equilibrium
before the full employment.
5- Cyclical unemployment: Which can be defined as “ cyclical unemployment occurs when
the unemployment rate moves in the opposite direction as the GDP growth rate so when
GDP is small or negative unemployment is high “.
Unemployment is noticed to be higher during recessions and depressions and lower
during periods of high economic growth because of this economists have coined the term
cyclical unemployment to describe the unemployment associated with business cycles
occurring in the economy.
References

 http://www.bis.org/events/conf100624/goodhartpaper.pdf
 http://www.investopedia.com/articles/03/050703.asp
 IOSR Journal of Business and Management,Volume 16, Issue 1.,Jan. 2014, PP 28-34.

 Marc Labonte, “inflation: causes, costs & current status “,July 26, 2011, 1.
https://www.fas.org/sgp/crs/misc/RL30344.pdf
 Roy Rotheim , “Classical and Keynesian Economic Explanation for Unemployment” , Michael
Griffith , May 2007,P.8.
http://www.inscitia.com/wpcontent/uploads/work/Michael_Griffiths_EC103H_Final_Ess
ay.pdf
 Fatma El-Hamidi , “The Effects of Structural Adjustment on Youth Unemployment in Egypt” ,
Economic research forum, 2000, P. 16.
http://d-scholarship.pitt.edu/5760/1/3-ElHamidi_Wahba_revised_final_ERF.pdf