What can government do to push economic growth

The Reserve Bank of India (RBI) said on Thursday that lower interest rates alone can’t help prop up investment and put Asia’s third largest economy back on the growth path, reiterating that the government needs to embark on policy reforms to iron out structural issues and fast-track infrastructure projects.

Read this article and suggest means and ways of improving the economic environment in India. You are expected to evaluate your suggestions.

http://www.financialexpress.com/news/switch-policy-cut-subsidies-rbi-to-govt/992221/0 

This article might help you form your views
http://www.livemint.com/2012/08/23235118/Lower-rate-alone-can8217t-p.html?h=B

Your response should be of atleast 250 words. 

Using Cartoon in Economics

Here it is. Economics is a dry subject. But here we present Economics with a twist...
My Grade 11 Economics students have come up with some great cartoon strips. Here are some of them. This one is on Unemployment (By Karan Singh Gill and Jasmehar Wadhwa)

This one is on Monopolistic Competition (By Pranav Jain)

Is it Aggregate demand?

Christina Romer (head of Barack Obama's Council of Economic Advisors) gave a talk on the state of the economy, and particularly on unemployment. She joked that her preferred title for the speech, which she didn't end up using, was "It's the aggregate demand, stupid". Her argument is that the reason unemployment remains high is the persistent shortfall in aggregate demand. Structural factors are not important:

The high unemployment that the United States is experiencing reflects a severe shortfall of aggregate demand. Despite three quarters of growth, real GDP is approximately 6 percent below its trend path. Unemployment is high fundamentally because the economy is producing dramatically below its capacity. That is, far from being “the new normal,” it is “the old cyclical.”...

Many have suggested that the fact that long-term unemployment is at record levels is a sign that the high unemployment rate is the result of structural factors. There are now 6½ million workers who have been unemployed for more than 26 weeks, and these workers represent a record 44 percent of the unemployed. Long-term unemployment is cause for serious concern. Long spells of unemployment cause much greater hardship than short spells, and they can be associated with deterioration of skills and long-term falls in earnings.

But, this rise in long-term unemployment is readily explained by the prolonged collapse of aggregate demand. When hiring rates are very depressed, workers who lose their jobs are unlikely to find work quickly, and thus face a substantial chance of becoming long-term unemployed. This effect is compounded by the fact that exit rates from unemployment, both in normal times and in recessions, are typically lower the longer a worker has been unemployed. This makes it even more likely that those who do not find work quickly will have long spells of unemployment. Thus, the rise in long-term unemployment is the almost-inevitable consequence of the severe recession. We do not need to appeal to any underlying structural changes to understand it, and there is every reason to expect that long-term unemployment will come back down when aggregate demand recovers.

Other observers point to troubling trends, such as the decline in traditional manufacturing jobs and falling rates of employment among less educated middle-aged men, as signs of the inevitability of permanently high unemployment. These developments have led to terrible distress in some communities and devastation for the workers affected. But, these trends were in full sway in the 1990s and mid-2000s, when the unemployment rate fell to very low levels. They are trends that we absolutely need to work to change, but they are not indications that the United States is doomed to permanently higher unemployment.

Another concern is that certain sectors, notably construction and finance, are likely to remain substantially smaller than they were during the boom even after the economy returns to normal. As a result, some observers have suggested that the workers who lost their jobs in these sectors may have trouble finding work after the economy recovers—and thus that reallocations across sectors might mean higher unemployment in the long run. In fact, however, we have seen only slight declines in the rate at which workers who have lost their jobs in declining sectors exit unemployment relative to workers who lost jobs in other sectors. The dominant pattern is that workers from all sectors have seen their exit rates fall, exactly as one would expect when job creation is low.

What are your views on this speech? Leave your comments. 

Pollution Tax- Reducing Negative Externalities

Yesterday, the Australian Senate passed a carbon tax - The Clean Energy Act will force the country’s 500 worst-polluting companies to pay a tax on their carbon emissions from 1 July next year. The government has set the initial price per tonne of carbon at A$23 ($23.80; £14.80), much higher than other similar schemes such as in the EU where the price is between $8.70 and $12.60 a tonne. - The country’s mining firms, airlines, steel makers and energy firms are among those expected to be hardest hit by the tax.
Domestic fuel bills are expected to rise as companies pass on the costs to consumers.
Opposition parties have argued that the tax would cause job losses and raise the cost of living.
But the government hopes that the legislation will force innovation in renewable energy supplies, and free Australia from its reliance on fossil fuels.
Read the article http://www.bbc.co.uk/news/world-asia-15632160
Answer the following Questions
What is meant by negative externalities? [2 marks]
With the help of a diagram, explain how Australian firms might create negative externality.[4 marks]
With the help of a diagram, show the impact of putting carbon tax on the polluting firms. [4 marks]
Using information from the text/data and your knowledge of economics, evaluate the decision of the Australian senate to impose carbon tax on the polluting firms.[8 marks]

Demand for Sugar

Here is an article which shows the rising prices of sugar due to market pressures.S-grade sugar rose by Rs 5 a quintal and M-grade by Rs 10 in the spot market, extending last week's gains, on higher demand.

Read this article

ttp://www.thehindubusinessline.com/markets/commodities/article2546346.ece

Answer the following questions

What is demand?

Why do you think the price of sugar is going up in the market?

How will you show this phenomenon with the help of a diagram.

Apart from the factors mentioned in the article, are there other factors which might affect price of sugar. Comment.

Should government intervene ? Discuss price control measures.

Negative Externality

A recent report show that nitrogen pollution from farms, vehicles, industry and waste treatment costs the EU up to £280bn (320bn euros) a year. It contributes to air pollution, fuels climate change and is estimated to shorten the life of the average resident by six months. Livestock farming is one of the biggest contributors of nitrogen pollution and less meat eating could have a significant effect on the levels of emission. The report calls for greater controls on the methods of farming and the use of farming equipment.

Tasks: Nitrogen pollution is an example of a negative externality.

a. Can you illustrate the impact on price, output and social welfare of a negative externality?

b. What do you think is the best way to intervene and reduce negative externalities?

http://www.bbc.co.uk/news/science-environment-13025304

http://www.businessgreen.com/bg/news/2042506/nitrogen-pollution-costs-europe-gbp280bn

Classic case of Market Failure

According to the British Heart Foundation more than 10 per cent of six-year-olds in the United Kingdom are obese and a fifth of four-year-olds are overweight. To help reduce this problem Professor Malek, head of social sciences at the University of St Andrews, has suggested a 10 p tax on burgers that have more than a certain fat content. The aim is to reduce consumption of this type of food and encourage producers to use leaner meat.

A classic case of market failure leading to overconsumption and requiring government intervention. But is tax the best solution do you think?

http://www.telegraph.co.uk/health/1369524/Put-10p-tax-on-burgers-to-reduce-levels-of-obesity.html