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Hello mutinaba
Labor force means employed and unemployed labor of a particular country.
In general case specially developing countries high population growth increases
unemployment . Employment mainly depends on demand. There are two types of demand. 1)internal demand2) external demand. Internal demand is demand of production in country. External demand is demand of production in external countries. Increasing population can create internal demand but external demand is independent from country ‘s own population. So this may reduce employment rate. But practically, this does not always happen. Employment also depends on productive resources. But these resources may not increase with population. So there may be more unemployment as result of population growth. In case of population structure, if non labor population (like elders, children etc) has good percentage in total population this may enhance employment because there non labor population would only create demand and not participate in labor supply.
If investment increases output,output should increase investment?Discuss…
Fanks in advance…
explain the effect of change in population on the labour force?
Hello callum
You have good understating of economics & Math. We assumed our country England. 1sterling = $2 . England exports 100computers @100pound per computer for total 10000pounds($2000dollars). Now value of sterling changed. 1pound =$1(EOD=.5)
Now 1 computer will be available exactly for $100. This is 50% change in price. So demand would be 100+(50%of100*.5) i.e. 125computers and total export=125*100total 12500
Now imports —- We import 100computers @100pound total 10000pound.
Now 1sterling=$1 . Now cost of 1computer =200pound. This is 100% change in price.
Now total import would be 100-(100%of 100*.5) =50 computers. Total import=50*200 total 1000pound.
Total export goes to 12500pounds & import remains at 10000pounds. This is increase in balance of trade for England. So Marshall and Lerner law is being applied here. Balance of Trade for England has been improved.
Both case are related with relatively elastic demand because percentage change in demanded quantity is less then the percentage change in price. Unit elastic demand is when% change in demand is equal to % change in price. So both cases are not related to unit elastic demand.
Actualy Marshal Lerner law simply tells that devaluation of currency would encourage balance of trade for particular country. It is an application of simple law of demand.
Although practically goods may inelastic in short run and devaluation practically may not always increase balance of trade in short run.
Hi, i have always had a mathematical and ponderous mind and consequently i have a weird feeling that the marshall lerner condition doesn’t work. It is defined as the SUM of elasticities for imports and exports to be above 1. But that means that 2 inelastic demands, of say 0.6 and 0.6 apparently lead to an improvement of the trade balance after a devaluation.
Intuition tells me that, since both are inelastic, then despite a fall in price exports wont increase proportionately and despite an increase in price imports wont increase. This should also worsen the current account.
Also consider for following example:
if we need the sum to be above 1 for improvement, then, by that logic, a sum of exactly 1 should lead to no net change.
initial exchange rate: £1:$2
we export 1000 £100 ($200) computers for £10,000 (£20,000) revenue
and we import 1000 £100 (£200) computers for £10,000 ($20,000) revenue
PED for both imports and exports is 0.5 (summing to exactly 1)
then, a depreciation leads to an exchange rate of £1:$1
for exports, this is a depreciation of 50% therefore demand increases by 25%.
so we sell 1250 £100 ($100) computers for £12500 ($12500) revenue
now for imports: it is effectively a 100% increase in price so the decrease in demand will be 50%
so now we buy 500 £200 ($200) computers for £10,000 ($10,000) revenue.
ok, so this is against what i said earlier in that the balance of trade has improved.
but why has it not stayed the same?
and why, by this measure, have export revenues increased despite being inelastic in demand?
and finally, why has imports not changed at all in terms of revenue?
i was thinking, is unit elasticity (ped of 1) really what i thought it was. because if you decrease price by 50% and demand increases by 50% then overall revenue has fallen by 25% and not stayed the same as most econ books seem to suggest it would.
aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaah!
so sorry about how long this is, i really am.
Hi Derek
Investing in cash surely makes a negative effect on rising interest rates. It is very simple. With the more supply of cash , demand will decrease & interest rates would go low. People in a country use their saving in may ways like share market, Real Estate, depositing into banks etc. If more people would deposit their money into banks and other institute on interest, naturally supply would increase and interest rates would decrease.It may decrease funds for industry and business specially in those sectors where investment is more risky. It may slow GDP growth (but not always).