Answer to Question #32249 in Macroeconomics for Mukata Russell

Question

1. What are the factors that influence level of investment
2.Why is the balanced budget multiplier equal to 1
3. What is meant by saving leakage
4. How is unemployment measured

Answer 1

1. Level of investment is affected by amongst other things:
-level of disposable income
-amount of expenditure
-financial market status (in the present credit crunch crisis few small investors wish to risk anything)
-any known future large expenditures (e.g child getting married)
-age (will affect the nature and level of investment)
-health (if you are suffering from a terminal illness you may wish to spend more and enjoy yourself rather than leave it for your heirs)


2. The balanced-budget multiplier is equal to one. The "positive" impact on aggregate production caused by a change in government purchases is largely, but not completely, offset by the "negative" impact of the change in taxes. The only part of the impact of the change in government purchases NOT offset by the change in taxes is the purchase of aggregate production made by the initial injection. Hence, the change in aggregate production is equal to the initial change in government purchases.


3. In economics, a leakage is the non-consumption uses of income, including saving, taxes, and imports. In the Keynesian injection-leakage or circular flow model, leakages are combined with injections to identify equilibrium aggregate output. The model is best viewed as a circular flow between national income, output, consumption, and factor payments. Savings, taxes, and imports are "leaked" out of the main flow, reducing the money available in the rest of the economy. Imported goods are one way this may happen, transferring money earned in the country to another one.


4. The unemployed are those individuals of working age who are capable of work, and are actively looking for work, but who are not employed. If labor is employed, but not effectively used, the situation is called underemployment.
Measuring unemployment accurately is made difficult because of imperfect knowledge. Not all instances of unemployment are recorded, and some records of unemployment may not be accurate. Because the unemployed are eligible for benefits, some individuals may work, but not disclose it, and claim benefit. Conversely, many unemployed may not bother to inform the authorities, and this unemployment goes unrecorded.