Economics - Impact of Technology Introduction - Literature Review Assignment Answer

ECONOMICS 

Contents

TOC o 1-3 h z u Introduction PAGEREF _Toc3194286 h 3Literature review PAGEREF _Toc3194287 h 33-Equation model PAGEREF _Toc3194288 h 4Discussion PAGEREF _Toc3194289 h 8Conclusion PAGEREF _Toc3194290 h 8References PAGEREF _Toc3194291 h 9

Introduction

The mass domestic introduction of a technology in the country results in effecting the various economic variables. The introduction of high-sped poadband in UK also resulted in effecting the various economic variables such as interest rate, labour market, consumption, GDP of the country and income too. The aim of the report is to analyse the impact of technology introduction in UK based on the 3-equation model of IS-PC-MR.

Literature review

The mass domestic introduction of high-speed poadband in the UK is a technology shock in the economy. The research of Caliskan (2015) deduced that with the improvement in the technology there is development in the economic and socio-cultural life, whereas, the fluctuations and uncertainties are created in the labour market due to negative impact of technological impact on the employment. The research of Sener and Saridongan (2011) supported the research of Caliskan (2015) by reporting that the technology driven development in the country result in the economic growth and the government should develop the innovation oriented policies. Furthermore, the research of Coffinet and Perillaud (2017) infer that the emergence of the Internet has resulted in increase in the wages while improving the labour productivity whereas, there is no difference in the consumer price given the corporate margin evolution. In addition to this, the research of Coffinet and Perillaud (2017) has been contradicted by the research of Choi and Yi (2005) which reported that with the increase in the ratio of Internet users to population, the inflation decreases.

For the impact of high-speed poadband on the median income of the country, the research of Whitacre et al. (2014) deduced the positive and significant relationship, provided the area has high-speed Internet. The research of Mack and Faggian (2013) also reported that the impact is skill based, as the high-speed poadband has a positive impact on the skilled labour. Moreover, the research of Stefano et al. (2014) has commented that with the high-speed poadband, there is significant effect on the firm performance however, no significant relationship can be reported between poadband Internet with labour productivity, sales and employment. The positive impact of low cost poadband speed is also defined by the Solow Model, where with the technological advancement the steady state is moved upwards and the effective output per effective unit of labour improves, which finally improves the steady state growth.

3-Equation model

The mass domestic introduction of high-speed poadband is a permanent demand shock which effects the IS as well as PC curves. Before the demand shock, the economy was in equilipium where the equilipium output was Ye, the economy was at targeted inflation rate (T) and the rate of interest was stabilised with rate of interest as rs. According to the 3-equation model, with the permanent demand shock, in period 0, there is a considerable effect on the IS curve and it shifts from IS to IS. The economy shifts from A to B and the inflation also increases from T to 0 (Figure 1) (Carlin and Soskice 2009).

Figure 1 period 0

With the shift in the IS curve, the rate of interest increases to r0 from rs (Figure 2) and it results in an increase in the inflation rate from T to 0 (Figure 2). Here, the economy is not in equilipium and the inflation rate is higher than target inflation rate and the actual interest rate is higher than the stabilizing interest rate. Currently, the economy is on point C, whereas the equilipium is at point B. in addition to this, the output is below the equilipium level, that is, it is at y1.

Figure 2 Period 1

In period 1, the central bank forecasts the Philips curve to be PC (1E0), so now, the optimal point is D (Figure 3). Period 2 onwards, the economy moves to the point D to achieve the rswhich is lower than the current rate of interest as the Philips curve assumed by the central bank was PC (2E1) so that the inflation can be decreased without increasing the stabilised interest rate and the inflation rate of the economy. With a lower rate of interest, the demand will increase which will finally increase the output of the economy.

Figure 3 Period 2

The same process is repeated (the central bank assumes the Philips curve to be lower than the previous one, which lowers the consumer expectation and also the actual inflation rate, based on which the rate of interest approaches to stabilising rate of interest). The repetition of process results in the development of the MR curve, which showcases the monetary rule curve or the steps taken by the central bank. Following the MR curve, the economy reaches equilipium Z, where the output is ye, the targeted inflation rate is achieved and also the rate of interest is equal to the stabilised rate of interest (Figure 4).

Figure 4 Period 2 onwards

Discussion

The 3-equation model shows that with the mass domestic introduction of high-speed poadband in the UK, the output of the country increased more than the equilipium output and it also result in increasing the inflation. The monetary policy applied by the central bank of decreasing the expected inflation in future, based on the inflation targeting resulted in gradual decrease in the inflation rate and output in the economy. However, no major impact was analysed on labour market. In reference to the literature, it can be deduced that the results are contradicting the research of Choi and Yi (2005) as inflation increased due to the technology emergence. In addition to this, the research is also contradicts the research of Cliskan (2015) as no development is recorded in the economic variables due to the technology introduction.

Conclusion

In conclusion, it can be inferred that with the mass domestic introduction of high-speed poadband in the UK, the inflation increases for short period of time and then it gradually comes back to the targeted inflation, due to the monetary policy. However, this is not supported by the researches and also contradicts the results of Solow model.

References

Alkan, H. K.2015. Technological change and economic growth.Procedia-Social and Behavioral Sciences,195, pp.649-654.

Carlin, W. and Soskice, D., 2009. Teaching intermediate macroeconomics using the 3-equation model. InMacroeconomic theory and macroeconomic pedagogy(pp. 13-35). Palgrave Macmillan, London.

Coffinet, J and Perillaud, S. 2017. Effects of the Internet on inflation an overview of the literature and empirical analyses.IMF.https//www.imf.org//media/Files/Conferences/2017-stats-forum/session-3-coffinet.ashxDe Stefano, T., Kneller, R. and Timmis, J., 2014. The (fuzzy) digital divide The effect of poadband Internet use on uk firm performance.University of Nottingham Discussion Papers in Economics,14(06), pp.58-69.

De Stefano, T., Kneller, R., amp Timmis, J. (2014). The (fuzzy) digital divide The effect of poadband internet use on uk firm performance.University of Nottingham Discussion Papers in Economics,14(06), 58-69.

Kongaut, C. and Bohlin, E., 2017. Impact of poadband speed on economic outputs An empirical study of OECD countries.Economics and Business Review,3(2), pp.12-32.

Mack, E. and Faggian, A., 2013. Productivity and poadband The human factor.International Regional Science Review,36(3), pp.392-423.

Ener, S., and Sardoan E., 2011. The effects of science-technology-innovation on competitiveness and economic growth.Procedia-Social and Behavioral Sciences,24, pp.815-828.

Whitacre, B., Gallardo, R. and Strover, S., 2014. poadband s contribution to economic growth in rural areas Moving towards a causal relationship.Telecommunications Policy,38(11), pp.1011-1023.

Yi, M.H. and Choi, C. 2005. The effect of the Internet on inflation Panel data evidence. Journal of Policy Modeling,27(7), pp.885-889.

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