Economics

The word of economic recessions is not a new one for the entire world, especially for the peoples of US, as economic recessions have occurred all throughout the history of modern economics. A large number of people are still unaware with the term financial and credit crisis. From an Economist view point, a financial crisis occurred when a conflict disordered the money supply and wealth of the economy, or in laymen terms it can be said that, when a shortage of cash and liquidity prevails in the economy, it is referred to as financial or credit crisis (Krugman, 2001). The term financial crisis is applied to a number of scenarios or situations where the financial institution of a country abruptly looses a large part of their asset. The world suffered enormous number of severe financial crisis after the World War II but not a single one resulted in shrinking the world economy in an offense, like the current financial crisis did.

The National Bureau of Economic Research (BER) defines the term in this manner that an abrupt decline in the economic activity proliferates all over the economy, not older, more than a few months. The people of the U.S. are so familiar with the term economic recessions inevitably the United States (US) is not the only county who envisaged this imbroglio as almost every country that has even a robust and remotely modern economic structure has suffered to some extent from the hazards of the economic recession.

United Kingdom is among the big economies in the world. United Kingdom is in the top 4 economies of Europe and the main victim of the current liquidity crisis because the financial sectors are the biggest industry in Britain, which are in severe distress due to the current financial turmoil. United Kingdom (U.K) is one of the countries which have been badly hurts by the credit crunch as almost every industry continuously slashing jobs from the past 8 to 9 months. The rate of unemployment manifests a horrible figure and shows that over 6 million people lost their jobs due to unavailability of work and credit in the industries. The main threat for the UK economy is that, their currency value consistently collapse against the major currencies in the world. Mounting unemployment rate, unavailability of adequate credit, declining stock market, deteriorating export and shrinking currency resultantly loose the confidence of the investors, as neither the enterprises nor the individuals are willing to borrow money form the banks, although the banks of UK cut down their lending interest rate to 1 but still unable to win the previous confidence and moral of the customers. The International Monetary Fund (IMF) has revised its Gross Domestic Product (GDP) for the country FY 2010 of -1.5 to -2.8.

The bankruptcy of the financial institutions, manufacturing companies, and other industries has been surged with a robust pace and the filings of bankruptcies rose 38 percent in April-June from a year ago. The same has been revealed by the court of US, whose data released on Thursday 13 Aug, 2009, as consumers and business were hit by rising unemployment and a lack of credit.

You will be astonish to read that, 381,073 bankruptcies were filed as a whole, in the second quarter FY 2009, triggered by 15 percent from the first three months of the corresponding year and overall up by 38 percent as compared from the same period of last year.

Finance professionals thought a year ago that the UK economy is strong enough which had become particularly resilient to shock, but after the dwindling value of currency and continuously abating deposits in the banks, the perception doesnt seem to be work for Britain. Recent strong actions by the UK government and Bank of England (BOE) seem to be worthwhile to stabilize the economy (Bernanke, 2009). Increasing the tax rate on the corporation up to 50 and guaranteeing every person under age of 25 who has been out of the job from last 12 months will be offered a job looks like a brutal and major action to bring the economy back on track. Mention below is some recommendations to excrete out from this situation plausibly.

The government must induce the people to borrow ample amount of money from the bank, to keep circulate the money.
Must keep the interest rate and discount to a lower level to encourage the investors.
Must intervene while giving the bonuses to the executives.
Must do some thing to pledge the deposits of the banks.
Government must take major actions to increase the dilemma of exports within the country.
Must do something regarding enhancement of employment rate.
Keep a hawk eye over the literacy rate.
Must constrain the companies to follow the rules and regulation appropriately.
Inflation rates must be kept stable due abnormal conditions.
Must give ad hoc relief in the taxation issues pertain to corporations.

Introduction
That economics has become one of the determining decision-making principles is difficult to deny. Thousands of individuals and businesses are being governed by economic principles and view economics as the determining factor of individual decision-making. In microeconomics, individual decision-making is usually defined via the four basic principles. Generally, individuals who seek to take economic and non-economic decisions should be prepared to evaluate marginal costs and benefits of their decisions. It essential that in their decision making efforts, individuals are able to balance marginal costs with marginal benefits and to take into account the incentives that may change the quality of their decisions.

The four principles of individual decision-making
According to Mankiw (1998), the behavior of an economy always reflects the behavior of the individuals who make up this economy, and the four principles of decision making lay the foundation for understanding the basic microeconomic processes. First, people face tradeoffs (Mankiw, 1998), meaning that to get one thing individuals have to give up something else. That, however, does not mean that individuals should reject their decisions on the premise that these decisions incur additional losses or costs. The second decision-making principle rules that the cost of something is what you give up to get it (Mankiw, 1998). Taking into account that decision-making and tradeoffs are inseparable, individuals are expected to compare the costs and benefits of alternative solutions or courses of action (Mankiw, 1998). The third decision making principle implies that rational people think at the margin (Mankiw, 1998). In other words, the majority of life decisions involve small incremental adjustments (or marginal changes) to the existing action and plan, and thinking at the margin often becomes the best way of taking decisions (Mankiw, 1998). Finally, according to Mankiw (1998), people always respond to incentives. Thus, even if people take decisions by comparing costs and benefits, these decisions are subject to changes as soon as either costs or benefits (or both) of each particular decision change, too.

Decision making marginal benefits and marginal costs
When still at school, I faced a serious dilemma one of my best friends left to another school and afraid of losing my friend, I had to consider a possibility of changing my school, too. Without any knowledge of economics, I had to weigh all costs and benefits of my decision. Friendship was the major marginal benefit I was likely to obtain if I decided in favor of leaving my school. However, the time spent on traveling and the quality of education there were the two most serious marginal costs. Taking into account all those factors I decided that I would continue my studies in my school and would try to keep in touch with my friend. Certainly, I would have left the school under the impact of certain incentives for example, if the new school had been not far from my house or if the new school could have offered better quality of education. Such incentives would have changed the balance of marginal costs and benefits and would have certainly given me a chance to stay in touch with my friend.

Now I can see that economic principles produce significant effects on the quality of our decision making. First, we often view ourselves as consumers of various goods and services, and economics helps us allocate our limited resources to satisfy our unlimited desires (McCarthy  Schafermeyer, 2004). Second, economic principles help us mediate the influence of numerous factors on our decisions, including the media, news, advertising, etc. needless to say, decision-making today is much more complex than it used to be several decades ago (Hafstrom, 1992), and economic principles work to create a logical order of those influences and to help us choose the most relevant and justified decision. Finally, the four economic principles as discussed by Mankiw (1998) are applicable in all spheres of individual decision-making that are not necessarily related to economics consumers operate in an imperfect world in which they do not maximize their decisions in terms of economic considerations, such a price-quantity relationships, marginal utility, or indifference curves (Schiffman  Kanuk, 2004), but individuals are always impacted by the marginal losses and benefits they are bound to carry as a result of their decisions. Economic principles readily explain the basics and norms of economic interactions in the modern world, and the effectiveness of the whole economy largely depends on how good we are in our decision-making efforts.

Conclusion
In his book, Mankiw (1998) discusses the four basic principles of individual decision-making. These principles are readily applicable in all spheres of personal decision-making and confirm the impact, which economics produces on the quality of our decisions. Economic principles help us weigh the costs and benefits of each particular decision and to evaluate various factors that change the direction of our decision-making. In many aspects, the overall efficiency of economic interactions largely depends on how good we are in our decision-making efforts.

Mid-Term Questions1.

When governments impose prices in an attempt to help some particular group of producers or consumers, there are often unintended consequences. Use the case of Minimum Wage to show this. (a) Explain how some workers and companies may be disadvantaged through this wage increase.

The minimum wage can be described as the lowest hourly, daily or monthly  HYPERLINK httpen.wikipedia.orgwikiWage o Wage  monetary compensation  that an employer should legally pay its workers. It was imposed by the Government to increase the standard of living of unskilled workers and also reduce poverty. Minimum wage is a form of price floor which sets the price of labour above its equilibrium price i.e. the level at which the demand for labour meets the supply of labour. The imposition of a minimum wage increases the price of labour but doesnt result in a consequent increase demand of labour.

According to the laws of economics an increase in price always has an inverse impact on the demand for a good or service .Thus when the price for labour increases the demand for labour falls. A greater number of workers are now willing to work at higher wage levels for a smaller number of jobs. Companies tend to be more selective in choosing whom they employ when the supply of labour outstrips demand. Thus for an equal wage companies will prefer to employ skilled labour in preference to unskilled labour. Therefore the workers who dont possess either sufficient skill or experience or are approaching retirement age will find themselves unemployed in this job market. Unemployment and the loss of a stable wage will in effect contribute to increasing poverty in society rather than decrease it

Minimum wage requirements have an adverse impact on Companies by reducing the profit margin of business owners who had previously benefited from cheap labour both monetarily and through economies of scale. With the imposition of the minimum wage companies now have to pay a higher proportion of their profits as wages thus eating into their profit margins and effecting overall revenues. As a result companies functioning in industries effected by the imposition of minimum wage might not find it profitable enough to work in this industry and might to decide to either stop operations  altogether  and move to another industry or  seek alternative methods of increasing profit margins .

Businesses may also react to an increase in the price of labour by compensating for this increase by raising the prices of their product and service. If all businesses do that across the board and at every level it will lead to inflation in the economy. Inflation will raise the prices of essential food and commodities causing further problems for those workers who are also facing unemployment thus increasing poverty and social inequality even further.

(b) How could entry level wages better be established
Determining wages at a prevailing market rates using the concept of supply and demand may not bring about an equitable and fair distribution of compensation.  It may also result in the exploitation of labour with a workers right to equal and fair pay being overshadowed by the companys quest to earn more profits. The minimum wage was brought in to achieve equitable wage for all and reduce poverty. But in the prior section we see how the imposition of minimum wage actually results in increasing unemployment, inflation and poverty in the economy. What then is an alternative solution to determining equitable wages

The first solution revolves around linking together the average wage and the highest wage earned in the Company. This approach stipulates the formation of a law which entails that the highest compensation that an employee obtains can be no greater than a specific percentage (for example 30) times the average wage compensation. All workers are entitled to an average wage, Thus if the average wage is eight dollars an hour than the highest wage earned cannot exceed 240 dollars an hour. If the owner wants to increase the highest wage they will automatically also increase the lowest wage.

However this model could prove a little unrealistic in its assumption that all workers will be paid an average wage regardless of their skill level. If this assumption is held true then employers will once again become selective in who to employ and the result is unemployment of those possessing a relatively low skill level.

The second option centres on the notion of implementing a reverse income tax. This concept works on the criteria that all citizens are given a certain subsidy that is say 5,000 a year to live on. As the person finds employment and begins to earn beyond 5000 dollars his subsidy becomes zero.  But where he fails to earn an income of more than 5000 dollars a year his subsidy stays in place to and supplements the total income.

This option could prove unfair to those receiving a higher wage as it will result in penalizing workers with a higher set of skills that allow them to earn higher incomes.

Question 2. (a) What factors explain why some people earn very low incomes

The level of a persons income is influenced by price of the skills that they sell in the market. People with a lower level of academic knowledge as well as lower social and interaction skills generally earn lower incomes than people who have academic, social and communication skills.  The majority of low wage earners are unskilled and employed in labour intensive and manual work.

The labour market pays a higher price for certain skills than others. For example even though the worker may possess basic academic skills they still get lower wages because the nature of their job is very simple and uncomplicated and can be performed by anybody, Since the substitution factor is high the employer doesnt feel the reason to increase compensation to retain the services of an employee and will not raise the compensation.

In certain cases a person might  be skilled but has not updated their skills in response to an evolving industry as a result the demand for their particular skills is low and so is the price that the employer is willing to pay for these services. This is true in the case of old or retired individuals who find that their skills have lapsed in a technologically evolved environment and cannot earn a decent living using their present skills

In certain cases people may possess the required skills but the industry in which they operate in is going through a slump and as a result there is a temporary lack of   opportunity to increase income. This is true in the case of workers employed in seasonal industries or dependant on the agricultural industries. For example farmers will be able to make very little money if they do not have a good harvest or if their harvest gets destroyed by a flood or a hurricane.

 (b) Who controls these factors

Where the level of wages is influenced by the price of the skills in the market the worker is in a position to control the wages that they make by making a concerted effort to learn skills that pay more and are not easily replaceable. Thus an employee working in the post office stamping letters and earning a meagre wage can take a vocational training course and train to be a librarian thus earning highly marketable skills which will increase their income. Where the workers are earning a low income because their skills are outdated they can once again retrain and gain skills which are employable in the current environment. For example a retired person can learn computer skills and earn more by filling surveys on the internet than they did bagging groceries.

Where the worker earn less wages due to a slump in the current industry they should supplement their income by venturing  into a related industry which has demand for their skills. If this is not possible they should leave the industry and retrain in a new career in an industry which offers high compensation for their skills.

The governments too can also influence a persons capability to earn a higher wage y providing free vocational training an incentive for low wage earners to increase their level of skills. The Government can also provide grants for certain low income groups to attend college and work towards earning a degree that can procure high income jobs in the future. Companies can also create opportunities for skill development by offering on the job training and incentives for all its workers to attend some kind of vocational training to improve their communication skills.

(c) Can government through public policy influence all the factors that result in poverty

The Government can use certain aspects of public policy to change certain factors that cause poverty. The first among this involves a Federal initiative to increase the level of education and literacy in impoverished areas. By increasing education the government is indirectly increasing the capability to workers to seek higher paid employment and sustain their families more adequately in the long run

Where poverty exists because the family is supported by a single parent the Government   can provide subsidies and grants to these parents to enable them to raise heir children better and provide a better quality of life for their parents. The Government also gives single parents grants to back to college in an effort to improve their skills and earn high paying job.

One way to reduce poverty is to increase taxation and to use this additional tax income towards social welfare projects such as building more old peoples home for the retired who earn meagre incomes and cannot afford a good standard of living or providing free meals for families below the poverty line.

Another way to reduce poverty is to government incentives to create new jobs in impoverished areas. The Government can open more government institutions like schools and hospitals in these areas and train people here to be employed in these institutions thus creating gainful employment in the area.

Though the government can take initiatives to reduce poverty big businesses must also take social responsibility and help eradicate poverty by reducing greedy corporate policies that aim to exploit cheap labour and result in the rich getting richer and the poor getting poorer.

Introduction
As with any other country, the global economic crisis had a strong impact on the Indian economy. The global money supply squeezed which also had an impact on the Indian economy. The decline in aggregate demand in the international markets led to decline in demand for Indian exports which ultimately led to slow growth of GDP. Shortage of credit also led to crunch in the Equity and Debt markets of India making it difficult for businesses to fund their expansions and new businesses. The problems were compounded by the inflation rates fuelled by Oil and Commodity prices across the world.

The Indian economy registered a growth of 7.9 percent in the second quarter of the fiscal year 2009-10. This growth can be attributed to the strong recovery of the industrial sector which recorded an increase of 7.6 . The service sector showed a growth of 12 which was largely due to growth in the community, social and personal services. India, being an Emerging market economy, has shown a strong recovery based on the domestic demand and recovery of exports. India is one of those countries which has shown strong domestic demand.

The tax collection done by the Central Government has increased by 8.5. Even though companies have shown a slump in sales, but the profitability in general has improved over the last two quarters which has also led to recovery in stock prices and the increase in tax collections.

Macroeconomic Policy
The fiscal policy was a challenge for the government since the government had to come up with fiscal and monetary policy to mitigate the commodity and fuel prices and the global financial crisis. During the first half of the previous year, the focus was more on curbing inflation which had touched the levels of 12.9 in August 2008. To tackle this, the Indian government decided to come with fiscal measures on tax revenue and expense areas to help sort out the supply side issues. To complement them, the Reserve Bank of India enacted policy rate changes as part of the monetary initiative. This led to a decrease in inflation to a level of 5 in January, 2009. Even though the fiscal expenditures, which included tax concessions, subsidies and salary bills, proved successful, it worsened the budget deficit for the government (Indian Ministry of Finance, 2009).

In the second half of the previous year, the focus of the government shifted to tackling the financial crisis in order to encourage growth which had started to suffer. The effect of the recession was evident in the tax receipts which were lower than the previous fiscal year. To stimulate growth, a package worth 243 billion consisting of subsidies, pay commissions and debt waivers were introduced. This further widened the fiscal deficit to 6.2 percent in comparison to a manageable 2.5 percent of the GDP in the previous fiscal year (Sloman, 2003).

Even though the country cannot be entirely blamed for its economic situation, since the impact of the financial crisis and the recession has been global, the government cannot sit and wait for things to get better.

To handle the situation, the government had two options. The first one was to cut down its expenditures and keep the budget deficit under control. However, this would have resulted in a negative effect on the growth due to lack of investments and hence making the revival of the economy even more difficulty. Another option was to increase public expenditure to stimulate demand and to generate future revenue streams. Needless to say, the government opted for the second alternative. The decisions were supported by the idea of providing a safety net to the lower economic classes and encourage growth in the other sectors of the economy.

Inflation has become a concern for the Indian government in the current fiscal year. Last year, the inflation was largely due to global factors. But this year, inflation has been largely limited to food and been helped by monsoons effect on kharif crops (Reserve Bank of India, 2010). The combination of growth and inflation in India is very different from what it is seen in other G-20 countries. Several other countries have shown slight recovery without any inflation concerns, while others have bounced back strongly with manageable levels of inflation. However, in Indias case, the growth has been coupled with high inflation rates. Since the inflation is fuelled by the increase in food prices, it is a huge challenge for the Indian Central bank to come up with a solution to tackle inflation without compromising on the high growth rates. The Indian Central Bank and the government was hoping that the economic slowdown and decrease in aggregate demand would slow down inflation but that did not happen. A deceleration in aggregate demand was seen in the first quarter of the fiscal year 2009-10 but the economy bounced back to post a growth in the aggregate demand figures again in the second quarter of 2009-10. Other indicators also show that the country has started to rebound from the global financial crisis and is on the road to recovery. In the Industrial Outlook survey conducted by the Reserve Bank of India has also shown a positive turnaround in the business sentiments of the economy (Reserve Bank of India, 2009).

If we look at the inflationary expectations, we see that inflation can be expected to increase in the future while there are other factors which can lead to it subsiding. The reasons due to which we can see an increase include a high base effect, the momentum being carried forward from the past fiscal year putting pressure on the increase, and increase in commodity and fuel prices due to increase in aggregate demand. Reasons which could lead to a decrease in inflationary pressures include the lengthening of global recession leading to a decrease in commodity prices, unaffected agricultural growth due to monsoon and the return of the monetary stance to the normal levels.

The IMF has revised its growth projections for the Indian economy from 4.5 to 5.4 for the fiscal year 2009-10. The country is expected to return to its full growth potential in the next fiscal year. Although uncertainties still exist due to several negative possibilities, but the economists are optimistic about Indian economys resilience.

In the second quarter of the fiscal year 2009, the Reserve Bank of India decided to increase the Cash Reserve Requirement (CRR) by 75 basis points while maintaining the repo and reverse repo rates. The objective of this move was to reduce the excessive liquidity in order to curb inflation while simultaneously avoid adverse effects on recovery process. The reserve bank also plans to keep an eye on the future inflation trends and adjust the monetary policy accordingly. At the same time, it is important that the economic growth does not slow down by meeting the credit demands of the productive sectors. Hence, it can be said that the policy makers intend to maintain price and financial stability.

Under the fiscal side, the capital has started to flow and the stock markets have shown significant recovery. Even though the government borrowing from the Central bank has been considerably high, the government and the central bank feels that there is no concern for crowding out taking place for the private sector. The reserve bank states that the 80 of the budget deficit needs of the Indian government have already been met by the financial sector therefore the government demand for money is not a concern for the future.

To handle the problem of budget deficit, economists suggest that either the government can curb its spending, or it can hope that spending stimulates economic activity which leads to economic growth and hence higher tax returns. Another option for the government is to sell capital assets to fund spending, although it is not advised. The best solution for the Indian economy is to invest in development expenditure from where revenue streams can be generated for the future. But it should be made sure that the spending is done wisely and transparently by minimizing corruptions and leakages (Rajadhyaksha, 2010).

In the current fiscal year, the effect of this policy can be seen by the fact that the expenditures increased but the revenues for the government fell. However, the national GDP growth rate registered a steady increase over the next two quarters, showing that the decisions made were right. The government will continue its policy to continue stimulating growth in the recession hit world economy and continue to make expenditure. However, in the medium term, measures for fiscal consolidations will be required to make up for the budget deficit and to bring the fiscal numbers on track.

The tax policy being followed by the Indian government is to increase the tax to GDP ratio and simultaneously gain fiscal consolidation. The ratio has shown an increase of 3 percent over the past five years by improvement in the tax structure, widening of tax base and reduction in costs.

The introduction of IT systems and business process reengineering has also played its role in it.
Despite encouraging signs in the past, the consolidation process had slowed down due to slowing down of the global and domestic economy. Therefore, policy changes were required to maintain the level of growth to prepare for worse times in the future.

Conclusion
By analyzing the macroeconomic policy undertaken by the Indian Central Bank and the government in the last one year, we can say that the country has been successful in keeping the effects of global financial crisis under control and has been able to come back towards positive growth again. Other developing countries can learn from the Indian strategy carrying out the balancing act of sustainable growth and moderate inflation rates. However, there is still a long way to go for the Indian economy and still needs to address several issues such as growing food and fuel inflation and the increasing budget deficit which has to be controlled in the near future.

Introduction
The relationship between demand for a product and its price is considered basic knowledge in economics. An increase in the demand of a product predictably leads to increase in its price. As more and more people need or want the same product, the sellers are able to raise the price of the product without significant impact on the demand. Suppliers too are willing to supply more when prices are high, and scale down their supplies as prices fall. While such relationships are reasonably straightforward and easy to understand, others are complex and are the hotspots of heated scholarly arguments among theorists. One relationship which has been at the centre of a controversy spanning several decades is the one between unemployment and inflation. This paper explores the dynamic nature of the relationship between these two important economic concepts.

The British economist, A. W. Phillips, theorized that there was a stable inverse relationship between inflation and unemployment, and represented this relationship in the Phillips curve. According to Phillips, any increase in unemployment results in a decrease in the economys inflation rate. The reverse is also true so that as the rate of inflation rose, unemployment declines. Commodity prices therefore remain stable as long as there is some unemployment in the economy (Sennholz, 1986).  It could thus be concluded that according to Phillips, inflation is the price that an economy has to pay for providing employment opportunities to its entire workforce. An economy would thus find it unwise or ill-advised to provide employment for its entire work-force as such an effort would occasion very high rates of inflation.

The Phillips curve and the implied inverse relationship between unemployment and inflation were criticized harshly by theorists who argued that it was too simplistic a generalization. Phillips theorized a relationship which was found to go against established economic principles and prevailing realities.  However, some scholars have appreciated the existence and strength of this inverse relationship. Most people depend on earnings from the labour market for all or most of their income. This implies that higher rates of unemployment would lead to significant declines in income. With less money to spend, demand for goods and services would predictably decline. In explaining the relationship between unemployment and inflation, these scholars have established that the inverse relationship applies in the short-run, but not in the long run (EconomyWatch, 2009). The implication of the Phillips curve and the stable relationship between inflation and unemployment rates could be of great importance to policy makers.

A permanent and stable relationship between the two implied that policymakers could tolerate high unemployment rates to counter inflation, or tolerate runaway inflation rates as it would lead to lower unemployment rates. Governments could thus use monetary and fiscal policies to stimulate the economy and lower unemployment rates. The cost would come in the form of higher inflation rates. This could apply in the short-term but not in the long-term.

In the long-term, the Philips curve depicts a very different relationship between the rates of unemployment and inflation. Economists established that no real relationship existed between unemployment and inflation rates in the long run, and one could soar independent of the other. Studies conducted for 1963, 1972, and 1974 revealed that although unemployment rates were almost the same, inflation rates hit 1.6 percent, 3.4 percent, and 12.2 percent respectively (Sennholz, 1986). The world witnessed a period of stagflation in the 1970s which was characterized by high rates of unemployment and high rates of inflation. Scholars observed that the Phillips curve gave the wrong picture of what was happening, as there was no trade-off between the sky-rocketing rates of unemployment and inflation (Lacker  Weinberg, 2007). Instead of one rising as the other declined, both shot up, thereby creating an economic situation which Phillips had not anticipated. This led the economists Lucas and Sargent to describe the perceived stability as an economic failure on a grand scale (King  Watson, 1995).

The instability implies that no credible government can hope to reduce its rates of unemployment by tolerating high rates of inflation. Neither can it check its rates of inflation by tolerating high rates of unemployment. Put simply, the original Phillips curve was shown to be too simplistic to be used to analyse the relationship between inflation and unemployment. Other factors including demographics, productivity and fiscal policy contribute significantly to inflation rates (Berentsen, Menzio  Wright, 2008). Since it was originally advanced in 1958, the Phillips curve has been modified to take into account inflationary expectations.

Conclusion
The discussion above shows that the relationship between the rates of inflation and unemployment has been of much scholarly interest for several decades. Although Phillips had argued that there existed a direct and inverse relationship between unemployment and inflation, the events of the 1970s prompted fierce criticisms against the existence of the direct relationship which Phillips had theorised in 1958. Studies established that the Phillips curve held true only in the short-term. In the long term, this paper argues that the two cannot be studied in isolation. Other factors including demographics, monetary and fiscal policy, and productivity must be taken into account.

Minimum wage law refers to a wage that is legally set and prohibits employers from paying employees below the specified amount of money. The policy was established to curb those employers who were at first suspected of paying their employers unjustifiable salaries, especially in developed countries such as the USA and UK. Minimum wage law focused on eliminating poverty by ensuring that employees are paid the minimum amount of wage above the poverty level index. However, instead of minimum wage laws garnering support, they have been embraced criticism from economy theorists. Economists argue that establishment andor increasing minimum wage rates encourage employers to rely more on automation, employ fewer workers, and retrench some so as to reduce costs of labor. Hence, a significant number of unskilled workers remain jobless compared to when if the wage rates were lower or determined by market forces. These laws have over the time been used for political gains by various governments.

Krugman, Paul, and Robin (2008) in their work found out that employment may fall significantly due to an increase in wage rate and reduction per capita income. In addition, a tendency results whereby employees shift jobs from secured sectors into unsecured sectors of economy and this leads to a limitation that employees are not legitimized to work in sectors offering wages below the specified one. Economists argue that the labor market should be naturally controlled by forces of supply and demand for labor. Establishment of price floor for labor causes unemployment because employees will be influenced to work at higher wage rates. At these higher wage rates, that most employers consider unjustified, only a few job opportunities will be available. The available vacancies will mostly be for the highly skilled and experienced laborers. As a result, a big number of unskilled and inexperienced laborers are put off the labor market because they lack significance. Gwartney et al. (2008) in their work found out that when the wage rates of semi-un- skilled workers are increased above an equilibrium wage, the number of those employed fall significantly. However, the effects of price floors are not exclusively negative because some employees enjoy higher wage rates upon enactment of such policies but it is the proportion of workers which is laid out of workforce that is of major concern to economists.

The following diagrammatic representation of labor market further explains the above. Vertical and horizontal axes represent wages and quantity of labor respectively.
Fig 1. Labor market reform and productivity
     
Note. From Brooke news.com by Gerald Jackson, 2005
The shaded part represents negative employment of labor i.e. unemployment with an increase of wage from equilibrium (We) to a specific price floor (Wu).

Establishment of minimum wage laws has got its pros and cons as earlier mentioned. Those who support minimum wage laws argue that it improves the living standards of the low income earners by legitimately bargaining for their salary increase. However, this is not successful if only one member of the family is employed as stated in the minimum wage history report by the U.S. Department of labor statistics (quoted by Gwartney et al.2008). Secondly, there are claims that there is a correlation between the growth of companies annual payrolls and rate of employment when minimum wage rates are established. Thirdly, its proponents claim that only a few administration logistics are required to enforce this policy because employees are always at liberty to ensure they are paid legal wages. Fourth, it is argued that minimum wage laws motivate employees to increase their output. They do not risk taking chances because of large available source of labor and therefore the employer realizes better end results. Lastly, authorities establishing minimum wage laws argue that if minimum wage rates are not established, businesses andor are likely to abuse the rights of laborers, for instance at times of inflation (Krugman et al. 2008).

Besides the above claims for establishment of minimum wage laws, the following are arguments against minimum wage laws. First, economists argue that wage laws drive competition out of the labor markets. This has got impact on creating inefficiencies and discouraging small and medium scale from venturing into the market and thus results in increased rates of employment. Secondly, as demonstrated diagrammatically in the above figure, wage laws lead to reduced number of workers employed through a reduction in the number of job opportunities andor number of hours one is employed. Thirdly, minimum wage laws lead to an artificial inflation because companies tend to cover the added costs by increasing the price of goods. Fourth, wage laws are considered to benefit some individuals (mostly the skilled and already the employed) rather than reducing poverty. Fifth, economists argue that the employers develop a culture not to train individuals further so as to keep maintain minimal expenses. In addition, such policies may influence people, especially the youth, to venture into job market before attaining quality education andor training.

Economists argue that the above factors, amongst others, negatively affect the supply and demand elasticity of labor markets when compared to purely competitive markets. In summary, the wage laws have got adverse effects on employment, price of goods, revenue generated by businesses, and income wage earnings among the semi-skilled workers. For instance, in their study Gwartney et al (2008) found out that an increase of minimum wage by 10 led to a decrease of employment amongst the youth by about 1-3 . In general, the effects of minimum wage laws among different demographic groups have been studied. For instance, Neumark and Wascher (quoted by Gwartney et al, 2008) state
The effect of minimum wages is even stronger for minority youths. If these youths had a job before the minimum wage rose, they faced a 4-6 point higher of becoming idle. A higher minimum wage increases the probabilitythat they are more likely to leave school only to find themselves without employment.

Introduction
Human Immunodeficiency Virus is transmitted from one person to another through exchange of tissue fluids like blood, semen, breast milk, and vaginal secretions. Sexual intercourse has been reported to be the major route of spread of the virus. Other ways in which the disease can be spread include sharing of sharp objects like razor blades or needle for injections, at child birth and also during breast feeding. As the virus replicates in the body cells, it attacks the body immune system therefore lowering the immunity. People having this virus are highly susceptible to illness and infections (Obermeyer, 2006).

Acquired immune deficiency syndrome (AIDS) is a condition which results from advanced state of HIV infection.  For one to come down with Aids, the virus must have replicated so much in the body causing serious loss of white blood cells. White blood cells can also be damaged by cancers or infections which targets the bodys immune system. There is no cure for both AIDS and HIV (Obermeyer, 2006). Anti HIV which is also referred to as antiretroviral medications are used to control the replication of the virus and to slow down the advancement of the condition. The drugs can also be used in combination in which they will be referred to as highly active antiretroviral therapy. Antiretroviral do not cure the condition and those people using them can still spread the infection to others.

Although the data on HIVAids prevalence in the Middle East and other Muslim countries indicate that the prevalence is low, recent reports have indicated that there is rise in the prevalence level. This paper is going to tackle the economic impacts of HIVAids in the Middle East and possible recommendations to help lower the prevalence rate. It will also give some insights on the governments efforts to lower the risk of infection, risk factors and people at risk.

Brief history of the disease
The first cases of AIDS were reported in the United States in 1981 among the gay community which led to its naming as Gay Related Immune Deficiency. Scientists later realized that the disease had been present in the world even before the first cases were reported. The first confirmed case of AIDS was found in Belgian Congo. A Bantu man had died of unknown disease and this led to analysis of his blood sample. By 1982, AIDS cases had been reported by about 14 nations. In the same year, CDC received its first report of AIDS in a person who was diagnosed with hemophilia and also in children born to mothers infected with AIDS (Jenkins, 2003).

Approximately 25 million people around the world have succumbed to Aids related diseases. In the year 2008, 2.7 people contracted new HIV infections, and about 2 million men, women and children died of HIVAids related infections. Currently 33.4 million people around the world are living with the infection. It is worrying that the worlds number of people infected with HIVAids is persistently increasing even with the effective preventive measures put in place.

In Africa, the HIVAids impact has been severely felt in its poorest countries. By the end of 2007, there were about 9 countries in Africa whereby 10 of the adult population aged 15-49 were infected with the disease. The prevalence was high in countries like Botswana and South Africa. Prevalence rates are high in sub Sahara Africa, and in this area women are highly at risk of contracting the disease. The effects of HIVAids are even greater in Asia as compared to Africa. Many Asian countries lack efficient methods for monitoring the spread of HIVAids.

Across the world there has been changing pattern of gender infections. Early cases of HIV in most countries were highly intense in male homosexuals and drug injectors, but with the spread of the disease, there has been continuous change towards heterosexuals and increased infections among females. Currently, more females are dying of HIVAids and even the age patterns are varied.  The prevalence is high among the youths. People aged 15-45 are the high risk groups globally.

HIVAids situation in the Middle East
It is believed that the low prevalence of HIV AIDS in the Middle East region is related to the Islamic religion and its influence on the behavior. The Joint United Nations programs on HIVAids estimates that the total number of people infected with HIV in North Africa, the Middle East, and mostly Muslim countries in Asia to be about 1 million. By the end of 2003, the estimates was that up to0.42 million individuals in Mali, 0.18 million in Indonesia, 0.15 million in Pakistan and 61,000 people in Iran had HIV. These numbers are seriously under reported. This is because the figures were arrived at based on surveillance data, therefore lack of information can be mistaken to mean low infection.
The link between Islamic religions to low prevalence of the disease has been condemned as being ambiguous. World Health Organization estimated that about 83,000 people had contracted new infections in the region in 2002, and about 0.3  of the adult people in the region are currently incubating the disease. Latest evidence shows that the prevalence of sexually transmitted infections is on the rise and the total number of people who are dying from Aids related infections has increased six times compared to the figures found in early 1990s. In the low and middle income countries in the Middle East, HIV AIDS were the major cause of the morbidity in the region. Incidences of HIV AIDS infection in patients suffering from tuberculosis is also rising reaching 4.2 reported in Islamic republic of Iran and 4.8 reported in Oman. There was also rise in the incidences of HIV AIDS among people injecting themselves with drugs in Iran (Abrahams, 2007).

The other reason for the assumed low prevalence of HIV AIDS in Middle East countries is attributed to lack of proper data. There is no country in this region which carries out systemic surveillance of groups at risk of infection.  As a result of this, UNAIDS estimates the total number of people infected with HIV AIDS in the Middle East and North African countries to range from 200,000 to 1.4 million. It is also reported that only 5 of the infected people in this region have access to antiretroviral drugs (IRIN, 2010).  

The World bank report of 2003 on HIV AIDS prevalence rate in Middle East revealed that assumption of low rates of infection has led governments to assume the disease is not important therefore reluctance in taking proper action against it. Most governments pressed with other needs like housing, employment, and education and regard HIV AIDS control measures as the last priority in their list of issues to be solved. Other governments assume that their social and cultural conservatism will some how help in turning away HIV AIDS (IRIN, 2010).   In the GCC the low numbers are attributed to the deportation policy the people face if they are found with the HIV virus.

Economic impact of HIVAids in the Middle East
The impact of the epidemic on the economy is measured by looking into these four channels size and composition of labor force, productivity growth, health expenditure, and the saving rates of the economy. There are various types of labor which are considered and they include skilled, unskilled, and unemployed. Other channels like lowered human capital is also considered. Evaluation of all the above factors will give a clear insight on the effects of HIV AIDS in the region. The main routes of spread are through infected needles by injecting drug users, and through having sexual intercourse (Akala  Jenkins, 2005).

The figures got from this region are relatively low as compared to Africa, South, and Southeast Asia, and the Caribbean regions. Low cases cannot be equated to low risk of getting the disease. Insufficient surveillance methods which are common weaknesses in the region can ignore outbreaks in the marginalized social groups. Although the prevalent rate of HIV AIDS is low, this situation can change as it had occurred in Indonesia and Nepal (Chelala, 2009).

In countries which are severely affected by HIVAids pandemic, the heartbreaking and sudden loss of parents and productive citizens affects families, farms, other places of work like schools, health systems, and finally governments. The epidemic affects all aspects of life. Household is the first victim to feel the effect of HIV AIDS. Since it is the family members who provide care to the sick, they suffer financial difficulties. Since the condition takes long, there will be loss of income and also increased cost of caring for the sick which leaves most families unstable financially. Death of parents put children left behind in compromising situation of either supporting themselves or splitting up to go and stay with other relative. This also brings about break in the family unit (Cheemeh, Montoya, Essien,  Ogungbade, 2006).

Healthcare facilities also experiences massive demand as the disease spreads. The epidemic has already brought down health care facilities in the region, since these facilities have been very weak before the epidemic emerged. Expenses are on the rise for treatment of AIDS and AIDS related illnesses. Since the resources are always scarce, massive allocations to AIDS cases can result in ignoring other health related issues since public funds for healthcare will become scarce. Other costs related to health care are then left to households and private sector to look for (Abrahams, 2007).

Business and agriculture also suffer from the impact of HIV AIDS epidemic. Employers get affected through the loss of workers, frequent absenteeism due to illness, the increasing cost of providing health care benefits, and payment of benefits to dead workers. The economic survival of small farms and commercial agriculture is also affected with the loss of workers through death. Studies also indicate that in countries seriously affected by AIDS, the agricultural labor force is likely to reduce by 10 to 26 by 2020. Another study showed that countries with slow agricultural growth are likely to experience increasing food insecurity in the future (UNAIDS, 2009).  In addition to the influence on cumulative economic performance, persons working in some sectors within the economy are likely to be susceptible to HIVAids. People working in sectors that involve mobile and sex segregated labor, like trucking, fishing, and military sectors, healthcare sectors, and tourism sector since it is very sensitive to ill health.

The costs associated with HIVAids in this region can be said to underestimate owing to the fact that there is lack of strict reporting regulation. The impact of HIVAids in human can be equated to infinity since it ranges from the pain which people feel when one dies of AIDS or when found positive and the guilt surrounding personal and intimate relationships to shaken social and political security which affects the government. Even though human costs can not be measured, it is necessary to asses the costs and losses that can be quantified since they are also important and can have a great impact on a countrys economy (Akala  Jenkins, 2005).

Using the latest published estimates of HIV prevalence in Middle East countries, losses in gross domestic product and consumption due to the spread of HIV AIDS can be important in many Middle East countries.  From the data obtained from 9 Middle East countries, calculations from broad range of situations shows that the average growth rate of potential gross domestic product could be lowered by 0.2 to 1.5  per year for the period of 23 years starting from 2002. The predicted losses of possible productivity and utilization during that period could be equated to 35 of the current gross domestic product even with the conservative assumptions. Theses losses result from increasing mortality and morbidity which in turn lowers the labor productivity and capital investment, the labor force is also reduced (Al-Jarady, 2008).

The analysis also indicates that there could be a significant increase in money used in seeking health services. It is also projected that by 2015, annual expenditure in treatment of all AIDS patients shall have risen to 1.2  of current GDP even with strict use of antiretroviral drugs. It is likely to find situations in which HIV AIDS related expenses rises beyond 5  of GDP (Al-Jarady, 2008).

In countries where adequate HIV AIDS control measures have not been put in place, the impact of the disease has been quite devastating. In the worst situations, teachers die at a faster rate than they can acquire training, health workers gets infected frequently leading to canceling and evening crippling of healthcare services, and farmers are left unable to maintain normal agricultural productivity. In most cases, military gets affected as it is common in most countries to an extent that defense functions are severely affected. The major cause of the spread of the disease among military officers is linked to military measures taken as a result of political instability (Cheemeh, Montoya, Essien  Ogungbade, 2006).

Health and development benefits showed in increased life expectancy in third world countries are lost, many children are left without parents, families savings and property are lost, and since there is uncontrolled segregation and stigma associated with the disease, the customary safety nets based on relationship and community support are eliminated. Although both the rich and the poor can get infected, the rich people adapt so easily. Illiteracy in the community raises the prevalence rate of the disease since the people involved cannot get information and essential services, stuck in unsteady survival conditions, or even without authority to change their lifestyle. Women who are unstable economically cannot bargain safety in their intimate relationships. Survival and prevention of HIV among the society is only possible when the governments discuss the issue openly, provide relevant information and services, and collaborate with organizations representing the affected communities (Rosenthal, 2006).

Possible preventive measures
The results on the infection rate of HIV AIDS in the Middle East made the executive director of UNAIDS to plead with the leaders from this region to talk about the AIDS situation in this region. The effects of the disease are still not visible in the region and this makes it impossible to make any progress. Until the stigma associated with the disease is challenged and the people living with HIV AIDS come out openly to participate in community based AIDS response, nothing much will be achieved (Abrahams, 2007).

Although the surveillance report on HIV AIDS in the region is giving fewer figures, they are at risk. Medicines for HIV AIDS have been made available in several countries in the region with some governments providing antiretroviral drugs free of charge or at a reduced price. According to world reports, these drugs are still not found easily in the Middle East which calls for immediate action. The figures show that only about 5 of the people who need these drugs get them. There is also need to mobilize infected people to seek medical attention early enough (Akala  Jenkins, 2005).

Since knowledge on AIDS is still inadequate and stigma and discrimination still exist in this region, there is need for greater visibility and more effort to be put in place to encourage people to discuss AIDS issues openly. In the whole region, governments and non governmental organizations have started good projects so as to eliminate the silence on AIDS matters, disseminate the information, encourage prevention, and provide needed care and treatments for those already sick (Chelala, 2009).

Conclusion
Although the present data indicates low prevalence of the disease in Muslim countries, the truth is that the disease is present and is posing great threat to the economic development. Unless people embrace the efforts to control this disease, suffering will continue. Some of the recommendations to help reduce the prevalence rates include incorporating the HIV Aids education as part of the charity giving, domestic and international anti Aids war be planned and implemented as soon as possible, and finally there is need to reach out for the most vulnerable individuals in the society and stop the continued spread of the disease.

The constant renewal of a labor force through the establishment of vacancies and filling them, aids a capitalist economy to function efficiently this is the maintenance of the labor force. To characterize a system of migrant labor, there has to be an establishment in the difference between the institution itself, and the physical separation of the processes of renewal and maintenance. Migrant labor also depends upon the presence or lack of employment in a specific area, and the state of an economy of another area. Migrant labor in most countries is managed by specific policies that include legal and political, which determine the geographical mobility and restrictions in some occupations and is made worse by the fact that such migrants are powerless in their place of employment. This powerlessness is brought about by the fact that there are certain legal and political mechanisms that restrict some of their freedoms.

The term migrant in general means an individual living in a country other than his, or her own native country. The lack or inadequacy of certain fundamental requirements such as land, food and water, have been the main causes of migration since time immemorial. Other causes include natural calamities such as major floods and severe droughts, which may also force people to move out of their native country. The major divide between the rich and the poor in economically challenged countries is also a major factor in the migration of people. In such countries, there is a surge in the rate of population growth, while the social amenities remain stagnated, putting pressure on individuals to migrate. This stagnation is brought about by poor economic policies which include massive debts, lack of technological know-how which hampers economic development. Some countries that are strife torn, due to political, religion, race or ethnic conviction also produce migrants known as refugees, who have the right to be protected by foreign countries due to international convections. Migration is also made possible by improvements in technology that enable adequate advertisement of destinations, and what is there to be expected upon migration.  The push and pull factors that Burawoy is highlighting include political factors, with the push factor being the migration due to fear of persecution due to war and conflicts, or due to a certain political preference, for example Jews fleeing Europe due to the holocaust. The political pull factor could be the lure to freedom for such migrants to more peaceful and welcoming countries.  The economic push factors could include low employment levels and poor income on the few available jobs. The pull economic factor is the presence or even the perceived presence of availability of better paying jobs.  While the physical push is the presence of natural calamities as mentioned above, the pull is the attraction of a more conducive climate and environment.

Burawoy (1976) argues that there should be a distinct separation between the maintenance and the renewal of labor within a given economy of a country. This is due to the fact that the costs of maintenance and renewal of workers can bear a major grunt in the financial status of an economy since it is the economy of a country that sustains the costs. He also argues that the political and or economical costs that the migrant employee may bring about is not borne by the employer of migrant labor, since to some extent it is extended to an alternate state or even economy. He further talks about how there is necessity for the economy to grow in a capitalist economy, and this is achieved through production and reproduction. The laboring population on the other hand, depends on the employment for their survival. This interdependence is the drive towards the unification found in a feudalism system and is further reinforced by coercive regulation.

From Burawoy (1976) s research, he argues that the prior findings found on the benefits and costs of migrant labor are far much more complicated than it is depicted by writers who wrote about migrant labor before him. According to his findings, he states that the cost of the reproduction of labor power is reduced, or much more manageable, when there is an effective system of migrant labor, which constitutes a cheap labor power. He however states that the costs that writers are talking about are not categorical in stating to whom the cheap costs of labor are, whether to the employer or to the state. He also figures out that the writers do not examine exactly which aspects of the costs of reproduction of labor are reduced, that is, whether it is the renewal or maintenance. Some other findings that Burawoy (1976) found out that the other writers did not dwell on, was the fact that even though migrant labor may present itself as a saving to the economy and the employer, the costs of the reproduction of such a system (migrant labor) might outdo the benefits gained, since the writers did not dwell on the political and economical costs of the reproduction of such labor. Looking at the case of black migrant labor in the mines of South Africa, Burawoy (1976) notes that such workers receive just enough pay to sustain their day to day needs. He also notes that such black workers migrate between the areas where they are allowed to acquire domicile land also known as reserves and or neighboring black countries, and their places of work. He also notes that since migrant labor is perceived as cheap to the employer, mines would have to increase their wages to a certain significant amount if they were to compete with the other manufacturing sectors for this cheap labor.

Burawoy (1976) also looks into the costs associated with migrant labor such as the economical costs and the political costs. The economical costs are driven down, owing to the fact that most of the black people from the neighboring countries and the reserves are desperate for a source of income, considering that majority of the population from the reserve depend on the income from their kinsmen residing or working within the urban areas. This makes it possible for the employers to acquire cheap labor that they can exploit, and there is no legal framework protecting the worker, but instead it is the other way round where the employer is the one protected by law. The political costs include the presence of a large population of black stable people, governed by a white supremacist state. Burawoy (1976) also looks at the concept that migrant labor is cheap and comes up with the question, cheap to whom in particular He argues that although migrant labor is perceived as cheap, it is actually expensive if looked at in a broader sense, or at least to some sectors of the economy. He states that large industries rely largely on unskilled labor, as opposed to small scale industries that mainly rely on skilled labor, which is normally more expensive to maintain and recruit. This is due to the reliance on the market institutions for the regulation of the labor supply. Considering that the state relies on funding from other institutions such as these industries, it is important to note that the state will bear the grunt of the costs associated with migrant labor, as the industries will only have to bear a small percentage of the costs. He also notes that as much as migrant labor might be cheap to the large industries that rely on migrant unskilled labor, it is paramount to note that since it is the state that bears the burden as mentioned earlier, the state does not finance itself, but rather gets its funding from revenues collected via ways and means such as taxation. By extension, the industries also bear the grunt of the costs of migrant labor, and thus the question is not only to who is migrant labor cheap, but also in respect to what, and also under what conditions.

Burawoy (1976) goes back into the events that led to the emergence of migrant labor in the South African mines. The blacks living in the rural areas had heavy taxes imposed on them, making it hard for them to maintain their lifestyles from subsistence methods, forcing them to seek employment from the upcoming industries. The state also expropriated land making it difficult for these Africans to exist on subsistence methods and making them look for an additional or alternative source of income. He even gives an example of the Malawians who trekked to the South African or the Zambian copper mines. Another point that led to the emergence of migrant labor was the conscription of healthy African males by the then colonial system. Also those Africans who stayed in their farms and opted for agriculture as the main source of income and their livelihood, were forced in to migrant labor, through subsidies imposed by the colonial administration, that were discriminatory in the favor of the white farmers. This was partly done by the lure of better rewards in the wage system of getting income, as opposed to staying in the reserves and trying to earn off agriculture. This system of migrant labor gave rise to a major dependence on a capitalist economy, where still taxes had to be paid, but yet a substantial amount could still be sent to the family members in the reserves by the individuals working in the urban areas. Hence the largely dependence on a capitalist economy was brought about by the inability of the reserve areas to support a labor force that is ever reproducing.

According to the findings of Burawoy (1976) in his study, the wages of the African migrant labor workers is calculated based on the amount that they would have otherwise made form subsistence alternatives. However, the rural economy in the South African reserve areas are under serious decay, owing to soil erosion and over-population which make the subsistence mode of making a living increasingly difficult. He quotes the work of Wolpe and states his findings that the South African government having realized this worrying trend, sets to balance it off by setting aside funds to ease the situation, though the amount set aside as compared to the situation at hand, is not enough to reverse the situation. So the government turned to a system of communal land tenure system, by slowing down land accumulation by some Africans and the dispossession of land. In his findings, Burawoy (1976) further talks about the case being different in the neighboring country to South Africa, of Malawi. Instead of the rural economy suffering a blow due to the influx in migrant labor, it has got a boost. This is due to the fact that the able bodied men that migrated out of the reserves remit their earning to the rural areas, and those that remained in the reserves continue with subsistence activities.

The laws in South Africa at that time according to Burawoy (1976), was such that a migrant worker was unable to get permanent residence within the urban areas, and thus was forced to go back to the rural areas in case the employment was terminated due to reasons such as disability, sickness or even retirement. These laws ensured that remittance of wages earned by the migrant workers aided in the sustaining of the rural economy and thus ensure that there was efficient circulation and renewal of the labor force. Due to the apartheid situation in South Africa, there was a color bar that was introduced that limited colored individuals from working in the skilled positions in the industries. This ensured that occupational mobility was highly limited especially and mostly, to colored workers. Such factors have made the permanent integration of the migrant labor force which is predominantly black close to impossible in that era and particularly in South Africa.

In the United States of America, Burawoy (1976) notes that California is the largest in terms of agricultural production, and thus farm labor is the major form of migrant labor found in this state. He notes that the first migrant laborers were the Chinese, but due to the economic depression, whites also were later employed in these farms. Much later came the Japanese who where later replaced by the Mexicans. Burawoy (1976) notes that migrant labor is much easy to lay off in times of economic recession, and also considering that agriculture is seasonal, there are times when the labor force has to be reduced to a considerable number. Burawoy (1976) also puts into consideration the three types of migrant labor systems available in California, that is laborers moving from Mexico to California and vice versa known as external migrant labor, then there is internal migrant labor which consists of immigrants residing within California, then finally the domestic labor that seeks employment from place to place. Cheap labor is also an issue in California as it was in the South African mines, since migrant labor is much cheaper than domestic labor, considering that it is seasonal just like the harvest season. He also sees that there is lesser twin dependency on two economies as opposed to the South African case where migrants had to rely on both rural subsistence and wages made in the mines. In the case of external migrants in California, that is Mexicans, they tend to rely more on their state as opposed to relying on employment in America. For internal migrants, they are more dependent on employment in America, but yet, they are also limited to farm labor just like their external counterparts. On the issue of the regulation of circulation by the government, laws ensured that migrant laborers from Mexico returned to their native country once their contract expired. This also ensured that occupational mobility was limited owing to the fact that they were restricted to the unskilled labor. Equally, the color bar could not be put into use in the California case due to the fact that most if not all the labor is unskilled. Minimum wage conditions also prevents domestic laborers from demanding that they be employed over the eternal migrant laborers, thus limiting discrimination in the employment of labor as opposed to the South African case.

From Burawoys study, one can conclude that race plays a major role in determining the level of exploitation of a work force since in the case of South Africa, whites have had political prominence as opposed to the black population. Also in the case of the California migrant workers, the relation that one or a certain group has with the state plays a major role in determining the difference between the renewal and maintenance of the labor force and distinguishes domestic workers from migrant workers. It is quite important to note that in both cases, there is competition between two castes of workers in South Africa the whites and the blacks, while in California the migrant and the domestic workers. Thus it is fair to conclude that permanent integration into the work force is impossible owing to the political, social and economical policies set forth and promoted by the governments governing both these states.

Chapter 60
The goods and services market model, the foreign exchange market model and the money market model were integrated and combined together in the AA-DD model. The AA-DD model represents the connection among the three market models through a graphical form. Basically, AA-DD model is composed of the AA line and the DD line. The AA line symbolizes the market balance of assets. The AA line is derived from the foreign exchange market model and the money market model. The DD line symbolizes market balance of demand based on the goods and services market model. If the AA line and the DD line intersects then it is valid to imply that all the three market models are in equilibrium. This situation is known as the Super-Equilibrium.

The DD line is determined by the intersection between the aggregate demand and the GNP. An increase in the rate of exchange would automatically yield an increase to the aggregate demand. After finding the point of equilibrium, a change in the rate of exchange would cause a change in the point of equilibrium, requiring a rightward movement of the GNP. The DD line is the line made from the original point of equilibrium to the new point of equilibrium after the change in the rate of exchange. Thus, the DD curve is simply all the possible points of equilibrium between the GNP and the rate of exchange captured in the goods and service market model if all the exogenous variables are fixed. If this is the case, then the DD line would only shift if the exogenous factors are changed.

The goods and services market model showed the DD line as a collection of different grouping of GNP and exchange rate responsible for the equilibrium. The demand curve shifts towards the right when the demand made by the government, transfer payments, investments and foreign prices raises. It could also move towards the right if the price of domestic products and taxes becomes lower.

There are other systems that
The AA line is determined by the intersection between the exchange rate (endogenous) and the GNP (exogenous). The return of exchange for the US dollar is determined by the rates of interest, which is determined by the real money demand and the real money supply. The first point in the AA line is determined by the intersection of the GNP and the rate of exchange in the assets market. The second point of the line is determined by the increase in GNP, which lowers the rates of exchange. The new point of equilibrium is the second point in the AA line. In the asset market, the exogenous factors are the rates of interest in the foreign country, the expected exchange rate, the supply of money in the country, the level of prices in the country and the GNP of the country. The endogenous factors are the interest rates in the country and the actual rate of exchange.

The market of assets determinie the AA line. Unlike the DD line which shifts horizontally, the AA line shifts vertically. It moves upward when there is a decrease in the domestic market. Moreover, it also tend to move upward when there is an increase in the foreign rates of interest, the expected exchange rate and the amount of money supply.

In both lines, if the variables behave differently there would be an opposite movement in the graphical line. Moreover, the given situations above only applies when the exogenous factors are fixed. Otherwise, the lines would not be in equilibrium. If the graphical intersection of the AA-DD is steep, this denote that there are rapid changes in the market of assets. Since the movement in the market of assets changes more quickly than the market of goods and services, then the DD curve would only move after the AA curve. The AA-DD model is important in the determination of fiscal and monetary policies. The model could help analyze the possible impact of the macroeconomic policies to the level of GDP, the rates of interests, the rates of exchange, and in foreign and national price levels.

Aside from the exchange rate, another important factor in devising macroeconomic policies would be the balance of current accounts. Since this was not explicitly shown in the AA-DD model, it is important to understand how its position could be determines. The balance in current account is possible since it determines the balance of payments. An iso-CAB line could be drawn in the AA-DD graph if the balance in the current account are similar. The iso-CAB line could represent the current account balance that depends on the super-equilibrium. If the iso-CAB is higher than the super-equilibrium of the AA-DD line, then the balance on current account is greater. It is important to assess the iso-CAB line because it would give a preview on the possible effect of the macroeconomic policy to the AA-DD markets.

Chapter 70
The AA-DD model could affect the macroeconomic policy in different ways. In an economy where the exchange rate is not fixed, the supply of money is regulated by the nations central bank. The central bank could create expansionary policies that could increase the supply of money or they could create contractionary policies that could lessen the amount of money. The expansionary policy of the central bank could change the AA line upward while the DD line remains the same. This entails an increase in the GNP and an increase in the exchange rate. The change in the increase rates denotes that the countrys currency decreases while the foreign currency increase. Thus, the expansionary policy creates depreciation in the countrys currency. Since the AA line increase upward, the iso-CAB would have a corresponding increase emphasizing the increase in the amount of current account balance. If a contractionary policy is made, the reverse scenario would apply.

Another type of macroeconomic policy is the fiscal policy. This policy is concerned with the profits and expenses made in the government system.  The balance in the government budget would therefore affect fiscal policy. The increase in government expenses and the decrease in revenue from taxes is known as an expansionary fiscal policy. If the opposite scenario holds true, then the fiscal policy is contractionary.

An expansionary fiscal policy affects the demand for goods and services and the demand for consumption. This creates an increase in the aggregate demand. If there is an expansionary fiscal policy, the DD line will move to the right. Such movement would also cause the AA-DD super-equilibrium to shift rightward. The rate of exchange would fall while the GNP increase. Since the rate of exchange decreased, then a corresponding foreign currency would decrease against the increase in the countrys currency. This implies an appreciation of the countrys currency. The new super-equilibrium would be below the former iso-CAB line denoting a decrease in the amount of current account balance. If a contrationary fiscal policy occurs, the reverse scenario would apply.

All the above discussions happen in the short-run. In a long-run scenario, an expansionary monetary policy would shift the AA line upward. The change would occur quickly because exchange rate changes in faster than GNP. The scenario would prompt the investors to expect an inflation, which increases the expected rate of exchange. This would create another upward shift to the AA line. The long-term effect would include a further depreciation in the value of the countrys currency. The DD line would shift to the left because there would be an increase in prices. The real rate of exchange would decrease. In this scenario, the prices of foreign products become cheaper than domestic products. This would push the AA line downward because the supply of money would fall as the prices of products increase. The decrease in the supply of money would result to an increase in the rates of interest, which also increases the rates of return for investment on the country. The demand for the countrys currency by foreign investors increases or appreciates. The AA line would move downward along with the decrease in GNP.  Finally, the long-run effect of expansion in the supply of money would not create changes in the GNP while the countrys currency depreciated.

The central bank would only intervene to create a steady exchange range or to control the trade deficit in the country.  The central bank could indirectly intervene in the rate of exchange by controlling the supply of money in the country.  Increasing the supply of money would result to depreciation in the countrys currency. However, this intervention would take too long thus, direct interventions could be made by penetrating the FOREX market. The central bank could purchase or sell the domestic currency in exchange with foreign currency. However, this direct intervention requires a sufficient foreign currency reserve or foreign exchange reserves, which could be accumulated in a long period of time for this particular function. Indirectly, the direct intervention made by the central bank would result to an increase (decrease) in the money supply if they buy (sell) domestic currency from the FOREX market. This creates a reduction in the rates of interests and a further reduction in the rates of return.  This leads to a depreciation of the countrys currency. The central bank may not want this to happen, thus, there are times when the central bank chooses to make a sterilized intervention. The sterilization occurs when the central bank tries to counteract the possible domestic effect of the direct intervention in FOREX market. This would mean that open market operations would be use to assure that the rate of exchange and the GNP in the AA-DD model would not be affected by the intervention. This would hold true unless foreign investors would change their expectation about the rate of exchange.

Chapter 80
The rate of exchange of currencies depends on the system that applies between two countries with different currencies. In the current economic milieu, the system of floating rate of exchange dominates to the point of regularity. Nonetheless, a second system known as the fixed rate of exchange exists. In the fixed system, the government is the one responsible for the setting the worth of the countrys currency. Traditionally, gold was used as the standard in assessing the worth of currencies. While floating system based the value of currency with supply and demand, the fixed system relates the value of currency to a fix amount of gold or currency reserve.

Using gold as the standard to fix the value of currency would require a fix amount of currency exchangeable for a specific amount of gold. Such value must be publicly tradable. The countrys central bank must hold a large amount of gold reserves to trade with the public. Using this standard would mean that the exchange rate between two countrys is the ratio between the price of gold in the home country over the price of gold in the foreign country. With this in mind, any increase in the quantity of gold in any country would yield an increase in the supply of money domestically. In a situation where in the GDP do not change and both PPP and IRP are at work, then any increase in the domestic supply of money would not raise the amount of produce. This implies that there will be inflation or an increase in the price of domestic output. When foreign products are cheaper than domestic products, the consumers would practically buy products from overseas. In relation to this, the supply of money in the home country would gradually decrease while the supply of money in other country increases. The scenario would continue until the balance of prices via PPP and rates of return via IRP are achieved. The currency reserved standard works in the same way as the gold standard however, this standard use another countrys currency as a standard to which they fix the value of their currency. By doing this, the central bank must hold a currency reserve of the foreign countrys currency. A mixture of the two standards could also be used as intended by the system of gold-exchange standard. In this system, the foreign country chosen as a reserve needs to determine the price of gold using the reserve countrys currency. In this scenario, central banks are the only ones allowed to exchange money with gold directly.

After World War II, the system for exchange rate was changed to the Bretton-Woods system, which had instituted the International Monetary Fund. The purpose of this institution is to assure that the Bretton-Woods system is standardized and secured. Other than the above-mentioned systems of fixed exchange rate, there are still other systems that are being used in some countries. Saudi Arabia and Botswana both utilize the systems of basket-of-currencies in which the value of their currencies is fixed upon the comparative weight of a group of currencies. The IMF created the SDR or special drawing rights involving specific amounts of Japanese Yen, Euro, US dollars and British pounds, for this particular purpose. In case when the fixed rate would still be changed in certain periods, a system if crawling pegs exists. Instead of creating transitory changes in the fixed rate, the central bank could gradually regulate or alter the fixed rate. If there is an allowable band that allows the fluctuation of currency, then the system being used is pegged within a band. The fixed rate of exchange could also be achieved by creating a currency board that lawfully ensure that the rate would not change and no FOREX intervention could be made to control the rate. The last system that can be use is the adaptation of the foreign currency such that of the Euroization and Dollarization in some countries. This is noted as the extreme means to maintain a fixed exchange rate.

In the floating exchange rate, the central bank does not interfere with the establishment of the currency values and FOREX transactions. In a fixed exchange rate the central bank almost always get involved with FOREX transactions. The interest rate parity could only be attained in the fixed exchange rate system if the interest rates of both nations are the same. The central bank supplies the excess demand or buys the excess supply of currency in the FOREX market to make certain that the fixed rate of exchange is reliable. A balance of payment deficit (surplus) happens when the central bank purchases (sells) home country currency by selling (purchasing) foreign country currency reserves. If the central bank would not meddle with the excess andor deficit in the amount of currency in the FOREX market. The currencies would be exchanged under the established fixed exchange rate. If there will be currency exchanges that involves illegal exchange rate due to not being satisfied with the official rate of exchange, then a Black market in buy and sell of currencies arise.

The central bank is the most important organization in any economy in the world. Its main goals are Sustaining economic growth, and stabilizing the monetary and financial systems. In the United States, the organization that handles the responsibilities and duties of the central bank is the Federal Reserve System (also known as the  Fed ).

The United States economy is big and hard to manage, and therefore, the nation needs a huge system with a big number of institutions in order to maintain its economys safety. The Federal Reserve System is a very extended organization that includes a big number of institutions working together as the nations protecting shield against economic crises, and the most important institution in this organization is the Federal Reserve Bank. The highest authority in the system, the Federal Reserve Board (Board of Governors), works in conjunction with various advisory councils and committees in order to ensure the ability to carry out the Feds duties. The Federal Reserve System uses a number of powerful and effective tools to manage many economic factors, and those factors include prices and interest rates.                

The Institutions That the Federal Reserve System (Fed) IncludesThe Federal Reserve Bank     The main institution in the Federal Reserve System, headed by the Federal Reserve Board. The banks main headquarters is located in Washington DC. There are 12 regional Reserve Banks, each bank is located in a major city within its region. These regional Reserve Banks have 25 branches across their regions. Every regional Reserve Bank has its own nine-member board of directors regional  member banks  elect six, while the Federal Reserve Board appoints three and elects the chairman from among all members. Member Banks (or Member Institutions)    

There are thousands of member banks including national banks and state chartered banks. The law requires national banks to join the Fed, while it allows other banks to join under certain conditions that the Board sets. A member bank must buy stock from the Federal Reserve Bank with a total value of investments equal to 3 of the total sum of its own capital and surplus. Each member bank receives a 6 annual dividend (fixed) and earns the right to elect members of the board of directors of its regional Reserve Bank.                              

The Management of the Federal Reserve SystemThe Board of Governors (Federal Reserve Board)     The highest authority in the Federal Reserve System, and its responsible for supervising the operations and adjusting monetary policy according to the economys needs. The board consists of seven members one of them is appointed as the chairman and another as the vice chairman. Appointing the members of the board is the U.S. presidents duty, while the Senate  is responsible for approving the appointments. The Federal Open Market Committee (FOMC)    

This committee consists of 12 members The members of the Federal Reserve Board and five presidents of regional Reserve Banks. One of those five presidents must be the president of the New York Reserve Bank (permanent member). The other four presidents are appointed in the committee on a different basis the other 11 Reserve Banks are classified into four groups, one president from each group serves in the FOMC  on a one-year rotating basis  ( System , 2010, p. 1). Unlike the case of the Federal Reserve Board, its the FOMC members duty to elect their chairman and vice chairman. Usually, the results of any election is choosing the chairman of the Federal Reserve Board as chairman of the FOMC and the president of the regional New York Reserve Bank as vice chairman. Advisor Groups (Assisting the Board of Governors)    

Federal advisory council. It consists of 12 members representing each of the the 12 regional Reserve Banks. The Board of Governors is responsible for appointing the members on an annual basis. This councils main goal is providing the Board of Governors with the necessary assistance regarding  banking and economic issues.     Consumer advisory council. It consists of 30 specialists who work with the Board on addressing and solving problems that face consumers and creditors.    

Thrift institutions advisory council. It consists of a number of financial and economic experts who represent thrift institutions. Its main goal is providing the Board of Governors with assistance regarding issues that concern those institutions.            

The Feds Responsibilities and Duties, and Its Tools for Handling Them    
The Feds goals are Sustaining the growth of the economy, and stabilizing the financial and monetary systems. Its main tools to achieve these goals areSetting the Reserve-Level Rates (or Reserve Ratios)    
This rate determines the proportion of the capital that a member bank must hold as a reserve (against deposits). Many economic factors determine the most appropriate reserve-level rate including  the volume of business and consumer expenditures  ( System , 2010, p. 1). The Fed sets the reserve-level rates to control many economic factors like money supply. If the Fed lowers the rate banks increase the amounts of funds they allow their customers to borrow, and raising the rate results in the exact opposite effect. Changing reserve-level rates has many other effects like changing interest rates and price levels. Setting Various Types of Interest Rates    

Member banks can borrow from their regional Reserve Banks at a certain interest rate, this interest rate is known as the  discount rate  and its the Feds responsibility to set it. The purpose of setting this rate is regulating money supply to protect the economy from inflation and deflation. In the case of a possible threat of inflation, the Federal Reserve Bank raises the discount rate to regulate borrowing which decreases money supply. This is an effective tool for facing inflation but it has a negative effect on economic growth because it regulates borrowing and investing. In the case of a possible threat of deflation, the Federal Reserve Bank lowers the discount rate to  stimulate business activity. Changing the discount rate has a direct effect on the  federal funds rate , the interest rate at which a nonmember depository institution can borrow an  overnight loan  from a member one. In order to make profits, member institutions (lenders) make sure that federal funds rates on their loans are higher than the discount rate. Nonmember institutions that borrow overnight loans, in turn, make sure that their loans cost borrowers higher interest rates than federal funds rates in order to make profits. Unlike all other rates, the federal funds rate isnt fixed because it can vary  from day to day and from bank to bank. Open-Market Operations    

These are the operations of buying and selling securities that are issued by the U.S. federal government in the open market. The Federal Reserve Board issues most of the decisions regarding open-market operations, and the FOMC is responsible for conducting them. Buying government securities from banks results in increasing their funds and causing interest rates to drop. Selling securities results in the exact opposite effect.                        

The United States federal budget is the proposal by the president of the United States to the congress, recommending the funding levels of the next year (fiscal year), which normally starts on October 1. The decisions concerning proposed federal budget that are made by the congress are governed by the legislation as well as the rules pertaining federal budget process. In the federal budget, the Budget Committees usually set the limits of spending of the House while the Senate Committees set the spending limits of the Appropriations Subcommittees. The Appropriations Subcommittees then approve each Appropriations Bill so as to allocate the funding to the various federal programs. Once the congress has approved the Appropriations Bill, they forward it to the president. The president in turn might sign the bill or veto it. If vetoed, it is taken back to the congress and the congress has the authority to pass such a bill into a law upon the majority vote of two- thirds of each chamber. Every year, the United States president submits a budget request to the congress for the next fiscal year. This is per the requirement by the Budget and Accounting Act Of 1991. Currently, the law requires the US president to present a budget not before the first Monday of January and not past the first Monday of February. The US federal budget is largely calculated in the basis of cash that is, outlays and revenues are usually recognized upon making the transaction.

The 2011 Federal Budget
The US federal budget for 2011 is a detailed spending request that was forwarded by the US president, Barrack Obama, for funding the operations of the US government representing the months between October 2010 and September 2011. On Monday, January 1, 2010 the US president, Barrack Obama submitted the current 2011 federal budget to the congress. The 2011 federal budget is a 192-paged document with the details of the  3.8 trillion of planned federal spending in the fiscal year 2011. However, the 2011 final budget shall be enacted in October, 1st.  On a general overview, reductions on taxes were included in the budget in addition to the presidents saying that over 300 billion for the next ten years put for families, individuals and businesses. The federal budget also reflected the presidents commitment towards making the creation of job opportunities, a leading priority in his government. The federal budget to this effect includes a 100 billion amount for direct job-creating expected investments in tax cuts, small business, infrastructure and clean energy. This is inclusive of a newly introduced business jobs as well as wages tax cut for spurring small businesses wage increases and hiring- this is expected to cost 33 billion. Obama also plans to increase child care tax- break for the average class families. In addition, he intends to bring into enforcement a 3 -year expenditure freeze on the non security discretionary expenditure. This move will save approximately more than 250 billion for more than ten years.

The Key Factors in the 2011 Federal Budget
The overall spending in the whole of 2011 fiscal year was presented as 3.834 trillion while the discretionary spending totaled to 1.415 trillion. The deficit projected for 2011 amounts to 1.267 trillion which is 8.3 of the Gross Domestic Product. The projected deficit reflects a downward movement from last years which was 1.556 trillion (10.6 of the 2010 Gross Domestic Product. There is also the elimination of tax on the capital gains of new investments from small businesses. Conforming to the earlier releases, 2011 federal budget will curtail spending on over one hundred and twenty federal programs while at the same time allocating a patronizing 100 billion towards unemployment initiatives. However, some among the administrations senior profile programs seem to be tabled top. Most notable is the controversial Healthcare Reform and the Climate Change Programs which are allotted only the minimal allowances in this budget. The budget puts a total of 200 billion on defense programs in Iraq, Afghanistan, Yemen, Pakistan and other related areas (Manning, par.1)
 The large tone of 2011 federal budget puts deep emphasis on new, fresh initiatives in almost all agencies especially in energy, education and technology. For instance, about 90 billion is expected to be raised from Wall Street for taxpayer bailouts (Manning, par.2)

Analysis of the United States Most addressed Departments In Comparison With 2010 Federal Budget Prospects

The 2011 federal budget affects all the ministries and departments within president Obamas administration. Almost all the departments are reflecting increases in the prospected levels of spending in the fiscal year starting October 1, 2010 but major changes in spending are clearly evident in the departments which have been analyzed. These departments of the government represent the section that mostly need extra attention to enable the economy of the United States of American overcome the current deficits and crisis. To begin with is the Social Security Administration. The 2011 social security administrations discretionary budget is aimed at improving the integrity of the social security administration, enhancing the total efficiency and reducing backlogs. It has received the highest percentage in mandatory budget. The enacted spending in the 2010 fiscal year was 11.6 billion and the requested and mandatory spending on the same amounts to 12.5 and 779.4 billion respectively. Social security administration carries the largest budget sum in any government. The Department of Defense once again took the largest share of discretionary budget with a total increase of approximately  8.2 billion more than the 2010 federal budget. This is in an action to address the current military strategy as well as to care for the United States military and acquire weapons. The requested spending in 2011 is 708.3 billion, 33.0 billion supplemental,  660.4 billion enacted in 2010 and a mandatory spending of 4.36 billion in the fiscal year 2011. This is highest prospect for this department that has ever been made in the history of the United States of America (Manning, par.2-5)

The administration of Obama places a lot of emphasis on education. The presidents priority has been openly stated in the 2011 federal budget as he calls for a rise of about 3billion on discretionary spending in addition to a wholesome increase totaling 15.5 billion on education. Fiscal year 2011 requested spending on education amounts to 49.7 billion. Enacted spending in 2010 to 46.8 and the mandatory spending for 2011 fiscal year is 24 billion. The budget puts large incentives on the students, the schools and their teachers so as to be able to attain better standards of education. The major goal of the 2011 federal budget on education is to come up with a more competitive student body in education. The Agriculture Department on the other hand has a much diversified mandate which includes the issues concerning food, agriculture, oversight of the natural resources of US and the rural development. The 2011 federal budget in this regard has placed heavy emphasis towards agricultural development programs which are a reflection of Obamas agenda of agricultural recovery. It shows major increases in areas that will create more employment opportunities, provide efficient energy use and help rural American communities to achieve household needs. The 2011 budget gives funding solutions for encouraging development of jobs and initiating new housing, infrastructure and utility initiatives. In this regard, the 2011 fiscal years requested spending on the agricultural department sums to 25.8 billion while the 2010 enacted spending was 27 billion and the mandatory spending is 105 billion.

The proposed budget by the US president for veterans affairs department calls for a rise from the 2010s 56.1 billion. The proposals include more services to the veterans and improving the care of the veterans and improving the services to the past servicemen. The 2011 veterans affairs proposed budget by President Obama stands out as the ever largest budget. Further, The Department of Labor is responsible for preparing employees for safe, good jobs which gives them the opportunity to be able to support themselves and their families. In addition, the department is charged with paying unemployment benefits and to do that, there is an increase of 18 billion in the 2011 fiscal year. On Department Of Treasury, the proposed budget for 2011 recommends for a rise from the 2010s 13.554 billion since the departments are key in regulating the economy of US. The 2011 proposed budget has included funds for strengthening the economy, modernizing the financial institutions regulations and helping the homeowners. The requested fiscal years spending in 2011 proposed budget for the treasury is 13.94 the 2010 enacted spending is 13.25 and the mandatory spending in this regard amounts to79 billion (Manning, par.10-14)

The presidents increase on spending on transport is not only meant for promoting safety but also as a tool for creating more and more jobs, the creation of a national infrastructure innovation and finance fund, investing in high speed rail and upgrading the sensible components of the federal aviation administration. Obama has proposed a 78.8 billion spending in 2011 while the 2010 enacted and mandatory spending amounts to 677 billion and 1 billion respectively. Although other departments in the presidents proposal have also been greatly addressed, they did not entail as huge changes and emphasis on spending for 2010-2011 fiscal years as does the above areas of the government.

Addressing the Current Federal Budget Challenges
On a recent press release, a key figure in the US administration stated that it is a very easy task for the Americans to criticize the deficits on the released 2011 federal budget by the president but at the same time they did not take any step towards addressing the issue. He argued that many of the various steps which can be taken to address the deficits are very unpopular. This is the major problem even the government is facing. The current deficit in the federal budget for 2011 is partly due to the 2007-2010 financial crises which has caused reductions in taxes revenues dramatically and also involved huge stimulus spending. The other reason is due to the current increase in healthcare expenditures per person. It is not possible for US to regain economic sustainability when the taxes are increasing or by curtailing on the healthcare costs per individual. Therefore to address the deficit problems in the current federal budget, the US government will need to face the increasing costs on healthcare which are driving the Medicaid and Medicare programs. This being the case, the government should consider reallocating the spending on the health care reform program which directly affects the Medicare and healthcare programs of the budget.

Conclusion
President Obamas proposal presents a huge step along the path of fiscal sustainability it placed 1.2 trillion in the reduction of deficit funding in the coming ten years, while excluding the savings from presumed ramp-down into war financing over time. Further than the discretionary federal budget, President Obamas government described details concerning how they were planning to save over 15 billion through discretionary spending. This entailed means of improving efficiency by means of tactics such as powering down the computers with 700,000, cutting on the production of aircraft by 2.5 billion and through use of video conferencing which will save 3 billion. However, notable flaws in the proposed budget include an evident heavy emphasis on the administrations main programs while almost neglecting very crucial matters such as the controversial healthcare reform and climate change which were allocated the minimum allowances in the 2011 federal budget.