Aggregate Supply Curve In Malaysia

Aggregate Supply Curve In Malaysia Since 1970, Malaysia has transformed itself from raw materials producer into rising multi-sector economy. Under present Prime Minister, Malaysia is trying to reach high-income status and to increase value-added production series by attracting investments in Islamic finance, technology manufacturing, biotechnology, and services. The government is trying to enhance local demand and lessen economys reliance on exports since exports remain an economy major initiative. As oil and gas exporter, Malaysia has gained profit from higher world force prices, even though government subsidies is forced to cut down due to the growing domestic gasoline and diesel gas cost, mixed with overwrought government finances. The government is also aiming to lessen its reliance on state oil producer PETRONAS as oil and gas segment contributes above 40% of government income. The central bank retains good foreign trade stores, and well-developed regulatory system has restricted Malaysias disclosure to threaten financial mechanism and global financial crisis. On the other hand, Malaysia could be at risk to fall in product prices or broad decelerate in worldwide economic activity because exports are Gross Domestic Product (GDP) main element. Prime Minister has lift up potential adjustments to the unusual economic and social favorites with the purpose of attract increased investment; however he has met major conflict, particularly from Malay nationalists and other vested interests. However, during global financial crisis in year 2008-2009, although Malaysian financial system was protected from the direct effects of financial contact due to disallowed of new derivatives into the country, the global financial crisis has transmit uncertainty on the Governments plans to attain vision 2020 because of collapse in exports and slowdown in foreign direct investment (FDI). Theoretical Background Aggregate demand (AD) is aggregate quantity demanded for goods and services in economy at given general price level. It is symbolized by aggregate demand curve, which illustrates the negative relationship effect between price level and total output assuming no variation in government spending, net taxes or monetary policy variable. Aggregate demand curve is downward sloping because of wealth effect, interest effect and exchange rate effect. At each point along aggregate demand curve, the total quantity demanded is exactly equal to planned aggregate expenditure, which is the combination of consumption, investment and government spending. Each point on aggregate demand curve stands for certain level of aggregate expenditure that is dependable with equilibrium in goods and money market at given price. When the aggregate demand curve is moved along, the change of price level is presumed to cause equilibrium GDP change but other determinants of equilibrium GDP remain constant. When other determinants except price level lead the equilibrium GDP change, aggregate demand curve will shift itself. The other determinants of equilibrium GDP are consumption expenses, investment spending, government expenditure, taxes, net export and money supply. Aggregate supply (AS) is total goods and services supplied that are produced in economy at particular overall price level. It is corresponded to aggregate supply curve or price/output response curve, which demonstrates positive relationship effect between total output amount supplied and overall price level. The curve also draws out the price and output choices of all markets and firms in economy under given set of circumstances. In short run aggregate supply, the idea of fixed capacity plays role in macroeconomics. At low output point in economy, there is possible to be surplus capacity in economy. An increase in aggregate demand is possible to outcome in increase in amount produced with slightly or no raise in overall price. Thus, aggregate supply curve is likely to be flat at low aggregate output level. The economy maybe works below capability if there is cyclical unemployment even if firms are not holding surplus labor and capital. The short-run aggregate supply curve is upward sloping, because the price of a few inputs are supposed to be decided under auction-like situations, caused by markup pricing and/or presumed informational irregularities. In long run aggregate supply, firms reaction to an increase in aggregate demand varies from primarily increasing output to principally increasing prices as unemployment rate falls, wages and cost of inputs will increase. When economy is producing at its maximum capacity, aggregate supply curve becomes vertical. There must be time delay between change in input price and change in output price for aggregate supply curve to slope upward. If input prices altered instantly to output prices, the aggregate supply curve would be vertical. Wage rates may increase at similar rate as overall price if price level increases in fully foreseen. The reasons of the shifts of short-run aggregate supply curve are cost of production, expectation on future price level, economic growth, public policy and weather condition. Meanwhile, the causes of shifts of long-run aggregate supply curve are change in labor, capital, natural resources and technology. Equilibrium price level is the price level at which the aggregate demand and aggregate supply curves meet. Equilibrium price level matches up with equilibrium in the goods money markets and lays down price/output decisions on part of all firms in economy AD/AS agenda is applied to assess the effects of monetary fiscal policy on the economy. Potential GDP is aggregate output level that can be continued in the long run without inflation. Economists consider costs cover behind price level changes in the short run; eventually move with the overall price level in long run. If the price level increases at a fixed rate, inflation may be fully foreseen built into labor contracts. Discuss and argument Aggregate Supply is the total supply of all goods and services in an economy.Normally , the aggregate supply curve is draw like vertical line, also name as classical range.But , in reality, this Aggregate supply are divided into 3 range , which is Keynesian range , intermediate range and also classical range. Keynesian range occur in the short run and show a horizontal segment on of the aggreagate supply curve (blue line) , which represent the economy is under the recession condition.Base on table below ,the price level is fixed regardless how many the output had been produce by the country.When AD shift rightward from AD1 to AD2 ,the total output has increase but the price level remain the same.This is due to the substaintial idle production capacity such as unemployed worker competing for available jobs can put to work . The intermediate range ,as show in the pink line,is the rising of aggragate supply curve when the economy is approaching full employment output.When the AD shift rightward from AD3 to AD4, the output and also price level increase .This show that they have the positive relationship between price level and real GDP .When the price level increase , this had cause the inflation occur.There are 3 factor cause this inflation occur, the first one is bottleneck occur because the firm no fully utilise the resources .Example,if the steel industry no fully supply to the steel firm .Bottleneck cause steel firm no enough raw material to produce their product and the cost of steel become higher, so they will also increase the price of thier product , so inflation occur.Moreover, when the company are earning higher profit, their worker will tend to ask for higher wages.The wage demand to increase is hardly to reject because company fear the worker will quit or strike .Beside , the company also can pass the cost on to consumer side easily because in this stage ,the unemployement rate is lower, all people got thier job and they are expect higher price of goods as they feel that will be more quality.Lastly is that sometime the firm still using the less produtivity worker or outdate machinery.This will cause the cost of production increase and become higher product price. Lastly the classical range is occur only in Long run supply curve where the curve is vertical shape ,which show that the real GDP remain constant at full employment output at point Yn, regardless how many the price level had increase or decrease.When the AD shift rightward from AD4 to AD5, the output remain constant ,but it will cause the price increase, as a consequency economy suffer inflation. The effect of increase in Aggregate demand AD1 AD2 AD3 AD4 AD5 AD6 YN Aggregate_supply_svg.png Now we consider the aggregate demand curve is stationary and the factor that influence the aggregate supply curve to shift.This factor are call non-price-level determinants. What happen aggreagte supply curve in Malaysia recently? During the year 2008, the oil price in Malaysia suddenly increase sharpy to US$147.27 ,compare to the year 2002 which the oil price is merely US$20 (Hour, 2009). This issues was cause many household and also firm suffer a lot .As we know that the changes of aggregate demand is base on changes in total demand for all final goods and services.In the statistics of consumer price index (CPI) had found that every cunsumer use 68% from their income for consuming food, non-alcholic beverages, housing , utility, gas ,transportation and also fuel.After the fuel hike in june 2008, the CPI immediate rose to a 27-year high of 7.7% instead of 3.8% in may,2008, which had increase 3.9% within 1 month.Increase in input price had cause the price level of economy increase, the household purchase power will drop because their real income had decrease.For example, before increase in oil price, one plate of nasi lemak is cost RM2.00.but after increase the input price, the seller need to bear higher cost to transport the same quantity of nasi lemak, so they will transfer the cost to consumer by increase the selling price to RM4.00.Now ,with the same plate of nasi lemak , the buyer need to paid double price , therefore their purchase power decrease. Moreover, it also will affects the households monetary wealth drop .As a consequence, the total consumption decrease ,aggregate expenditure reduce, and finally affect aggregate demand drop . Aggregate supply curve will shift based on changes in input price.As we know that most of the firms need the oil price for transport and deliver their product.When the oil price increase , the firms input cost will be increase as well, therefore , the firms will supply less outputs.then the short run aggregate supply curve will shift to left, then the price level increase ,total output decrease .When the output decrease, the manage will try to reduce the input cost such as layoff some existing labor.Therefore the unemployment rate will increase. Why suppy shock will occur in Malaysia? The first reason the affects the oil price shock occur in Malaysia is because 80% of the worlds oil reserves are own by state-owned oil firms so it tend to limited the international companies to access (Hour, 2009). Beside, the cause of shortage of oil supply is because of most of the big located field are found in the a few decade ago and one days this field will also be used up as the raw material are limited in this world.Furthermore, the size of the oil field found recently are very small and costly to operate .For example, if we found 10 small oil field in seperate location, that mean the firms need to set up 10 rigs compare to a big oil field they just need a big rig. The suppy shock can solve antomatically? In long run, the oil price shock can be solve automatically if the government or central bank does not implement any policy.When the oil price increase,the input price for the supplier will be increase, then the short run aggregate suppy will shift to the left,price level will increase from Po to P1,aggregate output will decrease from Yo yo Y1.In the long term, the drop in the total output will cause the firms want to layoff the employees to reduce their cost,so the unemployement rate in market will rise .The price expectation of employees for higher wage will drop and cause the firms have more money to increase more outputs to supply. So the short run aggregate suppy curve will shift back to right from SRAS1 to SRASo.Therefore , the price level and also total output are back to equilibrium level and the stagflation is solve. P YN Y1 P1 P0 LRAS SRASO ADo Y SRAS1 The supply shock can solve by government? Although the oil price shock can be solve in long term , but in the short term the citizen are suffer a lot especially for the low income family and also the unemployement rate increase rapidly.The umemployed citizen are depend on the money in their saving account for survive.If the price level increase more higher ,they is stuck with high cost of living without any compensation from the government.So, government must implement the expansionary fiscal policy to solve the unemployement .When inplement this policy, the Aggregate demand curve will shift rightward from ADo to AD1.Then the price level will increase from P1 to P2,total output will increase back to equilibrium level of output from Y 1 to Y2, and now Y2=Y1.The price level had increase higher than before , and the output back to equilibrium level, and the higher inflation occur. SRASO SRAS1 ADo AD1 LRAS P Y YN= Y2 Y1 P1 P0 P2 Factor to shift the aggregate demand curve Aggregate demand(AD) is the total number of demand of goods and services in economy. The AD is almost equal with aggregate expenditure(AE). The factor will affect the AD curve are based on equation of aggregate expenditure, AE=C+I+G+NX. In the AD curve, each point is representing certain level of AE that same with the equilibrium in money market at given price. When AD curve is moving along, price level change as due to the change of equilibrium GDP but other determinants are remain constant. When opposite direction, change of other determinants change the equilibrium of GDP, AD curve shift itself. Therefore, the other determinants are consumption spending, investment spending, government spending, taxes, net export and money supply. The quantity of money supplied at a given price level will affect the AD curve. When money supply is increase, the curve shift to the right from Ms0 to Ms1. The interest rate will drop from r0 to r1. The interest drop due to the increase of investment spending and the AE increase cause the real GDP increase. AE curve shift upward show that the output will decrease. At the end, the AD curve will shift right from AD0 to AD1 to remain the price at the constant. P AE=Y AE1 AE Y Y0 Y1 I r0 I0 I1 Md r1 r r Ms0 Ms1 Md M r0 r1 P Y AD0 AD1 P0 Y0 Y1 In the others hand, if there are spending shock, means the government spending is increase, this will affect the AD curve shift to the right. Shown from the graph below, when the increase in government spending at any given price level, the AE curve will shift upward and rise the real GDP. when the real GDP higher the given price level, it cause the AD curve shift to the right from AD0 to AD1. P Y AD0 AD1 P0 Y0 Y1 P AE=Y AE1 AE Y Y0 Y1 G Why oil price shock will affect aggregate demand curve? Aggregate demand is based on changes in total demand for all final goods and services. During the oil price shock, the oil price increase in Malaysia. This increase of oil price cause the price level of economy increase. The price level affect the real income decrease and reduce the purchase power of household. Household purchase power drop mean that the consumption decrease. Consumption spending is one of the factor to shift the AD curve. When consumption decrease, it shift the AD curve to the left from AD0 to AD1. Therefore, the price will decrease from P0 to P1 and the output also decrease from Y0 to Y1 AD1 P0 AS AD0 P1 LRAS P Y Y0 Y1 How to solve the aggregate demand automatically? If the government or central bank do not implement any policy during the shock of the oil price, this has to solve the aggregate demand automatically. After the aggregate demand shift to the left from AD0 to AD1, the price and the output were reduced. When the output drop, the employment decrease and unemployment increase. This affect the expected price drop and the wage rate decrease. At the same time, the short run supply curve shift to the right from AS0 to AS1. At the end, in the long run, output will return back from Y1 to the natural output Y0, but the price will keep on decrease from P0 to P1 and P2. This cause the deflation occur in the economy. Y0=Yn AD1 AS1 P0 AS0 AD P1 LRAS P Y Y1 P2 How the government or central bank solve the supple shock? When the supply shock solve by automatically, it will stay back the output value but the price decrease continuously. This affect the whole market economy and become deflation. The deflation will make the economy down and this will make suffer to the whole country. Therefore, government should implement the policy to solve this problem. To shift back the aggregate demand curve, government need to implement the expansionary fiscal policy. This policy can shift the aggregate demand curve to the right from AD1 back to AD0. In the long run, the price back to the natural price P0 and the output also change from Y1 to the natural output of Y0. AS LRAS Y AD1 AD0 Pn=P0 P1 P Y0=Yn Y1 Conclusion The oil price shock in 2008 had brought a large impact for Malaysias economy. After rising in oil price, producers need to pay higher input price for the production purpose. Thus, firms sold their goods for higher price which causing consumers purchasing power dropped and the aggregate demand decrease. The increasing input prices also causing firms to produce less output which might cause the unemployment rate increase. In short run, government can implement the expansionary fiscal policy to solve the unemployment problem. However, the price will increase even higher than before which might cause hyperinflation. If the government or central bank does not implement any policy during the oil price shock, the problem will be solved automatically in the long run but it might cause consumer to suffer a lot in the short run. We recommend Malaysia government to develop reasonable oil price setting instrument, obtain cheap oil from foreign country, searching alternative resources, give subsidies to firms and increase wage rate of workers in order to minimize the consequences of increasing oil price. Throughout this assignment, we have a better understanding about the aggregate demand and aggregate supply and able to apply it in real economy situation. We had also learned how to work in a team efficiently and effectively in terms of collaboration and time management in order to accomplish the task given. Recommendation Increasing in oil prices is a serious issue that may affect aggregate supply and aggregate demand which bring large impact to Malaysias economy. Appropriate ways need to be taken in order to minimize the consequences of increasing oil price in Malaysia. Our suggestions are as follow: Reasonable Oil Price Setting Instrument First, government needs to develop reasonable oil price setting instrument which may ensure the oil prices are setting within a range which is reasonable and affordable for citizens, and allow realistic profit for oil industries. There are three aspects that should be taken into consideration while determine the oil price range, which are the consumers purchasing power, an estimation of profit for oil industries in reasonable level, and the international oil prices. With the help of this mechanism, Malaysias oil prices will be more realistic and reasonable which may prevent uncontrollable increasing of oil prices in Malaysia. When the oil prices are set in a reasonable level, there will be no large impact on the aggregate demand and aggregate supply curve. Obtain Cheap Oil from Foreign Country In order to minimize the impact of high oil price, government is suggested to search for the new sources of low-cost oil from other country. Malaysias government can import cheap and low quality oil from foreign country and refine it to become better quality oil which is qualified to issue to the market with lower cost. The reservation of the cheap oil in a certain amount is also necessary in order to avoid Malaysia from being the victim of increasing prices in the cheap oil. With the available of cheaper oil (input), firms will increase the aggregate supply of the outputs which might prevent shortage of goods in the market. When there is an increasing output in the market, the price of the goods will be reduced and the aggregate demand will increase to a certain level. Searching Alternative Resources High oil price problem only can be solved by associate effort of both government and individual. In order to minimize the impact of high oil price, the organization should attempt to do some investigation or discover the substitute of the oil like bio gas and electronic bike and should try to innovation so that the product of the organization can be produce on other alternatives. In this situation, the company can reduce the quantity of the oil which used to produce the output. Then, the supplier or provider would not reduce the quantity of supply which affects the aggregate supply shift to the left. On the other side, aggregate demand also relatively would not be affected which the curve shift to the left because the consumer can continue to consume the product in the normal price. Give Subsidies Once the oil prices increase, it will directly or indirectly affect the whole production cost, including the fee of the transportation or other else. In order to solve it, the government should provide subsidies to the supplier or provider in order to control the market price. After the suppliers receive the subsidies from government, they will not increase the retail price of their products since they want to maintain their organizations profit. By implementing this strategy, the inflation problem can be avoided because the supplier would not increase the price of product due to the higher input price. Hence, the aggregate demand and aggregate supply would not be affected. Increase Wage Rate In the market, increasing oil prices may lead to inflation problem in Malaysia. This problem will caused our citizens suffer from financial burden and their purchasing power will decrease. In this case, government can raise the amount of minimum wage in order to make sure the organization provides the cost of living to the employee. This can help the employee are able to maintain their basic needs in their daily life although the high oil price situation happened in Malaysia. Individual who using the vehicle during the daily life, the oil price increase will directly increase their daily expense. Purchasing power of the individual will be decreased and finally it will affect the aggregate demand shift to the left because consumer consume less than before. After increasing wages rate, this problem can be solved and the curve of the aggregate demand will back to original.

Oil and Dutch Disease

ECONOMICS FOR BUSINESS Project Report on – Oil and the recent ?Dutch Disease? – The Case of the United Arab Emirates Submitted by – Amitava Manna 1|Page Table of Contents Introduction †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 2 Purpose †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ UAE Background †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã ¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 4 Theoretical Framework †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 4 Empirical Findings and Analysis †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 6 Data †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚ ¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. Descriptive Statistics †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 6 The Regression Model †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 8 Conclusions: †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚ ¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 10 2|Page Introduction Four decades ago, the United Arab Emirates (U. A. E) landscape and infrastructure consisted of not much more than deserts where sheikhdoms survived on fishing, pearling, herding and agriculture. Today, Abu Dhabi and Dubai are two of the most developed emirates in the country dominated by roads, luxury homes, and skylines (consisting of modern glass and steel skyscrapers). The new modern infrastructure has replaced the undeveloped cities that once existed before. To say the least U. A. E has transformed from a desert into a developed country1 with a high gross domestic product (GDP) reaching $192. 03 million2 in 2010. According to the Global Competitiveness Report 2008-2009, U. A. E was ranked number 31 globally for its growth competitiveness. The large boost in U. A. E? s development and economy is founded on the export of the country? s oil and petroleum-based products since 1958, when oil was first discovered in Abu Dhabi. Almost 10 percent (%) of the world? s current oil reserves are controlled by the U. A. E, enabling it to comm and more than 16% of OPEC? s total reserves. The aim of the U. A. E? economy is to minimize its dependency on oil; therefore much focus has been targeted on diversifying the economy during the past two decades. In turn, making it more dependent on the service sector, especially high-class tourism as well as expanding the international finance sector. In both developed and developing countries, a natural resource boom, (as experienced in U. A. E) has triggered the so called „Dutch Disease?. It is a theory that originates from the Netherlands in the 1970s, basically explaining a decline in the traditional manufacturing sector when the country experiences a boom in their natural resource. The Dutch Disease indicates that the natural resource abundant factor triggers an appreciation of the domes- tic currency. In turn, other non-resource exporters are affected at the same time and the manufacturing sector experiences a constrained activity to compete in the world market. Furthermore, the agricultural sector undergoes a decline as labor moves to either the booming sector or the non-tradable sector. The case of the Dutch Disease would be a problem to the U. A. E since it causes the shift of labor and production for the tradable sector to the non-tradable sector causing a decline in the country? exports of manufacturing and agricultural goods. The decline in exports of U. A. E? s traditional tradable goods de-creases production of the goods affecting the country? s economy in a negative way. Purpose The purpose of this paper is to study U. A. E? s development in economic growth since 1975 and establish if there are any signs of the Dutch Disease by testing the ratio of tr adable goods to non- tradable goods and the effects by other macroeconomic variables. 3|Page UAE Background U. A. E consists of the seven emirates Abu Dhabi, Dubai, Sharjah, Ra? al-Khaimah, Ajman, Umm al-Qaiwain and Fujairah, which are located on the southern Arabian Gulf. On the 2nd of December 1971, the country became independent after being under British rule for a period of 70 years. The independence and discovery of oil triggered the economic development in U. A. E which led to a huge expansion in the population. The population boom in U. A. E is a result of the increased demand for labor throughout the past four decades and consists for the most part (83%) of labor from foreign countries referred to as expatriates. United Nation? (UN) database illustrates the division of the labor from two perspectives; first from the year 2000 compared to the changes that prevailed in 2010. Female participation and male participation in 2000 consisted of 34. 4% in the former group and 92% in the latter group. As stated in the introduction, one of the impacts when an economy is experiencing signs of the Dutch Disease is the high inflation rate followed by a change in the real exchange rate. Fluctuations in the real exchange rate can cause resources and production to reallocate between the economy? sectors of tradable and non- tradable goods and services and is there-fore regarded as an important price in the economy. The U. A. E is one of the countries in the Middle East which follows a pegged (or fixed) ex- change rate regime, in which foreign central banks stand ready to buy and sell their currencies at a fixed price in terms of dollars. The currency of the U. A. E, the AED was first officially pegged against the USD in 1974. By the end of 1977 fluctuations occurred widely. For over two decades the USD had been used as an anchor currency in practice when it became the official anchor currency in 2002. The decision to make the USD an anchor currency was made by the member nations of the Gulf Cooperation Council (GCC) in order to establish a common currency in 2010. The U. A. E and the effects from the oil industry have not been studied to any great extent. However some studies on the Dutch Disease concerning other countries have been conducted, but these studies are mainly theoretical and lack econometric testing. The studies with statistical analysis contain time series, more observations and flexible exchange rates (which could be included in the regression model). Theoretical Framework In order to comprehend the Dutch Disease theory, theoretical model of tradable (T) and non- tradable goods4 (NT), also known as the TNT Model can be used. According to Sachs and Larrain (1993) the most important assumptions is that N can neither be exported nor imported and its domestic consumption and production must be equivalent. The opposite applies for T, consumption and production domestically can differ because of the possibility of imports and exports T. In this specific model, two goods are produced and 4|Page consumed: T and N by one factor of productivity which is labor. The supply side obtains two linear functions: QT = aTLT (T) and QN = aNLN (N), Where, production is dependent on labor. LT and LN accounts for the amount of labor used, whilst aT and aN are the marginal productivities of labor for the two sectors. In other words a T or aN units more of output is achieved if one extra unit of labor is applied in either sector. Due to the linear functions, aT and aN also account for average productivities. The demand side of the TNT model circles around consumption decisions which do not include investment spending. Total absorption, i. e. pending on T and N is expressed in the equation as followed: A = PTCT + PNCN Total absorption is defined by A and levels of consumption for T and N by CT and CN. PT and PN correspond to the price of the goods. Furthermore, Sachs and Larrain (1993) assume if the ratio CT/CN is fixed, then households consumes CT and CN in fixed proportions, (regardless of relative prices). If overall spending increases, it is followed by an increase in consumption in T and N by the same proportion and vice versa. Figure below illustrates the production possibility frontier (PPF), the consumption line and the market equilibrium for T and N in a country. The PPF shows each quantity of QT that is produced in order to produce the maximum quantity of QN. If QN = aNL then QT = 0, represented by point B in the figure. Then the factor of productivity labor is located in the N sector. If QN = 0 and QT = aTL, then labor is located in T (point D in the figure). The slope of the PPF is equal to PT/PN, i. e. the relative price of T in terms of N, which is also referred to as the real exchange rate, e, in the TNT model. Therefore, aN/aT = PT/PN = e. Figure: The PPF, Consumption Path and Equilibrium QNCN B G H ` F C E D A 5|Page QTCT Empirical Findings and Analysis Data Summary of the Macroeconomic Variables used in the Regression Ratio of tradable goods to non- tradable goods (R) Sum of tradable goods (manufacturing value added, agriculture value added) divided by the sum of non-tradable goods (services value added). Inflation as GDP deflator in annual percent. Variables that are used to classify data into mutually special categories. Here the dummy variable represent the period 1975-1980, since the change in oil price was dramatic during these years. Based on current prices and is ex-pressed in USD per barrel UN (2010) Inflation (I) Dummy variable (D1) Nation Masters Economy Statistics, U. A. E (historical data) (2010) Gujarati (2010) Price of oil (P) Annual Statistical bulletin OPEC (2010) Other variables were also tested, but due to insignificant values and to avoid problems of correlation, some of the variables were excluded from the regression models. One of the other variables tested was money supply (M1), but since this variable was highly correlated with GDP, we decided to exclude it. GDP was also excluded due to high correlation with the price of oil. Descriptive Statistics The following figure shows the change in value added of tradable goods and non-tradable goods in U. A. E throughout the period 1975-2005 expressed in billion of AED per year. Value Added in Tradable and Non-tradable in U. A. E, 1975-2009 6|Page Value (BAED) 350 300 250 200 150 100 50 0 NT T As can be seen the production of non-tradable goods has been larger than tradable goods (non-oil goods) during the entire period. The tradable sector has not in-creased as much as the non- tradable sector, i. e. non-oil production has decreased in comparison to non-tradable. In fact the non-tradable sector has increased almost twice as much as the tradable sector, which is a symptom of the Dutch Disease. One of the reasons why the non-tradable sector may have increased so much could be due to the country? s rise in export of oil throughout 1975-2009. US $ per Barrel 60 50 40 30 20 10 0 Price of Oil Inflation Rate Figure illustrates the relationship between the price of oil and the inflation rate during the period 1975-2005. We will concentrate on analyzing the inflation rate? s peak and lows and the impact from the fluctuating oil price. We can first see that there was a sharp decline in inflation from 19758 until 1978. During 1974 the inflation rate was 138. 26% according to Nation Master Economy Statistics (2010). The sharp decline could be due to that the U. A. E officially pegged 7|Page the AED to the USD in 1974. The fluctuation in the inflation rate cannot only be explained by a boom in production but also depends on other factors as well, such as the depreciation of the USD. One of the reasons why the inflation in U. A. E change so dramatically during the years 1998-2001 could be due to the burst of the â€Å"I. T-bubble† (known as the â€Å"Dot-com bubble†) in the late 1990s which affected USD negatively. The Regression Model In order to test if the chosen macroeconomic variables show indications of symptoms of the Dutch Disease, the model with the ratio of tradable goods to non-tradable goods was adopted but adjusted in order to fit this thesis. The adjusted equation is based on time series data. The presented macroeconomic variables; inflation (I) is based on the theoretical framework presented, price of oil (P) is adopted which included price of oil in the regression analysis. The dummy variable (D1) for the period 1975-1980 is which included a dummy variable for a one year period. The ratio of tradable goods to non-tradable goods serves as the dependent variable in both models, however the independent variables differ slightly; the first regression model includes inflation and price of oil as the independent variables. The second regression model also includes inflation and price of oil but a dummy variable for the period 1975-1980 was added. Model 1: R = ? 0 + ? 1P + ? 2I + ? Model 2: R = ? 0 + ? 1P + ? 2I + ? 3D1 + ? 4. 4. Econometric Problems In the beginning of the regression testing we discovered that some of the variables were correlated with one another. Money supply (M1) and GDP were the most correlated variables in the regression models, so in order to avoid multi co linearity problems we decided to exclude money supply and GDP from the regression model. The reason why the two variables were excluded was due to the high correlation between GDP an d money supply and the high correlation between GDP and price of oil. Coefficient ?1 (Price of Oil) ?2 (Inflation) ?3 (Dummy Variable) . 5 Regression Results: Sign negative or no effect negative negative or no effect 8|Page In order to make it more comprehensive for the reader, the authors summarized the coefficients and significance levels (1%, 5% or 10%) from the two different regression model results with 36 observations for the period 1975 to 2010. The R-square values show that 39. 3% (model 1) and 75. 3% (model 2) of the change in the ratio of tradable goods to non-tradable goods can be explained by the model used. The goodness of fit in model 1 on the other hand, has a poorer fit, where 39. % of the influences on the dependent variable can be explained by the model. The better fit of model 2 can be due to the additional variable tested in the second regression model, i. e. D1. In model 1 and 2 the price of oil is significant and does not support the expectation that it would h ave a negative or no effect on the ratio. Price of oil is significant at a 1% significance level in model 1 and affects the dependent variable positively. A 1% increase in the ratio of tradable goods to non-tradable goods would increase the price of oil by 0. 05840%, all else equal. In the second regression model, the price of oil is significant at a 1% level, meaning that a 1% change in the regress and would increase the price of oil by 0. 002988%, all else equal. The results from the regression models indicate that the price of oil has a positive effect on the dependent variable. This result corresponds to the authors? expectations that during a boom in natural resources, inflation has a negative effect on the ratio. The negative relationship between the inflation rate and the ratio can also be xplained by the spending effect since in a fixed exchange rate regime the inflation rate is affected by the in-crease in the money supply. The second hypothesis for model one is therefore n ot rejected and the authors can conclude that the macroeconomic variable inflation is a symptom of the disease in the country. However in the second model the inflation variable is not significant and the authors can thereby not take the variable into consideration when analyzing if the U. A. E experienced the Dutch Disease during the years 1975- 1980. Furthermore, the insignificant value of the inflation rate in model two might be due to the short time period tested, 1975-1980. The major oil price shock during this period had a negative impact on the economy of U. A. E, which negatively affected the inflation rate, leading to the insignificant-cant value in the second regression model. Time Series Regression Model 1 & 2: Model 1: R = ? 0 + ? 1P+ ? 2I + ? Coefficient Variable (t-stat) Constant 0. 166071*** (5. 141492) Price of Oil (P) 0. 005840*** (4. 122855) Inflation (I) -0. 352179* (-1. 38647) R2 = 0. 393393 DW = 0. 238252 *** Significant at 1% level ** Significant at 5% level * Significant at 10% level Model 2: R = ? 0 + ? 1P+ ? 2I + ?3D1 + ? Coefficient (t-stat) Constant Price of Oil (P) Inflation (I) Dummy Variable (D1) R2 = 0. 753809 DW = 0. 416614 0. 242127*** (10. 00689) 0. 002988*** (2. 915261) -0. 016530 (-0. 127760) – 0. 144894*** (-6. 287065) 9|Page Conclusions: This project is a study whether the oil boom in U. A. E during the 1970s led to symptoms of the Dutch Disease and if the country is a victim of the disease. Three hypotheses were tested and descriptive data was analyzed in order to reach a conclusion. The first hypothesis tested the authors? statement that the price of oil has a negative (or no) effect on the ratio of tradable goods to non-tradable goods. The results showed that the price of oil did have a positive effect on the ratio, meaning that even though there are changes in the price of the natural resource it does not affect the production in the non-oil sectors to decline. Hypothesis 1 is therefore rejected by us. In the mid-1980s the disease took an opposite direction when oil prices collapsed. Domestic demand dropped sharply in the oil-rich countries causing the construction industry to experience unemployment and employment shifted back to the tradable goods sectors. Therefore it can be concluded that the price of oil cannot be considered as a symptom of the Dutch Disease in the U. A. E. The second hypothesis was based on the problems of the high inflation rate U. A. E has experienced on and off during the years. Inflation was stated to have a negative effect on the ratio of tradable goods to non-tradable goods due to the fixed exchange rate. The regression results showed that inflation held a negative impact on the ratio therefore the hypo-thesis is not rejected by us. The last hypothesis was based on the high oil prices that existed during the period 1975-1980. Therefore a dummy variable was included in the hypothesis with the statement that it would have a negative (or no) effect on the ratio of tradable goods to non-tradable goods. Results showed that the dummy variable was negatively correlated with the ratio, thus the third hypothesis is not rejected. The negative relationship is in line with our expectations. One explanation for the negative impact on the ratio could be due to the oil price shock that occurred in 1979. The increase in the oil price during these years therefore affected the oil production negatively. Furthermore, the price of oil can be seen as a possible symptom of the Dutch Disease in U. A. E? s economy.

Law of Definite Proportions Definition

The law of definite proportions, together with the law of multiple proportions, forms the basis for the  study of stoichiometry  in chemistry. The law of definite proportions is also known as Prousts law or the law of constant composition. Law of Definite Proportions Definition The law of definite proportions states samples of a compound will always contain the same proportion of elements by mass. The mass ratio of elements is fixed no matter where the elements came from, how the compound is prepared, or any other factor. Essentially, the law is based on the fact that an atom of a particular element is the same as any other atom of that element. So, an atom of oxygen is the same, whether it comes from silica or oxygen in the air. The Law of Constant Composition is an equivalent law, which states each sample of a compound has the same composition of elements by mass. Law of Definition Proportions Example The law of definite proportions says water will always contain 1/9 hydrogen and 8/9 oxygen by mass. The sodium and chlorine in table salt combine according to the rule in NaCl. The atomic weight of sodium is about 23 and that of chlorine is about 35, so from the law one may conclude dissociating 58 grams of NaCl would produce about 23 g of sodium and 35 g of chlorine. History of the Law of Definite Proportions Although the law of definite proportions may seem obvious to a modern chemist, the manner in which elements combine was not obvious in the early days of chemistry through the end of the 18th century. French chemist Joseph Proust (1754–1826) is credited with the discovery, but English chemist and theologian Joseph Priestly (1783–1804) and French chemist Antoine Lavoisier (1771–1794) were the first to publish the law as a scientific proposal in 1794, based on the study of combustion. They noted metals always combine with two proportions of oxygen. As we know today, oxygen in the air is a gas consisting of two atoms, O2. The law was hotly disputed when it was proposed. French chemist Claude Louis Berthollet (1748–1822) was an opponent, arguing elements could combine in any proportion to form compounds. It wasnt until English chemist John Daltons (1766–1844) atomic theory explained the nature of atoms that the law of definite proportions became accepted. Exceptions to the Law of Definite Proportions Although the law of definite proportions is useful in chemistry, there are exceptions to the rule. Some compounds are non-stoichiometric in nature, meaning their elemental composition varies from one sample to another. For example, wustite is a type of iron oxide with an elemental composition varying between 0.83 and 0.95 iron atoms for each oxygen atom (23%–25% oxygen by mass). The ideal formula for iron oxide is FeO, but the crystal structure is such that there are variations. The formula for wustite is written Fe0.95O. Also, the isotopic composition of an element sample varies according to its source. This means the mass of a pure stoichiometric compound will be slightly different depending on its origin. Polymers also vary in element composition by mass, although they are not considered true chemical compounds in the strictest chemical sense.

Gandalf the Mischiefmonger Essay - 1362 Words

If people tried to make an argument that J.R.R. Tolkien didn’t used Norse mythology as a backbone structure when writing The Hobbit in 1937, they would be without-a-doubt completely wrong. Many creatures were pulled straight from the Norse myths and thrown into his famous story, but did he use some of the Norse gods as structures for his characters as well? In the book The Letters of J.R.R. Tolkien, he states that Gandalf is seen almost as an â€Å"Odinic Wanderer†, comparing him to Odin the Allfather (Carpenter, C. Tolkien, J.R.R. Tolkien). Rather than Odin, though, another almost-unlikely god could fit the part of Gandalf’s basis, and that would be the trickster god, Loki, son of Laufey and Farbauti. Loki, without a doubt, would be an†¦show more content†¦They demand that he uses his not-so noble tricks to return the goddess, along with her cherished apples. Gandalf is not an outright liar, though he does slightly bend the truth throughout the story. H e is the reason that Bilbo is referred to as the burglar, as he puts the sign on the Hobbit’s door himself. Gandalf told the throng â€Å"‘If I say he is a burglar, a burglar he is, or will be†¦Ã¢â‚¬  (Tolkien 49). His intentions for lying are more beneficial than Loki’s reasons, though he is still manipulating the idea of Bilbo being a burglar, convincing Thorin and Co. that Bilbo has experience with thieving. Before they take off for their long journey, Thorin says to Bilbo, â€Å"‘Aren’t you the burglar? And isn’t sitting on the doorstep your job, not speak of getting inside the door?’† His words show that he has some form of faith in Gandalf’s white lie about the hobbit being a thief, even though Bilbo had never stolen anything in his life. Both Gandalf and Loki are gifted with magical abilities, and they rely their magic as well as their wit to solve their problems. In the myth â€Å"The Building of Asgardâ₠¬â„¢s Wall†, the builder (or rock giant), offered to build a wall around Asgard and for his payment, he wanted Freyja’s hand in marriage, along with both the sun and the moon. Odin turned to Loki for a plan, and he suggested to give the builder six months rather than the eighteen months that he originally demanded. The builder agreed to the terms, with one condition—his steed is allowed to