Running Head: Economics

Economics Assignment

[Name of the Writer]

[Name of the Institution]

Economics 1

Economics Assignment

(i)

In the graphical illustration given above, the variation in the general level of the activities

of the business, which is requirement of space, will affect the rental rates, the operating

expenses, and the level of vacancy. Thus, the rate of rent that is currently being paid for the

property will change. This results in the shifting of demand curve to the right side.

With the shift of demand curve to the right it is clear that there is an increase in the space

requirement for the office. This variation in the demand curve for the office space, are a result of

variation in the increase in the total number of tenants, and changes in the operating expenses.

These are the changes resulting in the rightward shifting of the demand curve. Since it is stated

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that this rightward shifting in the graph is a result strong rise in GDP growth (Zheng et.al, 2010),

thus it results in an increase in the number of employees which automatically results in the

expansion of space, for which the rental amount increases. As a result of the increasing operating

income, the prevailing prices of the real estate also become much more attractive. Thus, under

this scenario, the investors shift their assets into the real estate to fulfil the requirements of the

increasing office staff, which increases the quantity demand at every possible price.

With this general level of increase in rental value of real estate, there will be a change in

the relative desire ability and it will result in the transference of resources. Thus, an increase in

the amount of rent due to the demand of more space shifts the graph rightward. These altered

yield expectations are considered as an expectable substitute for the real estate, as this will

change the relative desirability by causing a transfer of resources. This increase in the renting

space results in the shifting of demand curve to the right side. Below is the representation of the

change in equilibrium after the shift in the demand curve.

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(ii)

Many people assume that there is a direct relationship between the rental, capital, and

development market. However, statistics indicates that there is either a direct or causal

relationship between these three markets. All of these markets are a part of the larger economy.

The capital market markets’ performance in an economy reveals the fundamental corporate

performance. The performance of the real estate market reflects the performance of the property

market. Finally, the performance of the development market reflects the performance of the

country’s economic market as a whole. For most of the firms, property serves as a production

factor as well as an asset (Gross, 2013). Corporate growth in profitability automatically leads

towards the corporate expansion. Under good economic condition this leads towards a rise in the

renting prices with an increase in the demand. This rise in rent lead towards rise in capital values

in the property market resulting in raising the net asset value in the capital market, and as a result

of these the economic market of the country develops with investors coming in to invest in the

businesses.

The changes in microeconomic and macroeconomic factors over the time influence these

markets in numerous zones, for example, prices, demand, supply, and the cost, and the rate of

return. For UK, the scene or real estate in UK advanced changing the substance of significant

urban communities over the UK. The real estate industry indicated critical changes amid the five

years communicated by a substantial development tasks going from private, business, tourism,

and industrial estates (Engle et.al, 2013).

The strength and weakness of the U.K development market to impact both capital market,

and rent prices. While this is not amazing, it doesn't show some other immediate relationship

between the three measures. A simple illustration of this could be a solid economy normally

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emphasizes appeal for items and administrations, including real estate and investments. Amid

these times of general success and demand, you could substitute cars, fridges or furniture at

home costs and experiences the same general increase, further affirming the absence of a

relationship.

Rise in inflation has the same impact on rental, capital market prices, development

market, which increment amid inflationary periods. Expanding inflation depreciates the U.K.

GBP, driving prices for resources upward. Indeed low inflation rates, for example, those seen

somewhere around 2007 and 2013, energy capital market prices to climb. While from time to

time as emotional as the runaway prices amid the housing rise from the early 2000s through

2007, home prices, capital market prices, and development rate increment respectably over the

long run. On the other hand, no factual confirmation demonstrates that home prices impact

capital market prices and development market.

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Time Value of Money in Real Estate

Companies invest in many things like manufacturing plants, machines, offices, vehicles,

training, brands, etc., and do so with the hope of receiving more money invested in the future.

People also making investments as their college education, which hopes to regain earning

wages or putting a business where you can additionally obtain a return, it is commonly would

say, seeded now to pick up tomorrow.

Companies pay their investments through money they get and take on some

responsibilities during this process (Wong, 2008). For example, when you apply for a loan from

a bank, responsible for repaying the loan later and additionally pay interest.

People also do the same operation, seeking to borrow money for their education, and

eventually return the value of capital with some interest, which are expected to pay the salary

they receive.

The time value of money is a concept which expresses that fiscal assets are more

important in this than it will be later on. Accordingly, people prepared in this idea dependably

want to get an instalment now instead of at a later date. The standard of investment is integral to

this thought.

When value of money idea to be genuine, one must accept that the stores being referred

to will be contributed and win enthusiasm over the long run. In this way, 100,000 (GBP) put

today on a property in a record that procures a rate of five every penny investment will be worth

105 GBP in a year. In the event that this same sum was held for one year out of that record still

would be worth just 100,000 toward the end of that period.

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The value of any measure of money will increment over the long run, again accepting the

money is put in a record where it will procure premium. The same 100,000 the past case would

be worth 125,000 GBP toward the end of five years, with the same investment rate of five

percent. This is known as the future value of money.The current value of money, which alludes

to the time value of money idea, is somewhat more hard to figure (DeyMaiti et.al, 2008). The

present value of an aggregate of money got today does not change. Hence, 100,000 got on the

property today has a present value of 100,000 GBP. Then again, this value changes when

alluding to an aggregate of money to be gotten later on.

To focus the current value of money in the add up to be gotten in one year, decide the

amount of money you need to contribute today for the last measure of the same. That 100,000

GBP probably won't has a present value of 100,000 in the event that it will be held for one year.

The present value of an aggregate of money that is held on the property can be found by

separating the measure of money for the premium rate. At an investment rate of five percent,

from 100,000 GBP which is held for one year has a present value of just 95,000 GBP. This is on

account of GBP 95,000, if got today and has contributed at an investment rate of five percent,

would 100,000 later that year. The more extended a measure of money the more it loses value is

held.

The mainstream outflow "time is money", has turned out to be very precise when you

consider the time value of money. This idea is fundamental to comprehension the significance of

ventures.In business concepts are applied in the same way, except they are given different names

to them call them the nominal interest annual and annual effective interest rate. It is determined

that the nominal rate is the rate that is agreed between the lender and the borrower, while the

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annual effective rate (TEA), or true, is the rate that effectively was paid or earned, we are

including the time and value of the cost of money at that time.

We can express the annual effective rate (TEA) as follows:

TEA = (1 + i / n) n -1, assume one example where we want to calculate the effective rate

of a nominal rate a business concern us.

The annual nominal rate is 8%, and payments are made monthly

As there are 12 months in the year, we have 12 periods are represented as n

Develop the equation and look at the result

TEA = (1 + 0.08 / 12) 12 -1 = (1 + 0.0066) 12 -1 = 1.08299951 -1 = 0.08299951 or

8.299951%.

The interest rate of 8.299951%, was the amount actually paid for that business.

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References

Dey, J. K., Mondal, S. K., & Maiti, M. (2008). Two storage inventory problem with dynamic

demand and interval valued lead-time over finite time horizon under inflation and time-

value of money. European Journal of Operational Research,185(1), 170-194.

Engle, R. F., Ghysels, E., & Sohn, B. (2013). Stock market volatility and macroeconomic

fundamentals. Review of Economics and Statistics, 95(3), 776-797.

Gross, J. (2013). How can the Demand Curve be derived from the Utility Maximum Principle?.

Wong, J. D. (2008). Time Value of Money. In Encyclopedia of Public Administration and Public

Policy, Second Edition (pp. 1923-1930).

Zheng, Y., Kinnucan, H., & Kaiser, H. (2010). Measuring and testing advertising-induced

rotation in the demand curve. Applied Economics, 42(13), 1601-1614.