Digital Computers
There are two fundamentally different types of computers: analog and dig-ital. The former type solves problems by using continuously changing data such as voltage. In current usage, the term "computer" usually refers to highspeed digital computers. These computers are playing an increasing role in all branches of the economy.
Digital computers are based on manipulating discrete binary digits (Is and 0s). They are generally more effective than analog computers for four principal reasons: they are faster; they are not so susceptible to signal interference; they can transfer huge data bases more accurately; and their coded binary data are easier to store and retrieve than the analog signals.
For all their apparent complexity, digital computers are considered to be simple machines. Digital computers are able to recognize only two states in each of its millions of switches, "on" or "off, or high voltage or low voltage. By assigning binary numbers to these states, 1 for "on" and 0 for "off, and linking many switches together, a computer can represent any type of data from numbers to letters and musical notes. It is this process of recognizing signals that is known as digitization. The real power of a computer depends on the speed with which it checks switches per second. The more switches a computer checks in each cycle, the more data it can recognize at one time and the faster it can operate, each switch being called a binary digit or bit.
A digital computer is a complex system of four functionally different ele-ments: 1) the central processing unit (CPU), 2) input devices, 3) memory- storage devices called disk drives, 4) output devices. These physical parts and all their physical components are called hardware.
The central processing unit is the heart of a computer. In addition to performing arithmetic and logic operations on data, it controls the rest of the system. Sometimes the CPU consists of several linked microchips, each performing a separate task, but most computers require only a single microchip as the CPU.
Input devices let users enter commands, data, or programmes for processing by the CPU. Information typed at the computer keyboard, which is much
like typewriter, is translated into a series of binary numbers the CPU can manipulate. The mouse is another widely used mechanical input device. To move the cursor on the display screen, the user moves the mouse, selects operations and activates commands on the screen by pressing buttons on the top of the mouse.
The power of computers greatly depends on the characteristics of memory- storage devices. Most digital computers store data both internally, in what is called main memory, and externally, on auxiliary storage units. As a computer processes data and instructions, it temporarily stores information internally on special memory microchips. Auxiliary storage units supplement the main memory when programmes are too large and they also offer a more reliable method for storing data. There exist different kinds of auxiliary storage devices, removable magnetic disks being the most widely used. They can store up to 100 megabytes of data on one disk, a byte being known as the basic unit of data storage.
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Output devices let the user see the results of the computer's data processing. Being the most commonly used output device, the monitor accepts video signals from a computer and shows different kinds of information such as texts, formulas and graphics on its screen. With the help of various printers information stored in one of the computer's memory systems can be easily printed on paper in a desired number of copies.
Programmes, also called software, are detailed sequences of instructions that direct the computer hardware to perform useful operations. Due to a computer's operating system hardware and software systems can work simultaneously. An operating system consists of a number of programmes coordinating operations, translating the data from different input and output devices, regulating data storage in memory, transferring tasks to different processors, and providing functions that help programmers to write software. In large corporations software is often written by groups of experienced programmers, each person focusing on a specific aspect of the total project. For this reason, scientific and industrial software sometimes costs much more than do the computers on which the programmes run.
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1. The result obtained by the computer programmes greatly depends on the speed of the digital computer but not on the accuracy of the data used in the programme.
2. Hardware is nothing but different devices such as printer, CPU, etc.
3. The main element of any digital computer is known to be a microchip-
4. Due to digitization process any computer represents letters, numbers, graphics, pictures and musical notes.
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A Model of the Economy
Economists spend a lot of time trying to develop models of the working of the economy. The London Business School, like many universities and also the Treasury, has a model of the economy which it has entered into a computer. The reason for this is that much of its work is concerned with forecasting future economic trends so as to aid decision-making by business and government. The London Business School's model can be fed with economic information, such as changes in tax rates, and it will then predict how the economy will behave. Such predictions are an invaluable aid to business decision-making because, for example, businesses can find out whether people's
incomes are Likely to rise or not.
The complete economy comprises many millions of economic units. There are households, as one kind of unit. There are also firms, and the departments of both central and local government. These units together decide the economy's total spending. They also decide its total income and its total level of production of goods and services. But in order to develop a simple model of the economy we need to ignore the government sector and the possibility of transactions between households and foreigners. Suppose we are dealing with an isolated economy, one which has no government. Let's assume that there are two main sectors in the economy: households and firms. Households supply firms with the factors of production that firms need to carry on their concerns.
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Thus,households provide labour services, both skilled and unskilled, in return for the payment of wages. They may also supply land for which they are paid rent. Finally, they might supply the finance, which is essential to the business. If the finance is in the form of a loan they receive interest payments, but if they have purchased shares in the business they may be entitled to a share of the profits. Most households provide some factor services or services of productive/actors, to a public or private business. Anyone at work is providing labour, and if you or someone in your family has bought shares in the privatization programme (in, for example, British Gas, British Telecom or the water authorities) then they have supplied share capital. Households receive payments for these factor services, that is to say, they earn factor incomes, such
as wages, rents and profits.
The other part of our simple model portrays firms supplying households with all the goods and services that they require. In return for these the households pay the firms. These two sets of actions create the model of the circular flow of money, which is shown in Fig. 3.
In fact, there are two flows. One which is monetary and one comprising goods and' services. A flow of factor services from households to firms for which there is an opposite stream of factor payments and a flow of goods and services, which households pay firms. It is this monetary flow in which we are most interested.
What does the figure suggest? It suggests that there are three ways of measuring the amount of economic activity in the economy. First, we can measure the value of goods and services produced, second, we can measure the level of factor earnings. These factor earnings represent the value of factor services supplied. Third, we can measure the value of spending on goods and services. Then, economists refer to the size of the monetary circular flow as the level of national income.
If we assume that all the goods and services, which are produced are in fact sold and that households spend all their income, then we have arrived at what economists call a neutral equilibrium. The level of income, which is spent and received by the two groups will not alter since as one group receives it, they spend it with the other.
The fact that the economy is in a neutral equilibrium means simply that the level of national income, and hence the level of economic activity, are stable and unchanging. (An equilibrium is a point of balance in which there is no inherent tendency to change). If the economy was in equilibrium it does not mean that everyone who wants a job has one or that the country is importing exactly the same value of goods and services as it is exporting.
Figure 3. The Circular Flow of Income
1. What units does the economy comprise? What do they decide?
2. What are the two main sectors in the economy?
3. What sets of actions create the model of the circular flow of income?
4. Dwell on the monetary flow. How is the level of national income connected with it?
5. Dwell on the flow of goods and services.
6. What does the figure suggest?
7. How can the amount of economic activity be measured?
8. What's an equilibrium? a neutral equilibrium?
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