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Aggregate Demand/Supply and Full Employment
Employment level in any country is dependent upon important economic factors or elements including production, demand, supply, consumption, inflation etc. Employment can never be increased or decreased without it producing some effect on these economic factors. In their words, changes in these factors are what lead to increase or decrease in employment level. For example in any country we cannot expect to increase employment level without taking into account production of goods and services, demand for those goods and supply of the same.
When employment level in the country is low and the government wants to achieve full employment, it is important to study the economic factors of aggregate demand and supply as they play the most crucial role in determining the level of employment in a country. Aggregate demand is the sum total of demand for goods and services in a country. In any…… [Read More]
Question 4: Please define the oversimplified multiplier and use your knowledge of the concept to answer the following question. Suppose that GDP is currently $25,000 and the marginal propensity to consume is.50. If autonomous investment increases by $5,000, what will GDP be in the new equilibrium? Assume the oversimplified multiplier is accurate.
Any change in a component of aggregate demand will result in a larger change in equilibrium GDP, called the oversimplified multiplier. The equation would be: 1/1-.50=2.
This means that the oversimplified multiplier is 2, so instead of an increase of $25,000+5,000=30,000, the GDP will be $30,000, as the extra $5,000 should be multiplied by 2.
Question 5: Please describe the concept of investment spending, as well as what will happen to the aggregate demand curve if investment spending is increased autonomously. Also provide an example of spending that a macroeconomist would consider "investment spending."
Investment spending refers to…… [Read More]
Graph/Table Which Must Also e Included in the Paper:
Explain the difference between personal income and disposable income. How can personal income increase by a lower amount than disposable income?
Personal income is income received by individuals from all possible sources. This includes wages, and income from dividends paid on investments. The largest component of total income is wages and salaries, a figure that can be estimated using payrolls and earnings data from the employment report. eyond that, there are many other categories of income, including rental income, government subsidy payments, interest income, and dividend income. Personal income is a decent indicator of future consumer demand, but it is not perfect. Recessions usually occur when consumers stop spending, which then drives down income growth. Looking solely at income growth, one may therefore miss the turning point when consumers stop spending. Like real GDP per capita, real disposable income is a…… [Read More]
Introduction to Economics and Global Capitalism
The idea that minimum wage, even though it has risen, has not kept pace with real wages, according to the U.S. Senate Committee on Health, Education, Labor and Pensions (2013). The issue of course is one of inflation. So if Sen. Harkin wants to grow the middle class, which he calls the backbone of the economy, he should simply get on the Fed to stop printing trillions and increasing the money supply so that everyone’s dollars are devalued. No one’s wages are keeping track with the rate of inflation, and while raising minimum wage might help to increase aggregate demand, it would undoubtedly also lead to more unemployment as businesses struggle to maintain margins while passing on the cost of hire wages to consumers. Lowering the minimum wage or abolishing it altogether would actually do more to help reduce unemployment, as it would take…… [Read More]
Demand for Money
Money in economics terms can be defined by holding cash or non-interest bearing bank accounts. Since these holdings are less advantages than interest bearing accounts or some form of investment, there has to be some motivation to keep cash or completely liquid assets. There are a range of different motivations that can be used to describe these behaviors. However, most of them use liquidity in one form or another. For example, it is necessary to have liquid assets to make purchases or pay bills for example. So if an individual gets their paycheck they may deposit a portion of the check into some form of investment account, while keeping a portion of it liquid to cover their monthly living expenses.
An individual may also move money to a liquid account if they are planning to make a purchase in the short-term. The demand for holding money can…… [Read More]
Inflation is also one of the few economic concepts that is generally understood and watched by the lay public because when the general level of prices rises, people's wages can buy less and less of the goods and services that they need. Thus inflation can thus also be seen as a devaluation of the purchasing power of money. The inflation rate is an annualized rate that designates the percentage change over time in the general price index of an economy. (in the United States, this general price index is the Consumer Price Index.)
Aggregate demand is an important concept within macroeconomic theory. It designates the total demand within an economy for both services and goods at any given point of time and as assessed at a specific price level. This concept is also designated as the effective demand and can be seen as the total demand for the gross domestic…… [Read More]
aggregate expenditure model to explain the impact of the housing boom on investment and consumption spending.
In order to determine the relation between the housing boom and the rise of prices, which are probably caused by greater demand in the housing sector, all factors which may produce shifts in the production function must be analyzed. The model proposed by Keynes suggests that each monetary unit spent on something must be somebody's income. Therefore, the housing boom, which creates new jobs, not only in the construction industry, but also in related areas, such as the production of wood or steel, is bound to produce a corresponding rise in consumption demand, as a result of increased spending. A similar effect is incurred upon investment demand.
Consumption demand goes up and down with peoples' income. The relation is simple to grasp: the more money people have, the more they'll be spending. Should income…… [Read More]
Thus it was confidence ebbed that had ebbed actual income. The Hiscox Wealth eview of 2009 found: "The recession has left its mark on the psyche of the Working Wealthy with a lack of confidence impacting their perceptions of wealth and appetite for risk. Whilst two in five (41%) say the recession has not had an impact on the amount of money they have to spend, almost an equal number (44%) say they are fearful of the future" (PN Newswire, 2009). But, observed Vanity Fair reporter tartly: "Most 60-year-old ex-Lehman Brothers bankers likely squirreled away enough to at least scrape by on a couple of million a year" (Shnayerson 2009, p.3). If they did cut back, it was in relatively minor ways: "Why should I pay $250,000 for a private plane," said one man to the magazine "when I can pay $20,000 to fly commercial first class" (Shnayerson 2009, p.1).…… [Read More]
This creates a need to plan for the resources needed at any given time. This includes that there is a need to plan for the human resources necessary. This would be one of the needs of McDonald's, with restaurants needing to supply the human resources needed to meet consumer demand at all times. This includes all times of all days. This would be different for Dell, since human resources are needed to meet overall demand, but not on an ongoing basis. For example, a decreased amount of human resources on a given day would not limit the ability of Dell to meet production demand, since the decrease could be noted and action taken. This would allow overall demand to be met. In contrast, a decreased amount of human resources even for a short time would limit the ability of McDonald's to meet ongoing demand.
Another issue for service-oriented firms is…… [Read More]
From a short-run perspective, it would seem to be in the interest of the 'average' American worker to support limits upon immigration, given this will raise his or her level of wages and improve his or her employment prospects. On the other hand, America has always been a nation of immigrants, many of whom have created new businesses and infused the nation with new ideas. Increased immigration can thus generate greater long-term productivity, growth, and expanded opportunities for all individuals, regardless of where they were born. Immigrants also come to the United States with a desire to command higher wages and improved working conditions and although they may accept lesser conditions initially, once they gain a foothold in America's economy, they are more likely to demand change and better wages and worker's rights. "Immigration has been an important source of economic and social vitality for the United States" even while…… [Read More]
Demand for Money
The international community is currently facing the most severe crisis since the Great Depression of 1929 -- 1933. It started within the American real estate sector and soon expanded to the rest of the sectors, as well as to the rest of the global economies.
The causes and impacts of the crisis have often been discussed in the media and within the specialized literature, and the discussion is far from over. Still, this approach to the crisis is more descriptive and reflective. At this stage nonetheless, it is necessary to implement a proactive approach through which to promote solutions to overcoming the crisis.
Governments across the globe have each developed and implemented their own solutions to the crisis, ranging primarily from injecting capitals in the troubled industry sectors and companies, to efforts aimed at reducing federal costs. In the completion of these efforts, a crucial role is…… [Read More]
The supply and demand simulation featured a number of different economic prniciples at work. In terms of microeconomic principles, two that were featured prominently was the relationship between supply and demand. The impact of these two variables on the price and availability of apartments in Atlantis was at the core of the simulation. Another was price elasticity of demand. There were also some macroeconomic principles outlined, as they affect supply and demand. One was the overall population, its growth and demographic change. These factors all contribute to the supply and demand characteristics of the Atlantis rental housing market. Another macroeconomic concept that came into play was the concept of equilibrium and the effects of price ceilings on both supply and demand.
External factors cause the supply and demand curves to shift. The supply curve is shifted, for example, if there is new supply in the market. A new building…… [Read More]
Unemployment and its Effect on Aggregate Supply and Demand:
The Obama administration is looking for ways to create jobs and stimulate growth after temporarily setting aside the debt limit. The need for job creation and stimulating economic growth originates from the high unemployment that the country experiences. This high unemployment rate is an actual reflection of the serious shortfall of aggregate demand in the United States. The U.S. unemployment rate is high essentially because the country's economy is generating below its capacity. Actually, while the U.S. economy has made some gains from time to time, its real GDP is estimated at 6% below its trend path or capacity.
There are various reasons attributed to the high unemployment rate including its consideration as a consequence or outcome of the collapse of demand rather than a distinct, instantaneous problem. Some of the reasons attributed to the unemployment problem in the United States…… [Read More]
Keynesian Aggregate Expenditure Model
Company profits grew strongly in the June quarter putting another question mark over the extent of the predicted economic slowdown..."
However the central bank acknowledged that the weaker data for capital spending intentions are at this point the only clear evidence of an impending slowdown"
These two quotations regarding the same economic scenario seem to pose the question to consumers and economists alike -- why a predicted economic slowdown, if company profits are growing strongly? hy place so much fear in the data regarding capital spending intentions on the part of consumers? hy turn to the tools macroeconomics has long focused on, that of monetary policy, which the central bank controls, and fiscal policy, which the federal government controls, to shift the current state of economic equilibrium, as described above? (Schenk, 1997, "Synthesis")
The answer lies in the Keynesian aggregate expenditure model. This model…… [Read More]
The hiring would then lead to an increase in consumer spending, which could encourage other businesses to increase their hiring as well. The increased business investment could allow companies to develop processes, technology and capacities that will allow them to not only increase their presence in domestic markets but to increase their exports as well. The Keynesian as-AD model assumes that this multiplier will result in an increase in aggregate demand and aggregate supply, if governments increase spending. For the government, the multiplier is expected to decrease with the size of the investment, so the ideal amount of spending is not infinite, but is constrained by a declining multiplier, which would lead to an equilibrium level of government spending.
The as-AD model illustrates another reason by government spending cannot be infinite. As and AD increase, P also increases. This means that inflation occurs as demand and supply in the economy…… [Read More]
Alan Greenspan's testimony starts with a comparison between the state of the U.S. economy in July 2004, time of his present testimony, and the state of the economy in February 2004, the time of his previous testimony in front of the U.S. Congress.
In February 2004, the main problem of the U.S. economy, as identified by Greenspan, was the fact that the company's increase in income and net profits were related to a better use of human resources rather than on an increase in employment. In other words, despite the fact that the economy was on the rise, it failed to produce new jobs. This was a direct consequence, in Greenspan's opinion, of the risks associated with increased employments, more notably "corporate accounting and governance scandals," a "decline in stock prices" and the overall "geopolitical tensions"
As compared to the unemployment situation in February 2004, the period up to July…… [Read More]
Capacity and Demand econcilliation
Capacity & Demand econciliation
Measure: Aggregate Capacity and Demand
ABC University Library at the Dublin Business School has been charged with providing a capacity and demand report in anticipation of the university's long-range capital expenditures budget development activities, as part of the institution's strategic planning process. Further, the strategic goals of the university include improving customer satisfaction and advocacy in order to attract more desirable student applicants and to expand the number of new students the university is able to accommodate. Since it first opened 10 years ago, the ABC Library has not conducted a study of capacity and demand. Library staff are concerned that the university's perception of library usage is unfavorably skewed. Accordingly, library staff will commence a formal study to develop a capacity planning and control strategy to present to the capital budget finance committee. The library staff is particularly focused on understanding…… [Read More]
raising minimum wage relates supply demand analysis. • If raise minimum wage businesses compensate raise workers? • According United States Department Labor, Minnesota's current minimum wage large employer's small employer's hour? • How hard working people expect ahead minimum wage low? • Due cost living minimum wage increase? This a comprehensive paper a minimum library resources.
aising the minimum wage: Supply and demand analysis
Although there is a great deal of disagreement about how to regulate the minimum wage in America, statistics indicate that the minimum wage has not been keeping pace with inflation. "The federal minimum wage is just $7.25 an hour and hasn't been raised in three years. But a raise is much more overdue than that. If we look at the minimum wage 44 years ago, and simply adjust it for inflation, it would be more than $10 today" (Weisbrot 2012). However, there is tremendous resistance to…… [Read More]
Division of labor is one of the most important concepts forwarded by Adam Smith. He believed it could improve the wealth of nations when each nation focused on production of only those things for which it had the resources and talent available. For example a country rich in oil should focus on export of oil, more exploration, and advancement in that field and related fields. Similarly another country that has coffee beans in great supply should concentrate on production of better coffee and export of the same. But if the oil country tried to become better at coffee and coffee country tried to drill for oil, this would not help either nation because the nation that is naturally endowed with oil or coffee can produce those items at much cheaper cost thus adding to its wealth and also is able to export to other countries at affordable rates. The other…… [Read More]
All three areas of demand management, production planning and logistics planning are integral to any enterprise operating its value chain efficiently and profitably. The catalyst that keeps any value chain continually operating and improving begins with understanding the aggregated demand forecasts for specific products, in addition to understanding the nuanced nature of customer's changing requirements and needs (exhausen, Pibernik, Kaiser, 2012). Demand management is crucial for translating forecasts and sales history into a plan that can guide production planning, while also orchestrating with logistics planning as well (Wang, Liu, 2013). Each of these three years fulfills a very unique role in triangulating the performance of a company's value chain to attain profitability and market share growth over time.
Demand Management, Production Planning And Logistics Planning
There are many aspects of demand management that vary by the type of value chain a given company has. For many companies that…… [Read More]
Competing in today's economy, demands that a business find ways to break out a commodity status to meet customer needs more than competing firms do. A sound marketing strategy requires effective planning; this helps a business to capitalize the opportunities present in the market and leverage their strengths. Service businesses and firms encounter a number of unique cost considerations that need to be addressed when formulating service pricing strategy. Service pricing is not often finalized until after provision of the service; hence the consumer faces a lot of price uncertainty. Product line pricing tends to be more complicated. The opportunity for illegal pricing is greater in services than in goods.
The overall profitability of a business can be assed by examining change and firm or business profitability. An enterprise gross margin can be used to measure the contribution of the enterprise to a business. The sum of business…… [Read More]
However, because of the long-term sustained economic growth engendered by dual-income families, wages have increased. Women have also increasingly sought professional degrees to further their earning power, to the point where they outnumber men on many college campuses across the nation. As the average household income has increased, more goods and services are being purchased overall and prices have gone up -- although the prices of many 'necessary' goods such as food now occupies a smaller percentage of the income of the average middle-class family. Thus the primary result of the expansion of women in the workforce has been its role in "help[ing] fuel economic growth for decades" (Porter 2007).
Women still tend to earn less than men. However, this fact has had an unintended positive effect for women in the wake of the recent recession -- because male labor tends to be more expensive, businesses are often more likely…… [Read More]
Elasticity of Demand
Discuss elasticity of demand as it pertains to elastic, unit, and inelastic demand
Price elasticity of demand is the measure of the change in the demand of a given product as a response to a change of its price. When demand is inelastic (a value versatility less than 1), a value increase raises downright income, and a value reduction lessens absolute income. The point when interest is elastic (a value versatility more remarkable than 1), a value expansion lessens all out income, and a value decline increases downright income. The point when demand is unit elastic (a value versatility equivalent to 1), a change in cost does not influence absolute income (Dewett, 2010).
Discuss cross price elasticity as it pertains to substitute goods and complementary goods.
The Cross-Price Elasticity of Demand is used in measuring the rate of reaction of the amount requested of one item arising…… [Read More]
S. pp). For more than ten years, Chinese officials have stated that production from Chinese firms investing overseas is more secure than imports purchased on the international market (U.S. pp). In order to secure more reliable access, Chinese firms are being directed to invest in projects in the Caspian region, Russia, the Middle East and South America (U.S. pp).
The National Intelligence Council's report also states that Europe's energy needs will probably not grow to the same extent as those of the developing world, partly because of Europe's expected lower economic growth and more efficient use of energy (U.S. pp). Europe's increasing preference for natural gas, combined with depleting reserves in the North Sea, will provide an added boost to political efforts that are already under way to strengthen ties with Russia and North Africa, since gas requires a higher level of political commitment by both sides in designing and…… [Read More]
Transfer payments include welfare ($5) and UI ($2). Thus, net taxes are 12-7 = $5.
A c) Total planned investment is the new capital stock, so the increase in capital stock, plus depreciation. In this example new capital stock = 103-100 + 7 = $10.
A d) Real GDP = (C + I + G) / (1 + r) = (50+10+5) / (1.06) = 61.32 e) Total savings = Disposable income - consumption. Disposable income = GDP - Net Tax. Thus, DI = 65-5 = 60. Total savings = 60-50 = 10 f) Total leakages = Net taxes + Savings = 5 + 10 = 15 g) Total injections = I + G = 10 + 5 = 15
8-5) if the capital stock decreases, workers will be less efficient, which will reduce the production function. However, companies will adjust be reducing demand for labor. This will increase worker productivity.…… [Read More]
Aggregate demand is something that is a topic of interest. The Obama Administration bailed out banks in the United States and Wolff mentions Great Britain in a sense bailed out their banks by continuously printing and borrowing money. Banks are the reason for shift in aggregate supply and thus aggregate demand. The United States government as Wolff remarks, gives limitless credit and almost zero interest on banks, supplying them with an endless source of money to do as they will. They took risks because of this endless source and it led to the aforementioned bailout.
From this risk emerged ‘credit default swamps’ that served as insurance for loans but were not regulated as insurance. The biggest one, AIG, had banks come to them to ask for reimbursement for defaulted loans. Companies like AIG could not pay and thus the banking crisis occurred. Although banks like Goldman Sachs emerged unscathed, from…… [Read More]
The concept is proportion of income devoted to a good typically applies to discussions about the price elasticity of demand. The basic concept of price elasticity of demand is that it is relational to the percentage change in the price of a good. But the proportion of income devoted to a good will have an impact on the elasticity. The best way to illustrate this is by comparing two different products.
A person pays rent, and they like to buy a coffee every morning. If their rent is $1,000 per month and the coffee is $2 per day (so $40 per month). The price of each increases by 10%. The percentage price increase is the same, but the rent is a much larger proportion of income. So the increase in the price of rent is $100, and the increase in the price of coffee is $4. The consumer is…… [Read More]
According to the Organization for Economic Corporation and Development (OECD), if the Composite Leading Indicators of a country is increasing and has attained the value of 100 or above, the economy of that country is said to be in an expansionary mode. On the other hand, if CLI of a country is declining and the value has increased above 100, this implies that country is on a downturn (The Hindu, 2010).
Needless to say, if an economy is to enter the expansionary mode, there are certain policies that the economists have to adopt. Expansionary policy is a macroeconomic policy that is used to increase the money supply so that inflation is combatted or economic growth is encouraged. Fiscal policy is a kind of expansionary policy that seeks cuts in taxes, and encourages rebates and increase in government spending. Central banks can also devise expansionary policies that focus on…… [Read More]
The increases in the deficit; are a normal effect and will equalize itself out through an improvement in the total amounts of taxes that are collected. (Schiller, 2010)
For me, these insights are providing greater clarity about what actions must be taken to avert recessions. It is also illustrating how the headlines in the news media about government policies may not be completely accurate (i.e. The problems with the national debt). Instead, this is illustrating how these changes are a necessary outcome. That will help to stabilize the economy and prevent recessions from becoming worse. This is the key for avoiding downward spirals in economic activity and the negative long-term effects it will have on everyone's standard of living. (Schiller, 2010)
What has been happening to consumer confidence over the last six months? What explanation for consumer confidence does the memo give?
In the last six months, consumer confidence has…… [Read More]
Investment spending is very significant because it is an essential ingredient in economic development and growth. The decrease in the level of investment spending may cause a recession. Most recessions occur as a result of fall in investment spending (Paul & Krugman, 2007). Swings in investment spending are very dramatic than those in customer spending. eduction in consumer spending is normally a result of a progress that starts with a slump in investment spending. The most significant factors that determines investment spending are the rate of interest and anticipated future real GPD. To understand the kind of reasoning, first there is a need to note that planned investment spending is the investment spending that firms intend to pass through over a given period, in contrast to investment spending that happen but is not planned (William & Greene, 2008). Planned spending on investment projects is negatively the same as the interest…… [Read More]
The concept of the multiplier effect is closely related to the concept of marginal propensity to spend and consume. Marginal propensity can be understood as the increase in personal consumer consumption and saving that occurs with an increase in disposable income. When fiscal policy creates more disposable income for a family, the concept of marginal propensity predicts how much more they would be save and spend. Thus marginal propensity predicts the actual impact of fiscal policy when it is enacted and thus it can calculate the multiplier effect.
Prepare an essay describing Keynesian economic theory. Be sure to fully explain what is being critiqued and why. You should also be clear on why you find this particular critique so compelling. (600 words).
Keynesian economic was developed in the 20th century by the British economist John Keynes. Keynesian economics is basically a reinvention of classical economic theory, it focuses upon a…… [Read More]
Another fiscal policy that could be implemented is for the government to spend more, thereby increasing aggregate demand. This may have an impact on consumer confidence about the long-run state of the economy, but those long-run concerns are not driving consumer spending today. At this time, the spending policy is something that government can pursue. If poorly targeted, however, its impacts will be temporary. Indeed, if everybody knows that the measure is temporary, this will not affect consumer confidence or business investment in the long run. However, if the policy appears permanent, then the responses could be more permanent in nature as well.
Lowering taxes on that bottom 80% will increase consumer spending, but again might not improve consumer confidence because it only makes the long-run deficit problem worse. Only spending on job creation, therefore, is recommended because it serves to a) address some of the crippling issues relating to…… [Read More]
However, aggregate supply always responds, eventually, to demand so aggregate supply will fall as well, until there is a state of equilibrium again.
Increasing the amount of deposits that commercial banks must hold with the central bank will diminish the money multiplier, which is the amount of money a bank can create with each dollar of reserves. The money multiplier is determined by the reserve ratio. The higher the reserve ratio, the less money the bank will have to lend out, diminishing the money multiplier. Requiring the commercial banks to increase deposits will increase the reserve ratio by.5%, thereby diminishing the money multiplier by .5.
The spending multiplier, which is the measure of additional spending in the economy generated as a result of the initial spending, will be reduced because of the reduction in consumption caused by less wages, rent, and profits paid by firms. The investment multiplier, the…… [Read More]
With a decreasing demand, the economy could no longer produce to the same levels, pressured by price deflation as well, so the spiral continued to tail the economy downwards.
The New Deal measures produced the exact reverse effects. In this sense, stimulating the economy with new governmental programs and increased governmental spending meant that new jobs were created and that the economy gradually resumed its growth.
1. Causes of the Great Depression. 2001-2006. On the Internet at http://www.learninghaven.com/articles/causes_of_the_great_depression.html.Last retrieved on October 13, 2006
2. en S. ernanke. August 1994. The Macroeconomics of the Great Depression: a Comparative Approach. Working Paper No. 4814. National ureau of Economic Research. Page 23.
3. Rothbard, Murray N. 1969. Economic Depressions: Their Cause and Cure. The Austrian Theory of the Trade Cycle compiled by Richard M. Ebeling. On the Internet at http://www.mises.org/tradcycl/econdepr.asp.Last retrieved on October 13, 2006
4. Keynesian Model. 2000-2006. On the Internet…… [Read More]
The forecast provided by Allen Sinai gave the reader a somewhat accurate analysis of the macroeconomic phenomenon. However, there are also a few problems. Sinai estimates a 0.4% increase in 2005 for the consumer price index, which is not actually correct, but it's not to far from reality either. Given the increase of the interest rate, people will probably feel not so comfortable in buying as much as during the previous years, so a slight decrease can be expected. After all, January is known as a slow month. 0.4% means about 4% a year, which is much more than the economy is currently able to take.
The estimated trade balance was larger than the recorded one, therefore proving the pessimism of Mr. Sinai. After all, many analysts expected worse trade deficit results than the one that were published in November 2004. It would seem that the low-value dollar policy promoted…… [Read More]
The current state of the United States economy is not encouraging. Even though there has been false hope about it, the chances are that it will hardly last for long. The long-term trends that are negatively impacting the economy and financial system are showing no signs of reducing. As each day passes, the economic foundations of the country continue to crumble. The debt of the country has increased and the population is consuming more wealth than what is produced. In addition, unemployment and inflation levels are high coupled with slow economic growth, which remain the main features of the U.S. economy. The Federal eserve is the key to solving the current economic situation that is experienced in the U.S. This is because it is the central bank of the United States and the operations of every bank are monitored by the Federal eserve (Hafer, 2005). In 1913, the…… [Read More]
The Federal reserve realized the big negative impact of MBS and announced a 600 billion program in November 2008 to purchase these securities and this helped to bring back some liquidity into the market. In March 2009, it added another $750 billion to bring the total to $1.25 trillion.
The Fed has the power to create or print more money to increase money supply in the market and this is exactly what it did. Though the downside of this measure is inflation and an increased balance sheet for the Fed, Ben Bernanke, the chairman of the Federal eserve felt it was imperative to boost the economy. Through this tool, the Fed generated money and provided it to large corporations that depend on loans to ensure that their growth was not drastically affected. The Fed executed this policy through the lending institutions to increase economic activity and the dependent employment numbers.…… [Read More]
Macroeconomics Question Set
a.) The increase in expenditures necessarily causes government spending levels to rise, and this means that the aggregate demand curve moves to the right. When the presence of a multiplier effect or an investment accelerator is accounted for, aggregate demand shifts are more pronounced. Conversely, when crowding-out occurs, aggregate demand moves less.
) In this scenario, the multiplier is 1/(1 -- MPC) = 1/(1 -- .8) = 1/.2 = 5. When government expenditures are increased by $150 billion results in a shift of $750 billion in aggregate demand, because ($150 billion x 5) = $750 billion. By increasing taxes by $150 billion income levels decrease the same amount, and this initially decreases consumption by $120 billion, because ($150 billion x MPC) = ($150 billion x .8) = $120 billion. The subsequent change in consumption creates a multiplier effect of $600 billion, because ($120 billion x 5) =…… [Read More]
Evaluating the current state of the United States economy
Although many are of the opinion that the recession that the globe was forced into in 2008 is finally uplifting and signs of economic revival can be witnessed. The resulting high levels of debt and unemployment from the recession had dragged many countries, especially the United States in to a state of economic turmoil. In order to reverse the effect of such factors, the United States government has implemented strategic monetary and fiscal policies. These policies attempt to rejuvenate the economic position of the country by not only controlling the supply and demand via tax cuts but also through re-setting the interest rate level in accordance to the low level of disposable income available to the unemployed / lowly employed citizens of the United States can acquire loans to allow easy spending and repayment of the loan as well.…… [Read More]
Presently the government manipulates the books around in order to compensate for any tax cuts that they give. In reality, the vital thing for the government to do is to discontinue spending money. While this is not always reasonable, it is essential to make sure that the people and corporations of the nation can flourish. Tax cuts, when put into practice for long-term consequences, will offer a momentous increase in the market (How Do Tax Cuts Help the Economy, n.d.).
Due to the model of fairness, cutting taxes is by no means an easy task. There are two distinct notions that are at play. These are horizontal equity and vertical equity. Horizontal equity is the scheme that all people should be taxed uniformly. An instance of horizontal equity is the sales tax, where the quantity paid is a proportion of the object being bought. The tax rate remains the…… [Read More]
A lot of debates exists out there in the economic ether regarding the best economic structure for an economy. Even so, there is a broad amount of consensus that exists regarding what should be done during expansionary economic shifts and what is less than wise. With that in mind, the author of this report shall address a number of questions related to that overall topic including what should be done with taxes, government spending and the general tools of the Federal Reserve Bank including the changing of the reserve ratio requirements, the discount rate and the selling of government securities. There is also the question on what happens with things like aggregate demand, gross domestic product and employment. While predicting the outcome of economic efforts and policy can sometimes be hard to pin down, there are best practices that are generally held to be better than others when…… [Read More]
Discuss the long-range effects of a stimulus plan as it affects the banking sector, on the one hand, and increases aggregate demand, on the other hand.
A stimulus plan by the federal government is designed to increase aggregate demand and boost economic production, lifting the nation out of a recession. By infusing money into the economy through public works projects and other government investments, newly hired workers have more income, and can thus contribute to the expansion of the economy as a whole through their spending. However, a long-range stimulus plan can occasionally make the banking sector nervous, because of fears of rising inflation. Inflation is feared by the banking sector because this reduces the value of their current holdings, and also means that current loans will yield a less profitable dividend, as prices increase and the purchasing power of the dollar goes down. Additionally, most stimulus plans couple…… [Read More]
There are several factors that could contribute to increased demand for owner-occupied housing in the United Kingdom. Given that this demand is presently suppressed by a poor economy, most of the conditions under which demand would increase involve finding ways to boost overall economic performance. One normal policy prescription, lowering interest rates, is effectively off the table with the current rate at 0.5% and the Bank of England expected to maintain this rock bottom rate for the foreseeable future (Oxlade, 2013). Banks could lower lending rates to buyers, but these rates are usually based on spreads relative to the rate at which banks borrow, so there might not be much flexibility for banks to lower rates profitably.
One way would be to boost the economy through fiscal stimulus, government putting money into the economy instead of taking it out. This would create better demand conditions, and would also give…… [Read More]
Economically, recession is described as a significant drop in economic activity over a short period of time usually a few months (bbc news, 2008). Gross Domestic Product (GDP), household income and other macro-economic indicators drop while others such as unemployment and bankruptcy rises. ecession can be caused by many factors e.g an external trade shock or the burst of an economic bubble such as the United States housing bubble. Most governments deal with recession by applying expansionary macroeconomic policies like reducing interest rates and increasing government spending. By lowering interest rates, governments hope to entice business into expanding.
Fiscal policy refers to the use of the government taxation (revenue collection) and expenditure (spending) to influence the economy of a country. The changes in the two key pillars, revenue collection and expenditure influence macro-economic variables such as aggregate demand, resource allocation pattern within the government and the distribution of…… [Read More]
The National Housing Act indirectly promoted the idea of lenders offering much longer-term mortgages with the currently accepted concept of monthly payments with the dual interest and principal payment scale. Amortized real estate mortgages opened the door for an average person to purchase and own a single family home.
As a result of the National Housing Act, the United States government inadvertently committed itself along with private lenders to insure long-term mortgages that could be held for as long as twenty or more years at an interest rate that was affordable. Although the process at first was bogged down by paperwork and bureaucracy it eventually caught on.
Part of the reason the process took hold was because in addition to guaranteeing the loans, the National Housing Act through the formation of the Federal Housing Administration also investigated properties and neighborhoods which added an extra measure of security and guaranteed real-estate…… [Read More]
This also implies inadequacies in fiscal sustainability, which influences investments in private sectors.
The second channel happens through the level, composition and quality involved within the public investment, which shows the level at which the public investment replaces the private investments (Schmidt- Hebbel, Serven, & Solimano, 1996).
The final channel regards the level of taxation on the corporate earnings and the rules applicable in depreciations.
There have been arguments that fiscal policy and public expenditure reduces the private investments in two different manners. These include increasing the interest rates or lowering the private funds involved in financing the investments.
According to the neoclassical theory, the interest rate is also an imperative variable in finding the level of investment. Consequently, it results into a negative effect because it upsurges the interest payable in investments. Concurrently, McKinnon and Shaw, contends that this is likely to cause a positive relationship between the investment…… [Read More]
CPM is critically important from a supply chain management standpoint in optimizing inventory positions by location throughout a distribution channel as well (Omar, 2009). All of these factors contribute to the automating of CPM and PET through organizations who are heavily reliant on their supply chains to gain a competitive advantage. The optimization of inventory workflows using CPM and PET contribute to that competitive advantage over time. PET and CPM also can be used to measure the financial impact of these strategies over time as well. That is the future direction of EP and Web Services in manufacturing specifically.
Services scheduling is difficult due to a variety of factors. First, services are by definition a commitment of future value delivered. Completing services may take an exceptionally longer period of time than anticipated and the act of providing a service is not a finite asset; it is rather the…… [Read More]
The Japanese retail industry has intricate processes that keep demand management and inventory and production management efficient as a hybrid process that mixes automation and manual work. Given how many of the processes in the Japanese retail industry are comprised of manual and automated approaches to coordinating and communicating, it would take years for an outsider to understand how these specific processes interrelate to each other. Another factor that would significantly limit the potential of a non-apparel chain to replicate World's supply chain is the intensive coordination it allows production workers have, including their ability to create higher levels of process innovation vs. more traditional assembly line workers. Another factor is the intricate demand forecasting and aggregate demand practices World relies on. The specific approaches to forecasting for the Untitled line is also highly specific to Japanese retailing, and could not be easily imitated by outsiders, as this process builds…… [Read More]
4. The role that the FDA plays in setting food safety requirements is inherently costly to the economy. The function is not based on economic concerns but rather public health concerns -- the FDA's mandate dates to Congressional concern about the Elixir sulfanilamide disaster and traces its roots to Upton Sinclair's The Jungle, which documented meat production in Chicago at the turn of the 20th century (FDA.gov, 2009). Thus, decisions about FDA regulations are not made on the basis of economic good, but rather public good. Increased regulations would impose increased costs on business. In classical economics, these costs would act as a form of tax, increasing risk and discouraging investment. Eliminating these requirements would lower these costs, which would allow for an expansion of the food business. It could be argued that the threat of litigation today would counterbalance the need for regulations, but that claim has not been…… [Read More]
The general policy goal vis-a-vis inflation is to have growth in inflation over time but it should be a slow and steady rise with little to no falling at any point.
The 11th chapter is about aggregate supply and demand curves. Macroeconmics is described as a "bird's eye view" of the economy. The book then talks about stability or lack thereof and then discusses the self-adjustments, flexible prices and flexible wages of the classical theory. The book then talks about Say's Law, which is that "supply creates its own demand." The advent of Keynesian economics in the 1930's is then discussed, as this was clearly in response to the economic travails of the late 1920's and 1930's (and even the early 1940s') Keynes, unlike classical economists, said that there was no self-adjustment and that government could and should make investments to kick-start the economy.
The book then talks…… [Read More]
increase production of capital goods and reduce consumption.
increase production of capital goods and increase consumption.
decrease current consumption and reduce production of capital goods.
If an economy is producing inefficiently, it is
possible to increase production of all goods simultaneously.
possible to increase production of one good at the expense of another.
not possible to increase production of any good.
not possible to increase economic growth.
If oranges and grapefruit are close substitutes, an increase in the price of oranges will shift the demand curve of a.
both products to the right.
both products to the left.
grapefruit to the right.
oranges to the left.
An important assumption that is made when constructing a supply schedule is
only price and quantity matter in determining supply.
firms always want to sell a…… [Read More]
Economics for Business
The company that I am studying is Apple. The company is a designer and marketer of consumer electronics, specifically computers, smartphones, tablets, mp3 players and software. The company has experienced a strong run of great performance in recent years, but it has not always been that way for Apple. The company struggled considerably, especially in the 1990s, before breaking loose. The key thing about Apple is that it has always sought to differentiate itself. Over the course of the past ten years, we have seen most of Apple's former competitors in the personal computer space leave the industry. The reason is that the computer industry is moving towards the strategic hell of perfect competition.
The term strategic hell reflects the condition of perfect competition. In the real world outside of economics textbooks, few markets can be truly understood to be perfectly competitive. Perhaps a vegetable…… [Read More]
Due to increase in exports the trade deficit decreases. Whereas, the contractionary monetary policy has a negative impact on the balance of trade account as it leads towards a decrease in government expenditure, production and exports. Because of the decrease in exports, the trade deficit increases. (Schiller, 2010)
Money and Its Functions
Money can be defined as anything which is generally accepted in exchange for goods and services and which acts as a medium and store of value. The three major functions of money are; 1) it acts as a medium of exchange and is accepted as a payment for goods and services, 2) the value of different products is measured in terms of money, 3) it acts as a store of value because it is generally accepted as a medium of exchange and has a stable value. Banks usually create money in the economy by issuing loans and by…… [Read More]
Service Master has a family of brands that consist of companies that deliver services to home and businesses include pest control, maid service, landscaping and other services. The company has a high dependence on labor, and this labor must not only be professional in demeanor (quality service) but it must be well-trained and able to deliver the service to a high standard. There are two factors that could potentially increase the company's demand for labor. The first is a growth in the business. There is little opportunity to scale up this business, so any increase in demand equates to an increase in demand for labor at ServiceMaster. It should be noted that a growth in the business can also be met without increasing staff, should staff improve efficiency. Given the nature of the service, it is unlikely that ServiceMaster, if operating at capacity, will be able to improve efficiency much.…… [Read More]
In other words, these companies expand their business, reach a peak in their business activity, and then go through a period of recession, followed by a period of business expansion, and so on.
It is important that companies understand that the economic sector they represent follows the same business cycle. Therefore, it is difficult for companies to expand their business during periods of recession in the economic sector they represent. But they can expand their business during recession periods of other business sectors, represented by products from indirect competition. This situation can be observed in McDonald's situation.
This can be an explanation of the fact that the company's sales have significantly increased during the crisis. The incomes of most people have been reduced, which means that their purchasing behavior has modified. In such cases, people usually spend less. This means that they purchase less, or they purchase cheaper products. In…… [Read More]
Therefore, this model is focusing on how an increase in labor productivity will lead to involuntary unemployment. The below chart is highlighting how this is occurring. (Fazzari)
The Radical Keynesian model thinks that output increases from higher levels of productivity. This is because demand is constrained and firms have to see an improvement in sales. However, they do not think that falling prices will restore full demand. This is because these declines will help them believe that prices will fall even further in the future (which restrains spending). This causes bankruptcies to increase and it is eroding the wealth of borrowers. These issues are forcing aggregate demand to remain the same instead of shifting outward. (Fazzari)
Since wages and prices are flat, they do not help to improve unemployment or output. This is from aggregate demand remaining the sluggish (which is making wages and price adjustments stagnant). In the future,…… [Read More]
Macroeconomics and Microeconomics in Organizational Success
XYZ Company is aware that macroeconomics and microeconomics play a general role in its organization's success. The significance of macroeconomics and microeconomics in organizational success is attributable to the fact businesses makes decisions through complex processes. The multifaceted nature of business decision making process is brought by the complexity of consumer decision-making. Moreover, business organizations utilize macroeconomic and microeconomic data to make critical decisions that determine their success or failure. Therefore, it's important for XYZ Company to understand the role of macroeconomics and microeconomics in order for the management to make appropriate decisions that contribute to success. Some of the most important concepts in this process include supply and demand, consumer choice, aggregate supply and aggregate demand, and elasticity.
Overview of Macroeconomics and Microeconomics
Macroeconomics and microeconomics are two components that relate to economic activity and processes. Microeconomics is a concept that relates to…… [Read More]
To increase effective demand, Keynesians believe the government must balance the economy with deficit and increase expenditure. However, the constant alternation between booms and recession is causing the booms to get shorter while the recessions become longer. This phenomenon is the result of empirical evidence that indicates that in the end, the interest rates decrease.
However, this situation creates a problem of capitalism as the rich increase their wealth while financial deficit worsens. Minsky adopted the perspective of Keynesians, hypothesized financial instability, as the finance and money that connects the present with the future, but the future is uncertain. Minsky finds the problem of financial stability is in financing. However, financial instability increases under contemporary capitalism, which increases economic crisis. This leads to the conclusion that to solve economic crisis, there is a need to reduce financing and take up investments in real economy.
This is in contrast to the…… [Read More]
Savings and Income Decline as People Increase the Saving Habit
Saving refers to the income not spent by the consumer. In other words, savings are the money left when the consumer expenditures are subtracted from the disposable incomes that an individual earns over a given period. (Credo, 2006). When analyzing private and public savings, the savings refer to the sum of the public and private saving. (Credo, 2015). While private saving (S) is the amount of money not spent by consumers, the public saving is the overall taxes minus the government spending. However, as people attempt to increase their saving ability, the results are a decline of aggregate demand leading to a decline in savings, income, aggregate production and growth rate. (onald, 2015).
Objective of this paper is to investigate the reason aggregate savings and income decline as people attempt to increase their savings
The paper uses paradox of…… [Read More]
decreases, because of higher input costs or a natural disaster that
inhibits the production process (for example), aggregate supply will
decrease, prices will increase because of scarcity, and demand will
Productivity is an important factor in increasing aggregate supply. What
are some current trends that might lead to increased productivity? Have you
experienced any technological change in your job that greatly affected your
Improved technology, operating procedures, and even better management
techniques, can make the production process more efficient, inexpensive,
and thus raise productivity. Technology has enabled companies to use
cheaper outsourced labor in developing countries, to keep better track of
changing consumer desires and thus suit their inventories and products
better to consumer demand, has improved communication through the use of
the Internet, and allowed more competitive pricing for businesses and
consumers on comparative Internet sites.
When the economy is out…… [Read More]