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2.5. Limitations of the study
At the level of the limitations, these refer to the usage of secondary information, as opposed to the collection of primary data through the direct analysis of the Chinese market. This limitation is nevertheless addressed through the integration of multiple sources of valid and verifiable information, leading as such to the creation of solid, relevant and reliable findings.
The second limitation is one common to all research endeavors, namely the inability of the research project to answer all questions related to the topic under assessment. These topics could however constitute grounds for future research projects, supporting as such the academic development. These questions refer to the following:
1. What are the history, evolution and importance of inflation and unemployment?
2. What are the characteristics of the Phillips curve in other global regions, such as the United States or Japan?
3. The Phillips curve in China…
Arnold, R.A., 2008, Economics, 9th edition, Cengage Learning, ISBN 0324595425
Barboza, D., 2010, Market defies fear of real estate bubble in China, New York Times, http://www.nytimes.com/2010/03/05/business/global/05yuan.html last accessed on March 30, 2011
Belke, A., Polleit, T., 2009, Monetary economics in globalized financial markets, Springer, ISBN 3540710027
Bronstein, P., 2008, China's Olympic sized bust, Global Economic Trend Analysis, http://globaleconomicanalysis.blogspot.com/2008/08/chinas-olympic-sized-bust.html last accessed on March 30, 2011
There is no generally accepted theory of inflation. The causes that
generate it are numerous and include economic, psychological, social,
political, internal, and external factors. Inflation is based on numerous
partial causes, which correlated determine the inflationist process.
Inflation is generally considered an unbalance between money and
goods, consisting in the existence of excessive money supply in relation
with the volume of goods subjected to transactions, resulting an excess of
unsatisfied total demand.
Given the processes that determine it, inflation can be generated
through demand, supply, or it can be structural. Inflation can be generated
by a global demand increase, if the supply is inelastic. The money supply
increases faster than the GDP, causing inflation.
1. Inflation (2008). Webster's Online Dictionary. etrieved
December 5, 2008 from http://www.websters-online-
2. Inflation (2008). The American Heritage Dictionary of the
English Language. Fourth Edition. etrieved December 5, 2008
1. Inflation (2008). Webster's Online Dictionary. Retrieved
December 5, 2008 from http://www.websters-online-
2. Inflation (2008). The American Heritage Dictionary of the
English Language. Fourth Edition. Retrieved December 5, 2008
from http://www.bartleby.com/61/14/I0131400.html .
3. Inflation (2008). InvestorWords. Retrieved December 6, 2008
from http://www.investorwords.com /2452/inflation.html.
" 2 Apr. 2004. Federal Reserve Bank of San Francisco. Retrieved November 21, 2006 from Web site: http://www.frbsf.org/publications/economics/letter/2004/el2004-08.html
Ranson, David. "Inflation." The Concise Encyclopedia of Economics." Retrieved November 21, 2006 from Web site: http://www.econlib.org/library/Enc/Inflation.html
Inflation." Wikipedia. Retrieved November 21, 2006 from Web site: http://en.wikipedia.org/wiki/Inflation#The_role_of_inflation_in_the_economy
Svensson, Lars E.., "Escaping from a Liquidity Trap and Deflation: The Foolproof Way and thers." Dec. 2003. Retrieved November 21, 2006 from Web site: http://www.princeton.edu/svensson/papers/jep2.pdf
Inflation." Encyclopedia of American History. Retrieved November 21, 2006 from Web site: http://www.answers.com/topic/inflation
Inflation." Wikipedia. Retrieved November 21, 2006 from Web site: http://en.wikipedia.org/wiki/Inflation#The_role_of_inflation_in_the_economy
Hormats, Robert D. "vershoot? Behind the Curve? r Just Right?" The International Economy Fall 2005. Retrieved November 21, 2006 from Web site: http://www.findarticles.com/p/articles/mi_m2633/is_4_19/ai_n16057673
il, Hurricanes, and the U.S. Economy." 13 ct. 2005. The Vanguard Group. Retrieved November 21, 2006 from Web site: http://global.vanguard.com/international/hEurEN/research/hurricaneEN.htm#ref3
Svensson, Lars E.., "Escaping from a Liquidity Trap and Deflation: The Foolproof Way and thers."…
Oil, Hurricanes, and the U.S. Economy." 13 Oct. 2005. The Vanguard Group. Retrieved November 21, 2006 from Web site: http://global.vanguard.com/international/hEurEN/research/hurricaneEN.htm#ref3
Svensson, Lars E.O., "Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others." Dec. 2003. Retrieved November 21, 2006 from Web site: http://www.princeton.edu/svensson/papers/jep2.pdf
Moore, Geoffrey H., "Recessions." The Concise Encyclopedia of Economics. Retrieved November 21, 2006 from Web site: http://www.econlib.org/LIBRARY/Enc/Recessions.html
The clarification of the timeframe before the inflation will return to the level that has been targeted following the shock of employment rate shifts is "the horizon of the policy rule." (McDonald, nd; 73) Inflation rates grew for two years while interest rates were rising and yet unemployment was lowering during this time. In the United States, it can be noted as well that while unemployment rates grew inflation rates fell. Monetary policy and inflation targeting are similar in the United States and Australia.
ecause employment rates do impact inflationary rates during times of change and in times specifically when unemployment rates rise it is necessary specifically during these times to inform the public through clear policy and expectations as to what is expected thereby cushioning the shock of the impacts of unemployment on inflation rates. There has however, been research reviewed in this study that shows that use…
Barro, R.J. And D.B. Gordon (1983), 'A Positive Theory of Monetary Policy in a Natural Rate
Model', Journal of Political Economy, 91(4), pp. 589-610.
Crosby, M. And N. Olekalns (1996), 'Inflation, Unemployment and the NAIRU in Australia',
Melbourne Institute Working Paper Series No. 7/97.
The Federal Reserve should be able to control and measure the demand and supply on the market and correlate the two indexes. Also, and probably most importantly, the Reserve should constantly supervise and regulate the monetary system, assuring correspondence between the amount of money in coins and bills on the market and their coverage in gold and in the total quantity of goods and services produced.
The economic practice has concluded that a common and rather successful technique in diminishing the negative effects of inflation is to deliberately induce deflation and vice-versa.
However, applying these techniques into the economic and social system raises several difficulties for the Federal Reserve. These difficulties generally reside in economic and social factors. The economic factor is represented by the continuously changing and evolving production technologies, increasing demands, cost and revenues which are almost impossible to foresee or control. Moreover, the social factor of the…
Lipsey, Richard G., Chrystal, Alec K., Possitive Economy, Chapter 10: Inflation, Published by Weidenfeld & Nicolson in September 1989
Yam, Joseph, Deflation (1): Causes, Economic Forum, Hong Kong Monetary Authority, November 14, 2002, http://www.tdctrade.com/econforum/hkma/hkma021102.htm , last accessed on November 24, 2006
Barol, David, Effects of deflation on stock market performance, Physician's News Digest, June 1999, http://www.physiciansnews.com/finance/699.html , last accessed on November 24, 2006
Inflation Data, What is Deflation, 2004
"..most importantly, we find that inflation has a dramatic negative impact on the profitability of banks." (2006) oyd and Champ additionally state that: "The world has seen a dramatic decline in inflation rates in recent decades, but concerns about inflation may still be warranted, especially in some countries. Evidence is mounting that inflation is harmful to economic activity even at fairly modest rates of inflation because of the way it adversely affects the banking sector and investment." (2006) In the private sector "high interest rates have their most dramatic impact on equity investments - both stock market and private." (Understanding Inflation: So What's to Worry About, Anyway?, 2006) Additionally stated is that: "High interest rates show their effects by: (1) direct competitor for the investor's dollar. y increasing the difficulty of raising equity capital, high interest rates directly undermine financial stability and slow the growth of economic capacity needed to…
Understanding Inflation: So, What's to Worry About, Anyway? (2004) FutureCasts Online Magazine. Vol. 6 No. 2. 2004, February 1. Online available at http://www.futurecasts.com/Understanding%20Inflation.html .
Boyd, John H. And Champ, Bruce (2006) Inflation, Banking and Economic Growth - Federal Reserve Bank of Cleveland. 15 May 2006. Online available at http://www.clevelandfed.org/research/com2006/0515.pdf .
Inflation (2006) Wikipedia Encyclopedia Online available at http://en.wikipedia.org/wiki/Inflation .
Federal Reserve Board (2006) Wikipedia Encyclopedia Online available at http://en.wikipedia.org/wiki/Federal_Reserve_Bank
Further, inflation typically means higher interest rates are on their way (Walden and Williams). Of course, higher interest rates may it more expensive to borrow money and may limit investment.
As the graph on the next page shows, inflation is returned to the U.S. In 2007 after a long period of relative price stability. Further, many are concerned that future inflation will be high after all the government spending to get the economy back on track and to bail out troubled companies. Therefore, we may also get to experience first had why inflation is bad for savers, wage earners, production and productivity.
IN PER CENT)
SOURCE: ank for International Settlements
ank for International Settlements. Financial deleveraging, inflation and risks to global growth. http://www.bis.org/speeches/sp080623.pdf
South African Reserve ank. Why is inflation bad? http://www.bis.org/speeches/sp080623.pdf
Walden, M. And Williams, S. Why is inflation bad? http://www.ncsu.edu/project/calscommblogs/economic/archives/2006/07/why_is_inflatio.html
Bank for International Settlements. Financial deleveraging, inflation and risks to global growth. http://www.bis.org/speeches/sp080623.pdf
South African Reserve Bank. Why is inflation bad?
Inflation also influences the behavior of company's employees by cutting on their purchasing power. In this way, the employees can acquire less products and services than they were able in the past, therefore reducing their standard of living and enhancing their disappointment. The disappointment can have repercussion within their activity within the ExxonMobil Corporation, so this situation can be characterized as being a sensible one.
Inflation is a negative macroeconomic phenomenon that distorts the economic behavior of both corporations and individuals. Measures have to be taken in order to solve this issue, so as to limit the impact of inflation on everyday operations of companies and ordinary activities of individuals.
1) 'Inflation outpacing growth', article on SmartMoney web site, article published by Igor Greenwald, dated on 28th of April 2005 http://www.smartmoney.com/bn/index.cfm?story=20050428085819
2) http://online.wsj.com/article/S116537283751041900.html?mod=opinion_main_commentaries" "Irrational Exuberance, reconsidered," "Wall Street Journal Online," retrieved April 8, 2006
1) 'Inflation outpacing growth', article on SmartMoney web site, article published by Igor Greenwald, dated on 28th of April 2005 http://www.smartmoney.com/bn/index.cfm?story=20050428085819
2) http://online.wsj.com/article/SB116537283751041900.html?mod=opinion_main_commentaries " "Irrational Exuberance, reconsidered," "Wall Street Journal Online," retrieved April 8, 2006
The states in the Old Continent ensured stable economies and lack of inflation, but the lesson was short-lived. It as such only lasted up until the 1920s, when Germany used printed money to finance its war losses (Palairet, 2000).
3.2. Hyperinflation in Germany
The case of hyperinflation in Germany is the most common one offered as example, yet, it is not the most dramatic hyperinflation episode in economic history. The hyperinflations in Hungary or Zimbabwe are more dramatic, but Germany constituted the first important hyperinflation and has since then captured the attention of the economists (Full Wiki).
It is generally stated that Germany created hyperinflation to pay for its war reparations, as demanded under the Treaty of Versailles. Other opinions however argue that hyperinflation commenced before the war, with the federal decision to use debt to finance the war, rather than increase taxation. The underlying logic was that the country…
Allen, L., 2009, the encyclopedia of money, 2nd edition, ABC-CLIO
Lira, G., 2010, How hyperinflation will happen in America, Business Insider, http://www.businessinsider.com/how-hyperinflation-will-happen-in-america-2010-9 last accessed on December 16, 2010
Mayer, T., 2008, U.S. dollar in hyperinflation, Run to Gold, http://www.runtogold.com/2008/08/us-dollar-in-hyperinflation / last accessed on December 16, 2010
Salemi, M.K., Hyperinflation, the Concise Encyclopedia of Economics, http://www.econlib.org/library/Enc/Hyperinflation.html last accessed on December 16, 2010
Inflation Tutorial" by Investopedia. Generally, this article seeks to give a concise and clear definition of inflation while highlighting how the measurement of the same takes place and how it impacts upon interest rates and investments. In Investopedia's opinion, "inflation is defined as a sustained increase in the general level of prices for goods and services" (2). Hence an increase in the rate of inflation makes money gradually lose its purchasing power. It is important to note that over time, a number of theories and explanations have been put forward in an attempt to highlight the causes of inflation. These theories include demand-pull inflation and the cost-pull inflation theories (Investopedia 2). hen it comes to the measurement of inflation, the same is basically measured in terms of annual percentage increases. In most cases, inflationary rates are regulated through the variation of interest rates. In regard to investments, it can be…
Gillespie, Andrew. Foundations of Economics. Oxford: Oxford University Press, 2007. Print.
Investopedia. "Inflation Tutorial." Options Outlet. 5th December 2006. Web. 31st November 2011.
Macdonald, Nadia, T. Macroeconomics and Business: An Interactive Approach. London: Cengage Learning EMEA, 1999. Print.
inflation rate? Is inflation a worry or are we in a period of stable prices?
What is the unemployment rate? Will the high unemployment rate cause deflation? What is the current structure of the labor market? How does the current structure affect the threat of cost push inflation or deflation?
What is the growth rate of GDP? Can you find predications on the future growth rate?
What is the income distribution? How has this changed over recent history?
What is the inflation rate? Is inflation a worry or are we in a period of stable prices?
The inflation rate for May 2005 was 2.80%, this is down from 3.51% in April and 3.15% for March. The average inflation rate from May 2005 to January 2000 was 2.79% ("Inflation rate," 2005). Therefore, this current inflation rate was not wholly unexpected. With this fairly consistent rise, interest rates have been…
% growth. (2005). Euromonitor International. Retrieved June 18, 2005, from Euromonitor database.
Inequality, poverty, and redistribution. (2002). Retrieved June 18, 2005, from http://www.unf.edu/~traynham/ch18lecture.pdf#search= 'income%20distribution%20united%20states.
Inflation rate in percent for Jan 2000 -- present. (2005). Retrieved June 18, 2005, from http://inflationdata.com/inflation/inflation_rate/CurrentInflation.asp .
Rank order -- GDP -- real growth rate. (2005). Retrieved June 18, 2005, from http://www.cia.gov/cia/publications/factbook/rankorder/2003rank.html .
inflation is falling to levels not seen for years," Floyd Norris (2013) argues that there is a trend towards slow inflation growth in many Western countries. The author presents evidence in the form of inflation figures from the U.S., the UK, Japan, and the Eurozone. The author cites lower oil prices and slow growth in the price of durable goods as contributors to this phenomenon.
What needs to be separated here is the headline, which was not necessarily written by the author of the author (indeed, almost certainly not). Taking that away, the author is merely recounting some economic trends using publicly-available data. It is perhaps a little presumptuous of the headline writer to argue that inflation is falling around the world when the actual evidence presented is only from specific parts of the developed world. Nobody will dispute that there are the largest economies in the developed world, but…
Norris, F. (2013). Around the world, inflation is falling to levels not seen in years. New York Times. Retrieved December 5, 2013 from http://www.nytimes.com/2013/11/16/business/economy/around-the-world-inflation-is-hitting-lows-not-seen-for-years.html?_r=1& ;
Investopedia. (2013). Definition of inflation. Investopedia. Retrieved December 6, 2013 from
The effects of such a downturn is felt across an entire generation of people and it transforms the mindset of the people as well as the country's economy drastically. An example of such a downturn was the Great Depression of 1929 that saw extremely high levels of unemployment, underemployment and economic suffering.
Economic expansion is a favorable period in which the economic activity increases across all sectors and industries. During this period, there is an increase in GDP, credit is readily available and there is an overall air of prosperity. Economic contraction, on the other hand, is a period during which there is a decline in GDP, the economic growth slows down and unemployment increases. The expansion and contraction are part of a business cycle and they follow each other.
elationship between these terms
Each of the above-mentioned terms are intertwined with one another. They are an integral part of…
Krugman, Paul; Wells, Robin. (2009). Macroeconomics. New York:Macmillan.
3 million) of the decrease occurring in the last 5 months, across all major industry sectors." There is also a troubling pervasiveness to the extent of the downturn: "The number of long-term unemployed (those jobless for 27 weeks or more) rose to 3.2 million over the month and has increased by about 1.9 million since the start of the recession in December 2007." The rate of involuntary part-time workers also climbed by 423,000 to 9.0 million. This underemployment rate may reflect workplaces that cut worker hours rather than initially resort to worker layoffs to deal with a downturn in demand.
The high unemployment rate is one of the reasons for the existence of the economic stimulus package. The current administration is using macroeconomic policy to infuse money into the economy by hiring workers to work on a variety of projects and by providing aid to private sources to hire more…
CPA FAQ. (2009). U.S. Bureau of Labor Relations website. Retrieved April 22, 2009 at http://www.bls.gov/ cpi/cpifaq.htm#Question_1
Employment situation summary. (2009). Economic News Release. U.S. Bureau of Labor
Relations website. Retrieved April 22, 2009 at
The purpose of this study is to determine the macroeconomic factors that contribute to changes in inflation such as economic fundamentals and policies. The second part of the research uses a Markov switching model with time-varying transition probabilities to capture the changes in inflation and their determining factors. This model was developed through the evolution of several previous studies and is considered to be relevant to the research at hand.
The Markov Switching model used is the result of similar studies by Bleaney (1997) and Blix (1999) that used a switching VAR model to obtain time-varying probabilities of inflation processes. A suitable model was examined in Dropsy and Grand (2000) that asked a similar question to the one being explored in this research using a similar data set. The Markov switching model used by them sufficiently describes the data set being used in this research model.
Bleaney, M. 1997. The Dynamics of Money and Prices Under Alternative
Exchange Rate Regimes: An Empirical Investigation. IMF Working Paper
97/15. International Monetary Fund. Washington, D.C.
Bleaney, M. And Fielding, D. 2005. Exchange Rate Regimes, Inflation and Output
When there is high inflation, it indicates that prices of goods are rising, which in turn indicates that people have additional money to spend and hence money supply is far beyond the levels expected by the central bank. In such a case, central bank can use monetary measures to control inflation. These are usually in terms of interest rate increases which can curtail lending and borrowing and drains excessive money out of the economy. This can help in bringing down the prices and hence the rate of inflation.
However when inflation is low, the opposite of these measures is adopted to allow more lending by the banks and people can borrow more easily hence accelerating economic activity in the country.
If Australia's inflation rate rises, it is not a cause of concern if it is still close to the target but can turn into a serious issue if inflation is…
David Meredith and Barrie Dyster. Australia in the Global Economy: Continuity and Change (1999) Cambridge University Press
Guy Debelle and Glenn Stevens. Monetary Policy Goals for Inflation in Australia. Reserve Bank of Australia. 1995
"Inflation Rate to give RBA heart" August 31, 2009 http://business.theage.com.au/business/inflation-result-to-give-rba-heart-20090831-f4gw.html
Applying limitations to credit consists in conducting a restrictive action on the distribution of particular credit. This instrument has certain limitations of its own:
the difficulty of setting norms regarding growth of the volume of credits; altering competition between banks and applying sanctions to the most dynamic; multiplication of the procedures designed to break certain rules.
The income policy is applied only if the excessive increase of incomes is a determining factor of the increase in demand and, at the same time, of the increase of salaries. The logic of this instrument is as follows: reducing incomes might reduce inflationary pressures.
Applying it in day-to-day life is done with difficulty, because of union pressure. This is why it has been rarely applied.
All there measures utilize one method: reducing economic activity; consequently, other means have been sought, in order to influence the general level of prices, without affecting the economic…
1. Frederic Mishkin, "The Economics of Money, Banking and Financial Markets," Harper Collins, 1989
2. C. McConnel, S. Brue, -- Economics --, McGraw-Hill, 1996
3. Inflation - Notes, www.bized.ac.uk/learn/economics/govpol/macrotargets/notes/inflation.htm
4. Inflation and the Phillips Curve, available on the Internet at http://cepa.newschool.edu/het/essays/keynes/inflation.htm
There are wide variations of college quality and standards vary in terms of rigor even within institutions like Harvard depending on student's majors and course choice. For employers, the question of grade inflation is only partially a problem when comparing student grades -- it is hard to measure a student's effort and achievement based upon GPA alone between institutions or majors, or even professors.
On an individual level, nothing is more frustrating for a student to receive C. In a course with different standards than the other student's classes. This is a disincentive to experiment, and to take harder classes, or to take classes from difficult and demanding professors. But on the other hand, it is almost impossible to set a rigid standard for all classes without impinging upon academic freedom in the classroom, even if it may mean harder but good professors get fewer students -- they will not…
Kohn, Alfie. (2002, Nov 18). "The dangerous myth of grade inflation." The Chronicle of Higher Education. 49.1: B7. Retrieved 15 Mar 2008 at http://www.alfiekohn.org/teaching/gi.htm
Merrow, John (2007). "Grade inflation: It's not just an issue for the Ivy League." Carnegie Foundation for the Advancement of Teaching. Retrieved 15 Mar 2008 at http://www.carnegiefoundation.org/perspectives/sub.asp?key=245&subkey=576
Rojstacze, Stuart. (2002). "National trends in grade inflation, American colleges and universities." Last update, March 17, 2003. Retrieved 15 Mar 2008 at http://www.gradeinflation.com
9 trillion in treasuries to move unemployment down to 6.5%" (5). These outcomes make it abundantly clear that the national economy is not particularly responsive to short-term stop-gap measures that do not take the long-term needs for economic growth and stability into account. The trillions of dollars invested in stimulus packages to date have produced the responses in unemployment levels illustrated in Figure 1 below.
Figure 1. Unemployment levels in the United States: 2007-2010
Source: Bureau of Labor Statistics 2011 at http://www.bls.gov/
As can be readily discerned from Figure 1 above, the very slight decrease in the unemployment rate experience over the last 12 months has cost American taxpayers far more than the economic benefits that are associated with such modest reductions. Unfortunately, there does not appear to be a solution on the horizon at this point in time. For example, according to a recent press release (May 2011) from…
Black's Law Dictionary. St. Paul, MN: West Publishing Co., 1999.
Connolly, Kelley. (2007). "Say What You Mean: Improved Drafting Resources as a Means for Increasing the Consistency of Interpretation of Bilateral Investment Treaties." Vanderbilt
Journal of Transnational Law 40(5): 1579-1582.
"Consumer Price Index." (2011, May). Bureau of Labor Statistics. [Online] available: http://
China: Inflation and Unemployment Correlation
Is there a trade-off between inflation and unemployment? The answer, if we look at the monthly statistics of China's Inflation and employment rate, appears to be yes. However, it is not necessarily a fool-proof formula. For the most part, unemployment and lack of money seems to trigger inflation. This is because when there is less money in the economy, often time the government will try to stimulate the economy by printing more money. However, the extra printing of money does not necessarily make it worth more, and if money continues to leave the economy even if more is being printed, the result is increased inflation. China's employment rate has grown as its inflation rate has skyrocketed. The employment rate, however, has not grown as fast as inflation nor has it shown itself to be as foolproof of an equation as the Phillips' curve. While there…
Chairman Jim Saxton, "Overview of Chinese Economy." Accessed on May 21, 2011 from http://www.house.gov/jec/publications/109/07-26-05china.pdf
US-China Business Council, "China's Trade performance." Accessed on May 21, 20011 from http://www.uschina.org/info/chops/2006/foreign-trade.html
Statistics. Accessed on May 24, 2011 from http://www.chinatoday.com/
Michael Hitt, "China and Emerging Markets." Accessed on May 8, 2008 from http://188.8.131.52/search?q=cache:A6bJmn3VAY4J:www.sfu.ca/davidlamcentre/forum/Hitt.pdf+china+an+emerging+economy&hl=en&ct=clnk&cd=7&gl=in
Grade inflation: Is it really a bad thing?
Usually by the time they have entered grade school, students have become acutely concerned about the grades they are receiving relative to their peers. This concern, according to some anecdotal and statistical evidence, has resulted in a slow, steady upward trajectory of grades. Students and parents alike are placing more pressure on teachers to ensure students have competitive GPAs for college and grad school. This, critics contend, is effectively cheapening the value of an 'A.' But is grade inflation really a bad thing? The question perhaps is not so much if grade inflation is bad but rather the extent to which grades are viewed as the ultimate purpose of learning. Is getting good grades the point of attaining higher education or is actually learning the material? "Are grades signals to students about their mastery of content and the skills of a discipline?…
Shepard, A. (2005). A's for Everyone! The Washington Post. Retrieved from:
Tworek, H. (2014). Does England have the solution to the grade-inflation problem? The Atlantic.
Retrieved from: http://www.theatlantic.com/education/archive/2014/10/does-england-have-the-solution-to-the-grade-inflation-problem/381571/
Dr. Heather Monroe-Blum, Principal
Grade Inflation at McGill: My Perspective
I am a senior at McGill University, both of my parents also attended many years ago. Just in the three plus years that I've been a student here, I've noticed a trend in grading that I find disturbing. It seems to me that many students are finding it increasingly easy to get and maintain a 3.0 GPA -- something I believe a college student should really have to work hard for. My parents claim that although competition wasn't nearly as fierce among students when they were younger, professors expected class participation, extensive term papers, and a great deal of homework. I have tried to keep myself challenged by aiming for above average grades in all subjects, but I find myself losing interest and even becoming lazy as so many of my peers are spending so little time actually…
Dresner, J. (2004, 08-02). Grade Inflation: Why It's a Nightmare. Retrieved 12-02, 2010, from hnn.us: http://hnn.us/articles/6591.html fortyquestions, s. (2010, 11-08). When Grade Inflation Really Began. Retrieved 12 2, 2010, from www.fortyquestions.blogspot.com: http://fortyquestions.blogspot.com/2010/11/when-grade-inflation-really-began.html
Kennedy, M. (2010, 11-17). Is There Too Much Emphasis on Achievement? Retrieved 12-02, 2010, from www.educationjobsiteblog.com: http://www.educationjobsiteblog.com/2010/11/is-there-too-much-emphasis-on.html
Rojstaczer, S. (2002). National Trends in Grade Inflation. Retrieved 12 2, 2010, from
U.S. Inflation: Causes, Cost, and Prevention
The concept of introduction, loosely defined is a drop in the value of money, or the goods being purchased for a certain amount of cash now costs more in terms of cash. This causes discomfort to individuals as they feel that they are 'paying more' for the same item. What they often fail to realize is that the emoluments have also gone up, and thus the general discomfort in paying that extra amount of money is notional.
Inflation in any country is created by the policies of the government and related financial institutions.
Inflation in United States
(Inflation Rate in Percent for Jan 2000-Present)
From the table given above, it is clear that inflation in USA has been between the lowest limit of 1.07% a year in June 2002 and the highest limit of 3.73% a year during this period. In terms…
Boschen, John F; Weise, Charles L. "Is Delayed Disinflation More Costly" Southern Economic Journal. 67, no; 1 (2001): 72-77
Edwards, Sebastian. On Crisis Prevention: Lessons from Mexico and East Asia. National Bureau of Economic Research. NBER Working Paper Series. Working Paper 7233. July, 1999, Accessed 7 July, 2005; Available from http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN014321.pdf
Exploring the Causes of the Great Inflation. FRBSF Economic Letter. July 7, 2000, Accessed 7 July, 2005; Available from http://www.frbsf.org/econrsrch/wklyltr/2000/el2000-21.html
Hill, Patrice. "Deflating Inflation - U.S. Economic Forecasting" Insight on the News. (November 29, 1999): 53-56
The Short-Run and Long-Run Relationship between Unemployment and Inflation
Phillips observed a consistent inverse relationship between wage inflation and unemployment when he analyzed data from the UK spanning nearly a century from 1861 to 1957. The explanation Phillips gave was simple: the lower the unemployment rate, the more employers had to do to attract talent and raising wages was one of the primary ways to do just that (Wulwick, 1987). In a tight labor market, companies would race to quickly raise wages, and during periods of higher unemployment there would be less pressure to incentivize workers as the latter would consider themselves fortunate just to have a job. Since wages offered laborers are linked to prices businesses charge consumers (Lucas & Rapping, 1969), it was not long before economists applied the Phillips curve to inflation in general rather than to only wages. It became evident that monetary policy could…
-What factors contributed to the stagflation of the 1970s?
Stagflation is the combination of high inflation plus high unemployment plus slow economic growth, all of which occurred in the 1970s. Monetary policy was loose, the dollar supply was going up faster than the economy was, and inflation was the result (Philadelphia Fed, 2015).
-How did Volker deal with the high inflation?
He raised the federal funds rate.
-Did high oil prices cause the stagflation or was it something else?
No, what caused stagflation was a combination of factors, as already stated: when the central bank’s printing presses start rolling, the value of the dollar goes down, and the price of everything goes up. However, loose monetary policy simply blows asset bubbles—it doesn’t actually fix the economy or reduce unemployment. High oil prices were more a combination of geopolitics and Nixon’s abandonment of the gold standard.
-Is the Fed independent? If…
Guyana -- Inflation ate
Inflation rate is an important concern to assess the economic condition of any country. This report focuses on the inflation rate of the South American country, Guyana.
The economy of Guyana mainly depends upon the production of rice, sugar, shrimp, fresh fruits, vegetables and fish. The important industries of Guyana include mining of diamond, gold and bauxite, manufacturing of pharmaceuticals, footwear, clothing, beverage and foodstuff processing.
In Guyana, inflation rate is measured through consumer price index. It is normally used by the Government, international organizations and public members and trade unions to assess the ratio of increase in prices or inflation. Data is collected monthly however it is published quarterly.
Since consumer price index measures the changes in prices of the consumer goods and services i.e. fixed basket of goods but not include capital goods. There are 9 main categories of fixed basket of goods…
(2007). Measuring Inflation in Guyana. Georgetown: The Private Sector Commission of Guyana Ltd.
(2010). Annual Report 2010. Georgetown: Bank of Guyana.
Co-operative Republic of Guyana. (2011, April 4). Retrieved from U.S. Department of State: http://www.state.gov/r/pa/ei/bgn/1984.htm
(2011). Quarterly Report & Bulletin. Bank of Guyana.
It was the smallest monthly jobs growth since August 2003, when only 2,000 jobs were added, according to revised figures from the Labor Department.
6. How does the current structure affect the threat of cost push inflation or deflation?
There are no inflationary or deflationary signs in recent reports.
7. What is the growth rate of GDP?
The current growth rate of the Gross Domestic Product (GDP), which is the output of goods and services produced by labor and property located in the United States, increased at an annual rate of 3.5% in the first quarter of 2005, according to preliminary estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 3.8%. The major contributors to the increase in real GDP, in the first quarter were personal consumption expenditures, private inventory investment, exports, residential fixed investment, and equipment and software. Imports, which are subtracted from…
Bureau of economic analysis (2005). Retrieved June 19, 2005, from Bureau of Economic Analysis Web site: http://www.bea.doc.gov/bea/newsrel/gdpnewsrelease.htm
Bureau of labor statistics (2005). Retrieved June 18, 2005, from Bureau of Labor Statistics Web site: http://www.bls.gov/ news.release/pdf/laus.pdf
CNN (2005). CNN Money. Retrieved June 18, 2005, from CNN Web site: http://money.cnn.com/
Social security solvency stimulator (2004). Retrieved June 19, 2005, from SS Web site: http://www.sscommonsense.org/Assumptions.html#GDP
Macroeconomics -- Inflation
Domestic and national news are constantly talking about the rapid changes and increases in prices of basic commodities today. Prime commodities for a specific economy or country are discussed with the same intensity as changes in the global market prices for important, universal necessities such as oil. Prices of basic commodities are not the only ones susceptible to increasing in value. Services, too, particularly wages, are subjected to increases ultimately driven by union power or collective bargaining agreements between manufacturing companies and corporations and its workforce. Changes in the supply of raw materials used to produce products and commodities and services required to mass produce these products or to provide services on a large scale are the drivers that serve as catalysts to price increases. This increase in prices and costs of products and services over time, respectively, is called inflation (Maunder et al., 2000, p. 147).…
Maunder, P. (2000). Economics Explained. UK: Collins Education.
Tymkiw, C. (2012). "Food prices on the rise as drought worsens." CNN Money Website. Retrieved 23 July 2012. Available at: http://money.cnn.com/ 2012/07/25/investing/corn-food-prices/index.htm?iid=Popular
Money and Inflation
One of the most challenging issues in the modern economic environment is whether inflation or deflation will occur in the near future. This issue has become controversial and divisive among economists because of the volatile economic times. The nature of the modern economic environment has made it difficult for economists to agree on whether inflation or deflation is likely to be experienced in the future. While some economic analysts hold the view that a big increase in inflation is likely to occur in the coming years, others contend that deflation will occur. An example of the difference in opinion relating to inflation or deflation is the publications by Paul Krugman and Allan H. Meltzer. Even though the two reports were published on the same day i.e. May 3, 2009, they provide opposite views on the issue of whether inflation or deflation is likely to occur in the…
Between 1995 and 2005 the CPI for medical services rose from 224 to 329.2. This represents a 46.96% rise in the cost of medical services over a ten year period. In 2010, the cost of medical services was 393.5, a rise of 76.2% over a 15-year span. And in 2015, the cost of medical services was 452.89, a rise of 102.18% over a twenty year span.
Over the last five years, the cost of medical services has risen from 393.5 to 452.89, a rise of more than 15%. This represents a significant inflationary rise in costs of medical care. Neither my income nor anyone else’s that I know has kept pace with this level of inflation. The price of everything—not just medical care—seems to be rising; everything, that is, but wages.
A business manager, such as a human resources manager, might use CPI to obtain a good understanding of actual…
currency of the Qing Dynasty and why precisely the failure happened. It is reasonable to presume that the government made some mistakes when it came to their fiscal and monetary policies. Given that, there are surely some solutions that would emerge that could have been used to prevent that failure. Also important to consider is how the monetary policy and solutions regarding the same compare to paper money within the governments of the West. In light of things that have happened or could happen, which could include bank runs, faulty monetary policy and so forth, these are important questions. While the monetary policies of the East and China are good to look at, the same holds true for the paper money history and policy of the West.
At the beginning of the Qing dynasty, the monetary system was bimetallic and consisted of two types of money. One is yinliang…
ussian Public Debt Downgrade
The ussian economy is heading into a deep recession: the projected average growth over the next three years has been estimated at 0.5%. The years of the ussian oil boom are fading fast and tensions continue to rise with the West, in light of ussian pugilistic actions in the Ukraine. Standard & Poor's has judged the ussian government's prospects for servicing the debt as continuing to narrow, with few options left for the central bank of ussia to employ: available mechanisms are scaffolding for the teetering ussian banking sector or propping up the ruble. Following the credit downgrade, the ruble fell 7% in after-hour trading to reach a new low of 68 rubles to the dollar.
In what appears to be a terrible and perfect storm, the ussian economic growth prospects are diminished, the flexibility of the monetary policy of the ussian Federation has weakened, and…
Kramer, A.E. (2015, January 26). S.&P. cuts Russian debt one notch to junk level. The New York Times.
Krugman, P. (2014, December 18). Notes on Russian debt. The New York Times.
Meola, A. (2015, February 23). Yandex N.V. (YNDX) stock falls today on Russia debt rating downgrade, possible Ukraine sanctions. Retrieved from http://www.thestreet.com/story/13055112/1/yandex-nv-yndx-stock-falls-today-on-russia-debt-rating-downgrade-possible-ukraine-sanctions.html
Panin, A. (2105, January 12). Russian banks plead for interest rate cut as borrowing costs spiral. The Moscow Times. Retreived from http://www.themoscowtimes.com/business/article/russian-banks-plead-for-interest-rate-cut-as-borrowing-costs-spiral/514253.html
Inflation and Deflation: The Issue of Price Stability
Maintaining relatively stable prices is one of the major concerns in all capitalist economies. History shows us that left to its own devices; the capitalist economies undergo frequent "business cycles" that typically consist of a period of surging economic growth, interrupted by economic crises -- often accompanied by the collapse of the monetary system. Alternate bouts of inflation or deflation can also occur if the money supply in an economy is not controlled. Most advanced countries in the world take measures to keep the price stable. In the United States, the Federal Reserve Bank (known as Fed for short) was created in 1913 to avoid such undesirable movements in the economy. This paper examines the causes and consequences of inflation and deflation and the role of the Federal Reserve Bank in the prevention of inflation and deflation and maintaining price stability. It…
Buiter, Willem H. "Deflation: Prevention and Cure?." European Bank for Reconstruction and Development. 12-05-2003. February 10, 2004.
Christiano, Lawrence J. And Terry J. Fitzgerald. "Inflation and Monetary Policy in the Twentieth Century." Economic Perspectives. 27. 1. (2003): 22+.
Makinen, Gail. "Inflation: Causes, Costs, and Current Status." Report for Congress
INFLATION & ETHICS
In order to properly analyze the effect of inflation on international business, one must understand the effect that inflation produces on economies in general. Inflation always has a detrimental effect on whatever economy in which it occurs. From a very basic conception, the notion of inflation is defined as an occurrence that takes place when there is a surplus of money printed. Because there is too much money in circulation within a particular economy, the value of that money decreases. The greater the rate of inflation, the lower the value of money within an economy is. This concept directly relates to international business in a variety of ways. International business is largely facilitated though the valuation of money of different countries. The currency of some countries has greater value than others. For the most part, however, by assessing a rate of comparison between the currencies of two…
Baron, P. (2014). We will be told hyperinflation is necessary, proper, patriotic and ethical. Ludwig von Mises Institute. Retrieved from http://mises.org/daily/6617/We-Will-Be-Told-Hyperinflation-is-Necessary-Proper-Patriotic-and-Ethical
Goodman, G.J.W. (1981). "The German hyperinflation." www.pbs.org. Retrieved from http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_germanhyperinflation.html
Samii, M. (2011). Custom international business resources. Southern New Hampshire University. Boston, MA: Pearson Publishing.
In their view, the assumption of indexation to past inflation is the key factor driving this result. According to them, when viewed in the light of indexation to long-run inflation, the optimal inflation volatility often moves closer to zero. They equally showed that for the welfare rankings of policies, the initial conditions do matter to a very significant extent.
In their work, Leeper Erik et al. examined how the conventional dynamic stochastic general equilibrium models, including the Christiano-Eichenbaum-Evans model is affected or impacted by government investments. As a way of explaining the effects of government investments in this regard, they considered two main factors, namely, the future fiscal adjustments to debt-financed spending and implementation delays for building public capital projects. In their work they demonstrated that, in the short run implementation delays can produce small or even negative labor and output responses; while for both a qualitative and quantitative positive…
Christiano Lawrence J., Martin Eichenbaum, & Charles Evans. "Nominal Rigidities and the Dynamic Effects of A Shock to Monetary Policy." Federal Reserve Bank of Cleveland Working Paper May 2001: 5-50.
DiCecio, Riccardo, Edward Nelson." An Estimated DSGE Model for the United Kingdom." Federal Reserve Bank of St. Louis Review July/August 2007. http://research.stlouisfed.org/publications/review/07/07/DiCecio.pdf
Fischer, Stanley. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule." Journal of Political Economy. 5 June, 2011. http://www.jstor.org/pss/1828335
Keen Benjamin, Wang Yongshang. "What Is A Realistic Value for Price Adjustment Costs in Keynesian Models?" Department of Economics, University of Oklahoma. 5 June 2011. http://faculty-staff.ou.edu/K/Benjamin.D.Keen-1/Price_adjustment_costs.pdf
Economics - Country Analysis
Country Overview and Current Events (News)
Ethiopia, traditionally known as Abyssinia, is a landlocked Sub-Saharan country located at the Horn of Africa in East Africa, bordering Somalia, Kenya, Eritrea, Djibouti, Sudan, and the newly-created South Sudan. It covers approximately 1,126,829km2 of land; about the size of the state of Texas, and was, until the split of Sudan, the second-largest country in Africa. Being landlocked, Ethiopia largely relies on the port of Djibouti, to which it is connected by both rail and road. Economic elements such as this, together with the country's history, population, geography and economic performance have been explored in the subsequent sections of this text.
Population: the U.S. Census Bureau, in June 2013, estimated Ethiopia's population to be 93,877,025; a figure that makes the country the second-most populous in Africa, after Nigeria (orld Bank, Index Mundi). Ethiopia's population has been on a steady increase…
AFDB. "Inflation Dynamics in Selected East African Countries: Ethiopia, Kenya, Tanzania and Uganda." AFDB Brief, 2012. Web. 18 March 2014 http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/07022012Inflatin%20East%20Africa%20-%20ENG%20-%20Internal.pdf
This article analyses the trend in Ethiopia's inflation rates vis-a-vis those of other countries in the Sub-Saharan region and was a valuable source of regional statistics, which formed the main basis for comparison.
Broussar, Nzinga, and Tekleselassie Tsegay. "Youth Unemployment: Ethiopia; Country Study." International Growth Center, 2012. Web. 18 March 2014 http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/07022012Inflation%20East%20Africa%20-%20ENG%20-%20Internal.pdf
This article analyzes the trend in Ethiopia's employment patterns. It reinforced my arguments that unemployment is more prevalent in urban Ethiopia, and that the country's informal sector contributes more to GDP than the formal sector.
For example, if the Fed sees inflation as a risk going forward, the market will place a weighting on that statement, allocating some form of increased interest rate to the future cash flows.
At the time of course, the exact implications of the Fed's comments are unknown. They imply that rates may move in one direction or another, but they are not an actual movement and the Fed reserves the right to change its mind before it meets again. The bond market is thus working with imperfect information. This can lead to general price movements but of unknown quantity. Over time, a reasonable correlation can be established, such as the elasticity of bond prices in relation to, for example, strong warnings from the Fed about inflation. Such a correlation can be drawn with a large enough sample size that it can be used in bond prices.
Overall, though, the exercise…
No author. (2009). Advanced Bond Concepts: Bond Pricing. Investopedia. Retrieved April 29, 2009 from http://www.investopedia.com /university/advancedbond/advancedbond2.asp
No author. (2009). The Grand Illusion. The Economist. Retrieved April 29, 2009 from http://www.economist.com/finance/displaystory.cfm?story_id=13240822
Heakal, Reem. (2009). Forces Behind Interest Rates. Investopedia. Retrieved April 29, 2009 from
Translation, eporting, And Prices
Briefly describe the corporation you researched.
The organization researched is a multinational called Walmart. The chain store is a retailer organization whose home office is located in America. The company operates by providing products to its customer through a chain of retail outlets. The public owned organization is the largest in the global market. The company has grown over the years through implementing policies that allow it to sell at a lower price that its competition. The company is the largest retailer is the globe with majority of its shares held by the public. The founding family still has a controlling share of the business with the family controlling over 48% of the shares. The company founded in 1962 and incorporated in 1969 is among the most successful companies in the globe. Its headquarters is located in Arkansas and is currently the largest grocery retailer in…
Akta?, R., & Kar?
n, M. (2011). Timeliness of Reporting and the Quality of Financial Information. International Research Journal Of Finance & Economics, (63), 71-77.
Albuquerque, R., De Francisco, E., & Marques, L.B. (2008). Marketwide Private Information in Stocks: Forecasting Currency Returns. Journal Of Finance, 63(5), 2297-2343.
Bartov, E. (1997). Foreign Currency Exposure of Multinational Firms: Accounting Measures and Market Valuation. Contemporary Accounting Research, 14(4), 623-652.
2014) about China's inflation rate notes that the official consumer price index in the People's epublic of China is 2%, which is below the official government target of 3.5%. Furthermore, this CPI is at its lowest level in 13 months. The article then discusses some of the causes of this inflation rate, and the implications that it has both for China and other stakeholder economies.
Falling producer prices are leading to the deceleration of the inflation rate in China, and this is generally viewed as being favorable by Chinese leaders. There has been a need in China to push ahead with economic reforms, but this pushed had been constrained by the risk of rapid growth. The country also experienced its largest trade deficit in two years, after exports dropped 18% and imports increased 10.1%. The article noted that some of the data is skewed -- in particular export data --…
Butt, R. (2014).. China inflation slows to 13-month low. Reuters. Retrieved March 31, 2014 from http://www.bloomberg.com/news/2014-03-09/china-inflation-slows-to-13-month-low.html
Holland, T. (2014). Fears over a tail risk hard landing in China are growing. South China Morning Post. Retrieved March 31, 2014 from http://www.scmp.com/business/article/1431315/fears-over-tail-risk-hard-landing-china-are-growing
economic and financial crisis (2008-2009), the Federal Reserve took exceptional measures in order to combat the effects of the crisis on the American economy. These measures translated into an expansionary policy that included pumping money in the economy and purchasing assets that were in trouble. Through its expansionary work, the government was able to balance some of the effects of the crisis.
The question that seems to be on everybody's mind (and lips) today is where does it all end? One thing everyone can agree on is that this type of expansionary policy cannot last forever. The United States economy functions as a free market economy where the laws of supply and demand govern the realities of the market. A continuous and permanent intervention of the Federal Reserve is neither possible, nor healthy. What nobody can agree on, however, is when the expansionary approach should stop: now, in the near…
1. Krugman, Paul. The Conscience of a Liberal. The New York Times. November 2013. On the Internet at http://krugman.blogs.nytimes.com/2013/11/25/nowhere-near-the-exit/ . Last retrieved on December 13, 2013
2. Mankiw, Gregory. In Fed Policy, the Exit Music May Be Hard to Hear. The New York Times. November 2013. On the Internet at http://www.nytimes.com/2013/11/24/business/in-fed-policy-the-exit-music-may-be-hard-to-hear.html?_r=0 . Last retrieved on December 13, 2013
3. Spicer, Jonathan, Lange, Jason. Fed officials signal next policy battle: rate guidance. Global Post. On the Internet at http://www.globalpost.com/dispatch/news/thomson-reuters/131121/fed-officials-signal-next-policy-battle-rate-guidance . Last retrieved on December 13, 2013
4. Expansionary Policy. Investopedia. On the Internet at
Fiscal and Monetary Policy and Economic Fluctuations
The global economy was relatively doing fine more than five years ago before it was hit by economic downturn or recession. During this period, the American economy was at its peak, particularly in the fourth quarter of 2007. However, this was followed by a mild recession at the beginning of 2008, which eventually turned into a severe credit crisis across the world approximately one year later. While only a few countries escaped the economic recession, virtually no country could avoid the severe bear markets in stock (Norris, 2012). Some countries like the United States experienced changes in gross domestic product and stock markets. Since it has the best record of the main developed countries, the United States was severely affected by the recession. As the economic downturn came to end, America started the process of recovery from the effects of the recession. This…
Davidson, P. (2013, September 11). Economy is Still Bruised Five Years After Crisis. USA
Today. Retrieved November 24, 2013, from http://www.usatoday.com/story/money/business/2013/09/10/economy-2008-financial-crisis-lehman/2789841/
Klimasinska, K. & Chandra, S. (2013, August 27). America Resilient Five Years After Great
Recession. Bloomberg. Retrieved November 24, 2013, from http://www.bloomberg.com/news/2013-08-27/america-resilient-five-years-after-great-recession.html
U.S. Current Macroeconomic Situation:
Similar to the rest of the world, the macroeconomic conditions in the United States are currently fragile. This is mainly because the rate of unemployment is high though is slowly declining, the currency valuation is fluctuating up and down, and the European financial unrest has continued to have significant impacts on the nation's economy. These conditions are coupled by a slow increase in manufacturing and upward trend of the stock markets. As a result of these macroeconomic conditions, there are huge speculations that the United States Federal eserve will enforce more stimulus plans in attempts to boost the stalled recovery of the economy.
Macroeconomic Outlook for 2012:
The backbone of America's economic recovery since the end of recent recession has been private consumption. The U.S. economy accelerated in the fourth quarter of 2011 and continued its slow recovery in the first quarter of this year after…
Morris, K. (2010, October 7). Current Macroeconomic Situation. Retrieved October 18, 2012,
"U.S. Quarterly Macroeconomic Review -- Q1 2012." (2012, April 19). Macroeconomic
Quarterly. Retrieved October 18, 2012, from http://cebviews.com/uploads/2012/05/U.S.-Quarterly-Report-Q2_2012-FINAL.pdf
What "current macroeconomic situation" U.S. (e.g. U.S. economy concerned unemployment, inflation, recession,)? What fiscal policies monetary policies time? Key concepts include paper -- data trends unemployment, inflation, GDP growth, expansionary fiscal policy tools, FOMC, easy money policy tools terms class.
What is the current macroeconomic situation in the U.S.
The United States is no longer mired in a full-blown recession as it was in 2008, but the process of economic recovery has been long, slow, and onerous. At present, unemployment is hovering around 7.9%. This reflects a slight increase from the last quarter. The U.S. seems to be in a precarious position, neither in full-blown recessionary mode but not entirely recovered. Of particular concern is the fact that "the increase [in unemployment] was much sharper for millennials, up from 11.5% the month before and 10.9% in November 2012" (Kingkade 2013). Young people were particularly hard-hit by the recession.…
Cassidy, John. (2012). Reagan, Bush, and Obama: We are still all Keynesians. The New Yorker.
Davidson, Paul. (2012). Fed ties interest rates to 6.5% unemployment. USA Today. Retrieved:
Macroeconomic Situation in the U.S.: Corrective Fiscal and Monetary Policy
December 2007 marked the onset of the Great recession, which ended in mid-2009 but left the U.S. economy struggling through the damage wrought by its severity. Federal policy has gone a long way in the prevention of an occurrence of another recession, but growth remains too sluggish and inadequate for the full-health restoration of the economy. Vigorous and sustained fiscal and monetary support is needed if the economy is to recover and achieve the pre-depression employment level.
Save for the temporary hiring of census officials, the overall economy recorded a drastic fall in employment levels during the last half of 2009. In December 2012, the unemployment rate was reported at 8.1% - approximately 3.5 percentage points above the average rate in 2007, at the end of which the Great ecession struck (Bureau of Labor Statistics, 2014). This rate further exceeds…
Bureau of Labor Statistics. (2014). Labor Force Statistics from the Current Population Survey. Bureau of Labor Force Statistics. Retrieved from http://data.bls.gov/timeseries/LNS14
Council for Economic Education. (2013). Fiscal and Monetary Policy Process. Council for Economic Education. Retrieved from http://www.econedlink.org/lessons/index.php?lid=352&type=student
Greenlaw, G., Hamilton, J. Hooper, P. & Mishkin, F. (2013). Crunch Time: Fiscal Crises and the Role of Monetary Policy (No w19297). National Bureau of Economic Research.
US Inflation. (2013). U.S. Inflation Rate. U.S. Inflation. Retrieved from http://usinflation.org/us-inflation-rate/
In the long run, the volatility of money supply will also only cause changes in inflation rate and thus the nominal GDP of the country, as believed by monetarists, as the markets are believed to be always approaching their full employment rate.
But with evolution of capital markets and appearance of numerous wealth capitalization methods besides holding M1, the velocity of money became very variable rather than stable and equal to one, which made scholars hesitate on the validity of Quantity Theory of Money, while equation of exchange is supported by majority of economics schools.
Besides many contributions made by Knut Wicksell into the economic theory, the major appreciated work is the interest theory implications from his work Interest and Prices, where he separated the notion of monetary interest rate, or interest rate derived from the capital markets; and the natural interest rate, or the interest rate neutral to the…
References Available at http://ingrimayne.com/econ/Money/Equation.html
Friedman, Milton and Schwartz, Anna J. (1965). The Great Contraction 1929-1933. Princeton: Princeton University Press. Available at http://www.econweb.com/MacroWelcome/monetarism/notes.html#3Available at http://www.dallasfed.org/research/ei/ei0401.html . Available at
It continues to buy government securities to infuse more cash into the economy. "The target range for the federal funds rate at 0 to 1/4% and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal eserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt" (Fed, 2009).
Consumer credit card debt and rates of foreclosures remain high, so the Fed will likely…
Gross Domestic Product (GDP): Third Quarter 2009. Bureau of Economic Analysis (BEA).
Retrieved December 3, 2009 at http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
Press release: November 2009. (200). Federal Reserve (Fed). Retrieved December 3, 2009 at http://www.federalreserve.gov/newsevents/press/monetary/20091104a.htm
The May 2007 economy presented a rosy picture: the lowest unemployment rate of the Bush Administration 4.4% (Bureau of Labor Statistics.gov. 2012. PP. 1), the peak of housing values, strong GDP growth of 3.6% (Trading Economics.com. 2012. PP. 1), a stable inflation rate of 2.2% (Trading Economics.com. 2012. PP. 1), and a normalized non-emergency FED Funds of 5.25% (Moneycafe.com. 2012. PP. 1). Yet, the collapse was imminent as the "Great Recession" began in the fourth quarter of 2007, decimating the economy and bringing the global financial system to a grinding halt. Now five years later the economy is regaining its footing in a ponderous yet upward trajectory which began in the second quarter of 2009. An espy of May 2012 presents a dramatically different story than of 2007: unemployment stands at 8.1% (Bureau of Labor Statistics.gov. 2012. PP. 1), housing values have plummeted; "Americans overall have lost almost…
One of the noteworthy aspects of the U.S. economy is that consumer spending
"accounts for 70% of economic activity" (Crutsinger, M. May 15, 2012. PP. 1). Business is on a never ending quest to create products, services, and pricing which will maximize revenue and increase profit. Price discrimination and segmentation are common in the marketplace (airline tickets as one of a plethora of examples); consumers may respond through indifference or anger towards the company, but are in the preponderance of economic activities likely to choose based on: perceived value, availability, rewards, or pricing options. Business can choose to discount products or services to entice certain groups: new customers, income sensitive customers, or competitor's customers.
The crux of the question on discounts for certain customers rather than others is really one of questioning the role government in the process. The government already chooses certain customers for assistance based on income, unemployment, opportunity, or other criterion. Food stamps have become plentiful over the last five years, a sign of a soft economy and one of an expanded government role. The qualifications are income-based which has struck many taxpayers as unfair because they are subsidizing a segment of the population. So too with unemployment benefits which in some cases have been
The tools of expansionary monetary policy are: open market operations and controlling the funds rate. Open market operations would allow the central bank to buy treasuries. The central bank would be increasing the money supply by purchasing government debt, and by purchasing government debt it would help to create demand for the debt and thereby keep yields low, which would allow the government to keep borrowing and spending on projects to help stimulate the economy or boos infrastructure or do whatever was required. The central bank could also lower the funds rate, which would allow interest rates to come down across the board, incentivize borrowers to spend more or to make big purchases—such as housing or new cars—and thereby help to stimulate the economy as well (Balance).
Expansionary fiscal policy would be conducted by the government and would include lowering taxes while simultaneously increasing the amount of money the…
If on the other hand, the real inflation rate is above both targeted and past values, the BA could change its current approach and implement more aggressive means of decreasing inflation, such as reducing the amount of money in circulation or increasing the interest rates. A higher interest rate will reduce the amount of money in circulation by making the goods and services less accessible to the public. This in turn will materialize in a reduced demand for currency, reducing as such the levels of inflation.
3. educing the Expansionary Gap
An expansionary gap, often known as an inflationary gap, generally occurs at changing stages of the business cycle and is generally pegged to high levels of inflation. It can best be understood in terms of production and input in the meaning that it occurs when the final output of production is larger that the output of the labor force.…
King, W., Two Sides of Fiscal Policy, Drexel University, LeBow College of Business, http://william-king.www.drexel.edu/top/prin/txt/fiscal/gap1.html last accessed on September 21, 2009
White, L.H., the Concise Encyclopedia of Economics -- Inflation, Library of Economics and Liberty, http://www.econlib.org/library/Enc/Inflation.html last accessed on September 21, 2009
2009, Website of the Reserve Bank of Australia, http://www.rba.gov.au last accessed on September 21, 2009
Federal Funds Rate
The federal fund rate was part of the solution, comprised in the Federal Reserve Act of 1913, to centralize the banking system and gain public control of the money supply, inflation, and economic growth. The banking crisis of 1907 was a result of decentralized, unregulated banking that caused confusion with private bank notes being used as currency. There were occasional episodes of monetary mismanagement where the money supply was not appropriate to fulfill the needs of the economy. Too much money caused rapid inflation where too little money stunted economic growth by hindering production and the exchange of goods and services. There were no nationally consistent banking policies and no one entity had control to implement policies until the Federal Reserve Act of 1913 became a national law.
The Federal Reserve System was created with the Federal Reserve Act of 1913 with a oard of Governors to…
Amadeo, K. About.com U.S. Economy. 24 Jan 2012. Article. 14 Aug 2012.
Bankrate.com. How the federal funds rate affects finance. n.d. article. 15 Aug 2012.
Bofah, K. What Effect does the Fed Fund Rate Have on Stock Prices. n.d. Article. 15 Aug 2012.
Madrick, J. "Paul Volcker, Jimmy Carter, and Ronald Reagan." Madrick, J. Age of Greed. New York, NY: Alfred A. Knopf, 2011. 160-176. Book.
economic situation U.S. compared (5) years ago. Include interest rates, inflation, unemployment analysis. 2.Propose (2) strategies federal government implement encourage people spend money order create employment opportunities.
Q1.Analyze the current economic situation in the U.S. As compared to five (5) years ago. Include interest rates, inflation, and unemployment in your analysis.
The unemployment rate in January 2012 was 8.3%. The relative improvement in the economy has caused many to pressure Fed chairman Ben Bernanke to raise interest rates above their current record lows to curb inflation, although Bernanke still feels that the economy is fragile enough to justify keeping rates extremely low. "The unemployment rate has fallen for five straight months and employers have added an average of 200,000 net jobs per month from November through January" (Crustinger 2012). Until recently, the Fed has believed that there has been little risk of inflation due to an excess in the money…
Barger, Melvin. (1984). What killed Ma Bell? AT&T Divestiture. Porticus. Retrieved:
Block, Sandra. (2012). Inflation could lead to a modest tax cut. USA Today. Retrieved:
There were certain moments in my life which did not allow me to pursue my study programs as desired; yet it was precisely this set of obstacles which consisted a challenge for me and determined me ever more strongly to pursue my goal. Therefore, I am due to graduate in May 2008 with a presentation entitled "Have Central Banks and Private Agents Become Wiser?" conducted under the supervision of Dr. Dennis Novy who has also offered me considerable support in trying to address issues such as inflation, the role of central banks, and their relation with private agents. His precious advice has led me to follow lines of thought different from the ones already addressed by the literature and has opened new research directions I intend to analyze in my future studies.
Aside from the traditional academic environment created by the universities I attended, another important input represented the experience…
However, such successes have been limited over the life of the fund. Examining the manager's comments and the comments in the annual report, it appears as though fund management is generally reactive to trends rather than proactive. The discussion centers on what happen in the economy and to the fund, rather than any discussion on what the fund is going to do to exploit opportunities.
The fund's heavy concentration in the French market has left it particularly vulnerable to shocks emanating from that market. For example, in the first quarter of 2007, the inflation index in France moved sharply lower, which was not anticipated by the fund managers. In the second quarter, the risk of a hike in VAT increased the volatility of French securities, in particular the short-range maturities. The result of this high level of exposure to the French market was that the fund suffered over this period…
PF (Lux) EUR Inflation Linked Bonds Fact Sheet, October 2008.
Pictet Funds (Lux) 2007 Annual Report, p.31, 199-200.
PF (Lux) EUR Inflation Linked Bonds Manager's Comment, October 2008
PF (Lux) EUR Inflation Linked Bonds Fact Sheet, October 2008.
The difference in the interest rates would have predicted a much greater change in the exchange rates between these two countries. This begs the question as to why the rates did not change further.
There are a few possible explanations for this discrepancy. The first is that the expected inflation in Brazil failed to material, and the second is that inflation in the U.S. was higher than expected. U.S. inflation is not high, but it is growing, whereas interest rates are not growing yet. In contrast, the Brazilian government's response to its inflation situation is more in line with what would be expected.
The real has underperformed expectations, and there could also be domestic factors. If we look at the six factors that affect exchange rates, we can see that there may be issues with respect to public debt (if Brazil has performed worse than expected) or political stability and…
Bureau of Labor Statistics. (2012). Consumer price index -- February 2012. BLS.gov. Retrieved March 16, 2012 from http://www.bls.gov/ news.release/pdf/cpi.pdf
Investopedia. (2012). Inflation and interest rates. Investopedia. Retrieved March 16, 2012 from
Eurozone Maastricht Treaty
Euro zone Treaty
The European Community established the convergence criteria. These criteria was established in order to allow its EU Member states to take part in the Euro Zone, and using the Euro, as an official currency. The members of the European Union formed the Maastricht Treaty in 1992. The principle goals of the treaty were to establish an economic and monetary union, strengthen the democratic legitimacy of its institutions, better the effectiveness of its institutions, come up with the community social dimension, and also establish a unified foreign and security policy (Charles 1998).
The criteria contain several principles governing inflation rates, government finance, exchange rate, and long-term interest rates. The percentage points for inflation rates should not be 1.5 higher than the average the top three members states in performance of the EU. Government finance covers both the annual government deficit and the government debt. Under…
Charles K. (1998). Interest Rates: A Decision-Making Approach. New York, NY: Dryden
David, J.H. (1999). "Advertising's Overdue Revolution" Speech delivered at the week
New York, NY: John Wiley & Sons
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…
Axilrod, S. (2009). Inside the Fed: Monetary Policy and its Management, Martin through Greenspan to Bernanke, New York: MIT Press.
Hafer, R. (2005). The Federal Reserve System: An Encyclopedia, Westport: Greenwood Publishing Group.
Mankiw, G. (2011). Principles of Economics, New York: Cengage Learning
Meltzer, A. (2010). A history of the Federal Reserve, Volume 2, New York: University of Chicago Press.
Vice versa, a relaxation of credit operations through a reduction of the interest rates generates an increased purchasing power and an increased ability for the manufacturer to contract loans and further invest in his business.
2.6 Producer price index
The Producer Price Index, or the PPI, stands for "family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time. PPIs measure price change from the perspective of the seller" (Investopedia, 2009). The evolution of the PPI has also been a fluctuating one, with a major ascendant trend:
Source: United States Department of Labor, 2009
Despite the past increase in producer price index, the future seems to hold decreases in its value:
The downward trend forecasted for the following 18 months means that the automobile producers in the United States receive less money for the sale of their products. Increases in…
Ford Motor Company, Hoovers, 2009, http://hoovers.com/ford-motor/--ID__10597,FRIC__ -- /free-co-competition.xhtml last accessed on May 8, 2009
Gross Domestic Product, U.S. Bureau of Economic Analysis, 2009, http://www.bea.gov/briefrm/gdp.htm last accessed on May 8, 2009
Interest Rate Trends, Mortgage-X, 2009, http://mortgage-x.com/trends.htm last accessed on May 8, 2009
Producer Price Indexes, United States Department of Labor, http://data.bls.gov/PDQ/servlet/SurveyOutputServlet-request_action=wh&graph_name=WP_ppibrief last accessed on May 8, 2009
As a response to the savings and loans debacle, there have been several attempts by congress and other governmental agencies to assists consumers and some financial institutions alike. The most significant and some say extreme solution thus far came when the Federal government assisted JP Morgan with the purchase of Bear Stearns for $2 per share.
One of the most discussed solutions has to do with baling out the mortgage lenders and assisting borrowers. There are several different remedies that have been proposed. These remedies include everything from a moratorium on foreclosures to the freezing of interest rates.
As it pertains to the mortgage companies it has been suggested that limits should be lifted so that companies can purchase jumbo housing loans. According to one article this type of mortgage relief could help staunch the hemorrhaging in high-priced housing markets...where buyers have had difficulty getting loans and are paying…
Jumbo Loans Spell Relief; Analysts See Economic Fix. (2008, January 29). The Washington Times, p. A01.
Kuttner, R. (2007, October). The Bubble Economy: The Financial Meltdown Is the Logical Consequence of Deregulation. Will We Reverse Field in Time to Prevent Another 1929?. The American Prospect, 18, 20+.
Peterson, J.R. (2005). Designer Mortgages: The Boom in Nontraditional Mortgage Loans May Be a Double-Edged Sword. So Far, Most Banks Have Moved Cautiously. ABA Banking Journal, 97(10), 30+.
What is the real definition of inflation?." Retrieved May 8, 2007 from; http://www.inflationdata.com/Inflation/Articles/Definitions.asp
It is measured as the annual percentage increase in prices and the most often quoted figure is the annual change. The prices inflation usually measures are retail prices. Unemployment is one of many factors that impact inflation. Typically, unemployment and inflation are opposites except in instances of stagflation where these two variables rise together. If unemployment goes too high, inflation goes down, because high unemployment drives wages downwards. Price decreases follow because goods are being produced so economically that prices can fall and producers can still make a profit. This generally happens after major productivity enhancements as Nussbaum points out in his article.
Unfortunately, factors other than productivity such as higher energy and commodity costs are having a significant impact on inflation (Kirchhoff and Hansen, 2004). The median forecast is for the consumer price index to rise three percent in the twelve months ending in September 2004 and 3.1% in…
Inflation - explanation. Retrieved October 17, 2004 from Web site: http://www.bized.ac.uk/virtual/economy/policy/outcomes/inflation/inflex.htm
Kirchhoff, S. And Hansen, B. (2004, August 22). Economists dial back growth forecasts. USA Today.
Retrieved October 17, 2004 from Web site: http://www.usatoday.com/money/economy/2004-08-22-econ-survey_x.htm
Nussbaum, B. (2004, March 22). Where are the jobs? Business Week. Retrieved October 17, 2004 from Web site: http://www.businessweek.com/magazine/content/04_12/b3875601.htm
Inflation remains low because of the seemingly unchanging rate of unemployment and income. In addition, the low inflation rate is associated with the slow economic activity during the winter months because of adverse weather conditions (Liu, 2014). One of the major reasons for the minimal changes in U.S. interest rates as compared to five years ago is the slow recovery in the housing sector. The housing sector continues to slowly recover from the effects of the 2008 global recession. This rate of recovery has had significant effects on the country economy as evident in the low interest rates.
Strategies to Encourage Consumer Spending:
The Federal eserve can use fiscal and monetary policy to develop strategies that will encourage people to spend money in order to stimulate economic growth. One of these strategies, which is a fiscal policy initiative, is government tax cuts that enhances the buying power of consumers. Tax…
Liu, H. (2014, April 28). Trading the U.S. FOMC Interest Rate Decision, April 30, 2014.
Retrieved April 28, 2014, from http://www.investing.com/analysis/trading-the-us-fomc-interest-rate-decision,-april-30,-2014-210865
Pettinger, T. (2012, May 18). Policies for Economic Growth. Retrieved April 28, 2014, from http://www.economicshelp.org/blog/5272/economics/policies-for-economic-growth/
Yellen. (2014, March 19). Transcript of Chair Yellen's Press Conference. Retrieved from The