However, pensioners will be hit hard because the extra income they earn from saving will have dramatically reduced, making them worse off. On the other hand, savers may leave the pound for better interest rates in other countries (hot money), causing a fall in the demand for the pound. As a result the value of the pound will fall, making exports cheaper and there will be an injection of net exports. In conclusion, the impact of loose monetary policy will be beneficial to the economy because extra consumption and investment will cause AD to increase which will increase economic growth. However, it takes a long time for changes in interest rates to feed through to consumption and investment and by then the economy may have gotten worse.
Compare and contrast Herbert Hoover’s economic policies with those of Franklin Roosevelt. At the time of the stock market crash, nobody could foresee how long the downward slide would last. President Hoover was wrong, but not alone in thinking that prosperity would soon return. President Hoover believed the nation could get through the difficult times if the people took his advice about exercising voluntary action and restraint. Hoover urged businesses not to cut wages, unions not to strike and private charities to increase their efforts for the needy and jobless.
“For instance, the fall in the wage lowers people’s income and thereby reduces demand. That reduction may feed back to firms and reduce the demand for their goods, which might reduce the firms’ demand for workers” (Colander, The Limitation of Supply/Demand Analysis, 2010). “If these effects do occur, and are important enough to affect the result, they have to be added for the analysis to be complete. A complete analysis always includes the relevant feedback effects” (Colander, The Limitation of Supply/Demand Analysis,
As the demand for one product decreases it can cause a chain reaction lowering the demand for products needed to produce the first product. This cycle will continue until the demand for manufactures goods increased and its citizen’s put more capital back into the economy. This theory is true for any reason that people stop buying goods, if the demand goes down so does the supply and the money spent on the supply. In effort to stabilize an economy that is stuck in the decreasing demand and supply cycle the government should increase spending and find ways to increase individual spending across the country. As the capital is put back into the economy the demand for supplies will go up.
By raising the minimum wage to $8, the government thinks that poverty will go down and the quality of living will go up. But, with the increase in pay comes the increase demand for skilled workers. The skilled workers are not the ones in poverty right now. The more skilled worker would replace the unskilled workers, who are likely to take the minimum wage job in the first place, if the minimum wage were to go up. This would defeat the whole purpose of the idea to eradicate poverty.
According to Keynes, why might deflation create problems for an economy? ▪ In expectation of increased spending, too many entrepreneurs would begin businesses and most would fail. ▪ The cost of repricing goods would increase costs, and therefore reduce profits, for businesses and they would cut production. ▪ People would drop out of unions because unions would become ineffective at keeping wages of members high. ▪ Consumers might expect prices to fall further and cut back consumption now.
The increase in real GDP would put downward pressure on the price level and reduce inflation. Supply-siders also believed that the budget deficit would not increase substantially as a result of the tax cut. Even if it did increase, it would be offset by increased saving due to the lower taxes. Many economic critics today and in the 1980’s questioned the effectiveness of Reagan s policies, also known as Reaganomics. Economists still argue whether Reagan’s actions were helpful or harmful to the United States economy.
The presidency of Jimmy Carter (1977-1980) attempted to “recapture a disillusioned citizenry” but was held back by Carter’s conformity to the political boundaries of the American system. While Carter’s term seemed to dig him into a hole as well as complicate matters for everyday people, the Reagan-Bush presidency “transformed the federal judiciary, never more than moderately liberal, into a predominately conservative institution,” (Zinn 574). Corporate America quickly became the greatest beneficiary of the Reagan-Bush years, and the concern for “the economy, which was a short-hand term for corporate profit” dominated any concern for the lower and middle class. All while the quality of life was degrading and the environment rotting. While Reagan-Bush did manage to enforce several Acts for the benefit of the people, with the Gulf War and other economic/environmental calamities, their presidencies seemed to leave a bitter taste in the mouths of Americans.
They both entered office with a declining economy on the brink of recession and their main aims were to secure the country’s wealth. Both Reagan and Thatcher sought to become financially stable economies and both achieved this largely by cutting income tax rigorously making it very difficult for any following administration to raise it thereafter. It was a noteworthy strategy of both administrations to reduce the power of the government. They did this by privatising nationally owned enterprise, dismantling the welfare state and reducing the power of the unions therefore transferring economic power form state back into private hands. Neither managed to curb public spending totally but they did manage to change attitude towards it which transferred to subsequent governments.
While his practices were eventually made illegal in many cases, it is undeniable that his domination of the oil industry increased its efficiency, safety, and stabilized its market price. In my opinion, because of the many companies that were eliminated by Rockefellers practices, laws like the Sherman Act in many ways did serve the public good. While on some levels I respect his business acumen, it was certainly not good for a a you company to make the backroom deals that unfairly drove many entrepreneurs to ruin. Undoubtedly, one must also take into consideration the fact that the growth of industry taking place was unprecedented in human history. Never before had technology, transportation, and communications come together to allow for such exponential growth on a global scale.