As mentioned previously, Adam Smith, a highly regarded economist, demanded that in order for economic success, the”invisible hand of the market” must be in control, rather than the government. This notion involves the establishment of free enterprise and greater openness to international trade and investment (e.g the abolition of tariffs). Free enterprise results in the value of various goods and services being determined by supply and demand meaning that suppliers are unable to manipulate prices. It also encourages investment as people can see the potential to make a return – without the government capping prices. On the other hand, this idea of free trade is highly disadvantageous, and even harmful, to the Global South with the Global North dictating prices.
There seems to be no agreements Shiller and Fama can have the subject of asset bubbles since the two have different opinions on how the market behaves. However, one important conclusion of this analysis suggests that the two scholar's different views may be based on the same fundamental idea. An asset bubble, or an economic bubble, is usually defined as when prices appear to be driven by investor's incorrect views instead of the intrinsic value or the fundamental of the assets. While Eugene Fama denies the existence of the so called bubbles, Shiller proves the existence of bubbles with a description that includes rapid increase in prices and the investors getting emotional with the increases. Shiller's description of the bubbles is quite convincing.
This theory was the first school of thought for economists and one of the major theorists and founders of Classical Economics was Adam Smith. Smith stated, “By pursuing his own interest, he (man) frequently promotes that (good) of the society more effectually than when he really intends to promote it. I (Adam Smith) have never known much good done by those who affected to trade for the public good.”(Patil) Classical Economic theory assumes three basic ideas: Flexible Prices, Shay’s Law, and Savings-Investment equality. Flexible prices in Classical theory suggests prices will rise and fall as needed but is not always true, due to, the interference of government agencies including unions and laws. Smith stated in the Wealth of the Nation (1776), “Civil government, so far it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.” (Patil) Shay’s Law implies supply creates its own demand and demand is not based on production or supply.
This is because according to Elliot (1986), it stated that historical cost assumes money holds a constant purchasing power. The specific price-level changes (shifts in customer preference and advances in technology), inflation, and fluctuation in exchange rates for currencies that happen in the modern economy cause this assumption less valid. Furthermore, historical cost does not consider the changes in price. In times of rising prices, the companies tend to overstate the profits and distribution of the profits to the shareholders will cause trouble to the company. This is because the historical cost does not
With reference to the UK economy, discuss the relative advantages and disadvantages of fixed and floating exchange rates. An exchange rate system is a system, which determines the conditions under which one currency can be exchanged for another. A freely floating exchange rate system is where free market forces determine the value of a currency. In theory, governments through their central banks, are assumed not to intervene in the foreign exchange markets, however, governments in practice find it impossible not to intervene as exchange rates can lead to significant changes in domestic output, unemployment and inflation. In theory, governments need not to intervene, as it is argued that freely floating exchange rates will automatically move to restore equilibrium on the current balance of the balance of payments.
A principle in which the suggestion is that the market should be proficient in providing society with all the goods and services that is needed. This should be done efficiently and through the markets relationship with the individual. Neo Liberalists believe that state interference could cause economic problems for its government as it offers a financial incentive without working, thus, delivering a pessimistic moral and social outcome (Powell and Hewitt, 2002). Additionally, there should be an emphasis on individual choice with a free market. With the choice of competition that the global market creates, there would be fewer restrictions on businesses to operate by the government.
The fed has to set a lower reserve requirement, which allows banks to loan out more money, which generates more interest, which could lead to periods of inflation and could have worse consequences if the government does not react quickly enough. Inflation would decrease the purchasing power of an individual's money, which would lead to more saving and less spending. (Fried) Less spending would mean less money being injected into the circular flow of our economy and would lead to economic crisis. However, many critics also use this to determine how national debt does not have a huge impact on the economy. A huge national debt has no effect on the money market.
Monopoly is the sole producer in the market; its demand curve is the market demand. If a monopoly raises the price of its good, consumers buy less of it. Monopoly can alter the price of its good by adjusting the quantity it supplies to the market. In monopolized markets, price exceeds marginal cost; for a monopoly firm, P>MR=MC A monopoly firm charges a price above marginal cost compare to competitive firm. Policymakers in the government can respond to the monopoly problem by trying to make industries more competitive, regulating the behavior of monopolies, turning some private monopolies into public enterprises, or do nothing.
There are a few different ways to estimate terminal value which are: accounting book value, liquidation value, replacement value, constant growth perpetuity value, discounted cash flows, price/earnings, value/EBIT, and price/book. For this case we felt that accounting book value, constant growth perpetuity, and replacement value estimate should not be used. Accounting book value because it only looks at the original price and undervalues the company because
After the First World War there was an attempt to try to return to this form of economy but it failed leaving Britain’s economy exposed to huge levels of deflation with no effective plan to counteract in place. This led to the suspension of the gold standard along with capital controls and a policy of permanently low domestic interest rates being introduced. In 1929 a new government came into power, although they were not expected to come to an agreement to make cuts to the dole system they did stick strictly to the ‘orthodox treasury view’ in its fiscal and monetary policies. This was all done for a good reason as the labour government were worried that an inflationary policy would reduce the real wage of labour. The unemployed population may have been able