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.
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.
When companies can produce more due to demand they are able to hire more workers, which can lower the unemployment rate. Lowering the unemployment rate will provide more income tax revenue to the government and fewer citizens taking unemployment benefits. Conversely, when exports decrease consumers pay less money for products causing domestic profits to decline and companies are unable to maintain or increase their workforce causing the unemployment rate to
The theory behind this was that if taxes were increased or left at their same rate, the amount of money brought into the government would be x. But if taxes are cut, GDP rises. The rise in GDP plus the lower taxes would be greater than x, causing an increase in tax revenues. This would push the supply curve to the right also increasing real Gross
The value of the FINAL GOOD or service produced (The final good eocnompasses all the intermediate goods anyway) Other measures of the total economy Net domestic product (NDP) = GDP minus the depreciation The 3 different methods of measuring GDP: The Australian Bureau of Statistics (ABS uses 3 methods to measure. 1. The production method: The sum of the value of all goods and services produced by industreies in the economy in a year minus the costs of goods and services used. 2. The expenditure method: the sum of the total expenditure on goods and services by households, govts and exports .
When the demand for U.S. dollars increases, the value of the dollar will increase or appreciate (Stone 2008, pp. 685). As a result, U.S. products become more expensive for foriegners causing a reduction in exports and increasing imports. This not only effects the U.S. economy, but also affects the economies in other countries. Monetary policies influence and are influenced by international developments, including exchange rates, and based on these market conditions the U.S. government can make strategic changes to these policies to maintain the country’s economic stability (full employment, stable growth and price stability).
ECO/372 Learning Team Aggregate Demand and Supply Models The Keynesian economists would look at the current proposal of increasing taxes as a governmental expression of the intermediate approach to the economy. The government taking control and having the people pay the price for their higher tax bracket. These funds would be used to decrease the amount of money owed by the United States. The effects of the economy would be absorbed and educated responses would be to lessen those impacts. To increase their taxes would be appropriate and this would be stream lining taxes at a time when the economy needs a boost.
I do not agree with her as well on raising the bank reserve requirements as it can restrain lending from banks and as a result it will shrink the economy growth. After analyzing my colleagues’ recommendations, and as the president’s senior economic advisor, I recommend the following: * We should lower income taxes. This shall increase the aggregate demand as the consumer disposable income will increase, which leads to an increase in the consumer spending. If the consumer spending increases, it will bring back up the flow of business and operations which means more jobs opening in the market and low unemployment rates. * Lowering banks’ interest rates.
Managing aggregate demand(eg) can be self-financing because when the increase in aggregate demand causes an increase in employment, it means that fewer people would be on unemployment benefits. Therefore, the government has less government expenditure and because more people are employed, the government can collect taxes from more people. However, in order to finance government expenditure the government may also need to increase borrowing and in order to achieve this, the government may have to raise interest rates. This may mean that as a policy, managing aggregate demand may not be self-financing. Managing aggregate demand reduces some types of employment more than others.
Running Head: REAGAN-SIDE ECONOMICS Reagan-Side Economics Ebony Stanley Park University Running Head: REAGAN-SIDE ECONOMICS Reagan-Side Economics During his administration, President Ronald Reagan implemented supply-side economics. Believing that the current tax rates were too high and were detrimental to “individual initiative and saving” by Americans, Reagan’s administration felt that supply-side economic policy would be beneficial (Gordon 2009). The thought process of supply side economics rests in the effect of lowering income tax rates. Those who embraced this economic policy theorized that lowering the tax rate would increase the amount of work and saving by the American people. They went on to further say that the increase