Other things equal they prefer to pay more for stocks that are more risky and have uncertain cash flows. • Investors are risk averse. Other things equal they prefer to pay more for stocks that are less risky and that have relatively certain cash flows than other stocks. When determining the value of a firm, which of the following statements is ture? • A financial asset is considered to have value if it has the ability to generate positive cash flows.
All monetary policy factors work together in collaboration to achieve a balance between economic growth, low inflation, and a reasonable rate of unemployment. It is important to have a good balance between the different factors influencing monetary policy because if the money supply is either too “easy” or too “tight” there are undesirable effects on the economy. If the money supply is increased to eliminate or reduce inflation, and it is not done carefully, and gradually—the economy could suffer from increased unemployment and a recession may result. If the money supply is decreased to help the economy overcome a recession, and it is not done carefully and with gradually, it can result in economic inflation. Neither one of these are desired effects, so caution and careful consideration of possible monetary policy actions is necessary each time a decision is
in 1978 and proposed that profit was less important than fairness in the relationship. According to Hatfield (2011) “According to Equity theory, people feel most comfortable when they are getting exactly what they deserve from their relationships—no more and certainly no less” Exchange Theory is more concerned with under-benefit as a disadvantage but Equity Theory places a greater emphasis on both under-benefit and over-benefit. Under-benefits are likely to provoke a sense of anger and resentment and over-benefits are likely to provoke a sense of guilt. The Equity model suggests that a person would be driven to restore the equity within an unbalanced relationship by either reducing their input or increasing their outputs and it is the inability to reach balance that can lead to the breaking of the relationship. Investment theory focusses on the extent to which commitment is determined by investment in a relationship rather than solely satisfaction or reward.
This means that a strong real may lead to a worsening of the balance of trade – much depends on the value of price elasticity of demand for imports and exports. The impact of appreciation depends on the economy. As Brazil was not in a recession during the appreciation of the real, then the aggregate demand increased and helped reduce inflationary pressures and limit the growth rate. However, an appreciation of the real could also reduce inflation. This makes Brazil’s goods more competitive, leading to stronger exports in the long term, which could improve the current account.
Question 1 Which of the following is generally NOT true and an advantage of going public? Answer | | Facilitates stockholder diversification. | | | Increases the liquidity of the firm's stock. | | | Makes it easier to obtain new equity capital. | | | Establishes a market value for the firm.
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). For example if Federal Reserve actions raised U.S. interest rates, the foreign exchange value of the dollar generally would rise. An increase in the foreign exchange value of the dollar, in turn, would raise the price in foreign currency of U.S. goods traded on world markets and lower the dollar price of goods imported into the United States (Federal Reserve, 2005). By restraining exports and boosting imports, these developments could lower output and price levels in the U.S. economy and control or lower
Federal Reserve Paper ECO/212 May 14, 2012 Dr. Mohamed El-Kaissy This paper has the purpose to cover the many topics and aspects of the Federal Reserve as it pertains to monetary policy. The fact that monetary policy can have an indirect effect on the economy is a crucial and valid point. The beginning of the paper talks about the functionality of money and its purpose in government. The analysis will go onto explore the tools that the banking system has at its disposal and give examples as to how their use affects the monetary system. The Federal Reserve has the ability to create many avenues of economic power with just a minimal amount of resources, however; these minimal amounts of resources are very powerful.
Monetary Policy Aaron Ashburn MMPBL/501 Feb-21, 2011 Dr. George Sharghi Introduction There is a consensus among analysts regarding the ability of economist’s to accurately forecast inflation, and consequently it appears that the relationship between real economic activity and inflation is ambiguous. It is the Fed's job to do what it can to reduce unemployment in order for the economy to sustain and to make sure that inflation returns to a level more consistent with its mandate. The central focus of U.S. monetary policy is price stability. Thanks to its control of money markets and banks, the Fed influences interest rates, asset prices, and credit flows throughout the financial system. To help attain inflation goals the Federal
The Federal Reserve can prevent inflation by changing the interest rates on money that banks and business borrow. If it looks like the economy is likely to inflate, the Federal Reserve will raise interest rates. This reduces growth in money, making it more expensive for banks and businesses to borrow. Banks and businesses cannot expand if they can’t borrow. The less expansion, the less inflation.
The basic ideas of the monetary policy and economic stabilization policy were foreign at the time, dating only from John Maynard Keynes' work in 1936 (Keynes, 2011). These rates influence financial conditions in the household and the ability to secure and spend more money. Short-term rates alter borrowing costs for firms, households, and the spending circulation cycle is affected. Movements in short-term directly affect long-term notes such as bonds and mortgages. These factors indicate current and future values of the short-term rates, therefore it creates issue with future long-term rates.