Banks have a reserve requirement, which is set by the fed. A reserve requirement is the minimum percentage of a bank’s total reserves that they are required to keep, for security reasons. (Schiller) The fed can change the reserve requirement to allow a bank to loan more/less money, which is used to control the economy. Many critics use this to determine that annual deficit spending has a negative impact on the economic stability of our country. 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.
Loosening of Credit Proponents of negative interest rates suggest that when financial intermediaries choose between paying for deposits and receiving income from loans, they will choose the latter. In turn, businesses benefit from this greater amount of credit. Japanisation of the Eurozone However, we mustn’t lose sight of why this proposal is being mooted – to stave off the Eurozone’s deflationary issue. As such, will negative interest rates stem the tide? The answer to this question is simply not clear, but it primarily depends upon expectations of future inflation.
This also includes the affordability range, and it stops unnecessary consumption, limits price growth to avoid excess societal burden. Government intervention varies with low- income developing countries to industrialized countries. In low income developing country, government’s focus is “how to improve access to their people”, whereas in industrialized nations direct some of their focus on cost-containment. Subsequently, government intervention also faces imperfections. It becomes complicated due to political manipulations.
There is a failure to realise that long term better economic welfare also means general higher standards of living, as people have enough money to buy everything they need and some of what they want, competition is rife so drives quality up and prices down, and the government are able to take in more taxes from firms who are much healthier financially. This mass employment may lead to more jobs, but the workers themselves or the way they’re used is hugely inefficient. Another reason that labour production in the UK is so low is the lack of competition. There is a strong body of evidence that competition enhances productivity. So, with a lack of one there is a lack of the other.
From an accounting prospective, the major problem with the calculations mentioned in the article is determining the rate of return and length of the marketing investment. While the initial value of the “investment”, i.e. marketing expense, can be easily determined, determining the real value after the investment has been made has the potential to be biased without a commonly used measurement. The value of the investment could also fluctuate from year to year based on the companies’ profitability even though marketing had not direct
The opposite occurs for a balance of payments surplus. However, the extent to which this occurs depends on the price elasticity of demand for exports and imports on the Marshall Lerner Condition. This condition states that devaluation (a fall in the value of the currency) will lead to an improvement on the current balance will be seen if the combined elasticities of demand for exports and imports are greater than 1. The size of any J-curve affect in the short run will also affect this extent. The J-curve effect is a short term
Meaning that the number of people working is undetected. The downside to this is the macro economic policies are likely to be too expansionary and social policy too excessive. The second issue is these underground economy wages are escaping taxation which causes a loss in tax revenue. Lastly it shows that the citizens and the government have an unhealthy relationship. The taxpayers are not happy with the public services from the government and seek help with out having to pay taxes.
Internal national inequality may also be an important factor in an underdeveloped country. This is the case with poverty that some countries face each day. With limited academic success, even national means of IQ differences have played an important role in causing international inequality. 4 Several other factors have been recognized as a necessity for a country to grow faster in an economic way. This is a requirement for the deprived
Another reason for the disparity is that some economies are unable to provide substantial skills to participate actively in the global economy. Such countries provide obsolete and low valued talents such as weaving and farming, hence leaving them with limited opportunities for abundant economic growth. As a result, this has led to a misallocation of wealth as the rich constantly improve and develop themselves to enjoy the benefits of globalization, often capitalizing on the low skills and poorly paid workers. As such, in 2003, the richest fifth of the world’s population received 85% of the world’s income, while the poorest fifth received only 1.4% of the global income (Infoplease, 2005). One possible solution to ease inequality in the globalized world is through progressive taxation.
The Components for Aggregate Demand are C (consumption)+ I (income)+ G (government spending)+ (X-M) (net exports) and a change in the components of Aggregate demand will cause a shift of the curve. Fiscal policy is a type of economical intervention where the government injects its policies into an economy in order to either expand the economy’s growth or to contract it. By changing the levels of spending and taxation, a government can directly or indirectly affect the aggregate demand. Fiscal policy can be used in order to either stimulate a sluggish economy or to slow down an economy that is growing at a rate that is getting out of control. There are two types of Fiscal policy put in place to alter the level of aggregate demand; Expansionary fiscal policy and Contractionary fiscal policy.