The diagram above shows that real GDP has increased from Y1 to Y2 which means that economic growth has increased. As a result, unemployment falls as we are getting closer to the inelastic part of the AS curve, which is much needed as “unemployment has shot up” in this economic crisis. However, inflation has risen from P1 to P2 which means that our exports become less competitive so our trade deficit gets worse. However, the rise in inflation is needed as inflation is falling below the 2% target. The changes in the government’s macroeconomic objectives depends on where we are on the AS curve as shown below.
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.
▪ Consumers might expect prices to fall further and cut back consumption now. 12. When interest rates rise, people are: ▪ More likely to borrow, that is, purchase a financial asset. ▪ More likely to borrow, that is, sell a financial asset. ▪ Less likely to borrow, that is, sell a financial asset.
This greater demand leads to increases in both output and prices. The degree to which higher demand increases output and prices depend, in turn, on the state of the business cycle. If the economy is in recession, with unused productive capacity and unemployed workers, then increases in demand will lead mostly to more output without changing the price level. If the economy is at full employment, by contrast, a fiscal expansion will have more effect on prices and less impact on total output. According to the MPR, the unemployment rate was projected to continue to decline toward its longer-run normal level over the projection period (Monetary Policy Report,
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).
If inventory levels are stable or increasing, an argument which is not an advantage of the LIFO method as compared to FIFO is a. income taxes tend to be reduced in periods of rising prices. b. cost of goods sold tends to be stated at approximately current cost on the income statement. c. cost assignments typically parallel the physical flow of goods. d. income tends to be smoothed as prices change over time. MULTIPLE
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
If we think money as a good then there will be a price of borrowing money, which is the interest rate of money. The higher the interest rate the less people will want to borrow money, and the opposite is true, the lower the interest rate the more people will want to borrow money. As the change in money supply affects the value of the interest rate because as there is more or less of money the current pool of money becomes more or less valuable. As there is more money the interest rate will decrease because there will be more money floating around and if there is less money the interest rate will increase because there will be less money floating
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 net export effect of expansionary monetary policy will be in the same direction as the monetary policy effect”.1 Recommended Course of Action Although both fiscal policy and monetary policy prove to have beneficial effects on an economy during a contractionary period, we believe that the government should use a combination of both policies…… - The money supply may be ineffective, but in the end people want to make sure that they will have money to save up in case of emergencies. There is no change in investment spending meaning little change in aggregate demand. - Further to this, the fiscal policy may be ineffective, as the extensive “time lags” may dig us deeper, creating a depression. - To what extent?? ?