The Sovereign Debt Crisis is still ongoing having recently extended itself into calendar year 2013. By its very nature, a model of the recurrence of the business cycle affecting the market economy does not allow for a boom without a bust. However, of credit bubbles and financial crises, also cyclical phenomena, a financial crisis need not always follow a credit bubble though a credit bubble has always preceded a financial crisis. Robert Aliber writes, ‘the thesis of the book is that the cycle of manias and panics results from pro-cyclical changes in the supply of credit; the credit supply increases rapidly in good times, and then when economic growth slackens, the rate of growth of credit has often declined sharply” (p.13). Credit bubbles
Secondly high taxes create disincentives to work and this can be analysed through income and substitution effects. The substitute for work is leisure time and when taxes increase the opportunity cost for leisure time decreases, also people will have to work longer hours to earn the same post tax income causing disincentives as it reduces living standards as people must work longer and harder for the same incomes. This will create disincentives to work and so lead to a reduction in the labour force meaning less people in jobs and so less people paying income tax. Also as people earn less this way consumption in the economy falls therefore reducing the governments VAT recipts and corporate tax revenues and businesses make lower profits. This will lead to increases in the fiscal deficits as the government earns less and may be spending more in forms of social protection i.e.
d. If a firm is more profitable than most other firms, we would normally expect to see its book value per share exceed its stock price, especially after several years of high inflation. e. The more depreciation a firm has in a given year, the higher its EPS, other things held constant. 2. Which of the following statements is CORRECT? a.
When there is a larger demand for more expensive commodities, the demand for money increases and the cost to borrow follows. This is following the theory of money demand. (Sparknotes, 2013) It is true for a decrease in output. The fewer consumers are willing to buy, the lower the demand of money is creating lower interest rates. This can be seen in the housing market.
265). An increase in the real investment or in components of consumption will cause a rise in the real GDP and a decrease in real spending will cause a decrease in the real GDP. To calculate the multiplier one takes 1 and divides it by 1 minus the marginal propensity to consume, which is equal to one divided by the marginal propensity to save. Therefore, the “smaller the marginal propensity to save, the larger the multiplier” and the “larger the marginal propensity to consume, the larger the multiplier” (Miller, 2012, pg. 266).
If a lot of debt is used to finance increased operations then it will incur a high debt to equity ratio, the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt interest cost, then the shareholders benefit as more earnings are being spread among the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing. The debt/equity ratio also depends on the industry in which the company operates and Smithon Widgets being a manufacturing company the debt equity ratio is normally high.
Monetary policies influence the productivity of the country and this is how employment is affected. If there is a decrease in interest rates then more people are going to borrow money because the cost is lower. “Lower interest rates also change the willingness of financial institutions to lend money” (Federal Reserve Bank of San Francisco, 2011). With the financial institutions more willing to loan money, more people will borrow money and then there will be a higher demand for goods and services. As the demand for goods and services increase the demand for labor follows
Naturally, this construction cannot be started immediately but it could begin to be felt sometime next year. To sum up the economic impact, the short-term adverse consequences could push the economy the rest of the way into recession, but offsetting elements of stimulus should lead to a faster pace of business activity by the middle of 2002. As for the financial markets, the broad outlines of the implications are these: The stock market will be under intermittently severe pressure for some time, apart from defense- and commodity-related industries, including oil
There were certain benefits to his approach, such as his “tax and spend” policies. The U.S. has been inclined to spend more money than it has taken in, which is indicative of the national debt at the beginning of the 21st century. The budget for the majority of the 21st century has a consistency of deficits and economic crisis. In 2008, the economy entered a bad recession resulting in high oil and food prices, and vast amounts of bankruptcies and foreclosures. The federal government attempted to fix the economic problems through costly economic stimulus packages, which only resulted in further national debt.
We can see from history that our failing economy may take us back into another depression like the Great Depression of 1929. Council of Economic Advisers chairperson Christina Romer warns that “upcoming economic problems could be more severe than anything the country has faced over the past half century” (Pickler, 2008). If we fail to act now, history will repeat itself. The stimulus bill should save and create millions of jobs. The President believes “if we do not act swiftly and boldly .