If anything affects these factors will result in affecting the demand. For example, if inflation is getting too high, interest rates will be increased to stabilize the economic growth in the economy. This is the result of having the economy already close to full capacity which means that a further increase in AD will mainly cause inflation. Demand side policies include monetary policy and Fiscal policy. Monetary policy are actions of central bank, currency board or other regulatory committee that determines the size and rate of growth of the money supply, which in turn affects interest rates.
With inflation the price of products go up. It makes saving harder 5. Imagine that you are considering moving to a new country and looking for a job there, but you first want to make sure the country has a strong economy. Describe at least three economic factors that you would want to research as evidence of the economy's strength or weakness, and explain how each factor would affect your decision to move there. (4-6 sentences.
The year after, it dropped by roughly 200 billion, only to rise up again to 1778.63 in 2012. 1 The reason why GDP is so closely related to the strength of the economy is because it tracks all final spending. Since final spending relates to how much people are buying, how much the government is spending, how much investors are investing, and the net value of imports and exports, there is a strong correlation between the GDP and the economy’s strength. Although the GDP is a great measure, there is a lot more to consider such as inflation and unemployment. Inflation is also a very strong indication of economic growth as it represents the growth of the prices of goods and services.
More reserves are held in their account at the central bank. With these additional reserves, they can expand credit and create more money. (Bagus 2011) The FED is more passionate than the ECB about cutting interest rates to boost the economy. The ECB main goal is to keep inflation low, while the FED fights a double battle with not only fighting inflation but also unemployment. More things can affect how the ECB reacts when I comes to inflation and mostly targets a broader price index that includes things that doesn’t bother the FEDs as much, such as the Libya-related oil spike in 2011.
At last, achieve aggregate demand and aggregate supply to be an ideal balance. Monetary policy is divided into two types: expansionary and tightening. Aggressive monetary policy is to stimulate aggregate demand by increasing the speed of the money supply growth. In this policy, it is easier to obtain the credit, and the interest rates will reduce. Therefore, when the aggregate demand compared with the economic production capacity is quite low, expansionary monetary policy should be taken into use appropriately.
Ultimately this is used to illicit a raise in GDP levels (Fiscal Policy). 3. An example of this would have been Obama’s Economic stimulus package. This is an expansionary policy as it pulls from money we may not even have as a country in order to avoid a serious collapse due to the population being cautious with their income causing a stall in the economic growth of the country. Therefore, with an economic stimulus package, people were more willing to spend their money (possibly even more than the stimulus was) and take out loans which all raise the GDP for the country as well as improve investor confidence in the market as a whole (Eaton, G.).
For example, if interest rates increase, the income of homeowners who have variable-rate mortgages will fall – leading to a decline in their effective purchasing power. The effects of a rate change are greater when the level of existing mortgage debt is high, leading to a rise in debt-servicing burdens for home-owners. On the other hand, a rise in interest rates boosts the disposable income of people who have paid off their mortgage and who have positive net savings in bank and building society accounts. Consumer demand for credit would also increase Aggregate Demand, as higher interest rates increase the cost of servicing debt on credit cards and should lead to a deceleration in the growth of retail sales and
The RRR can also be called as the discount rate, hurdle rate or the opportunity cost of capital. NPV takes into account the principle in economics referred to as the “time value of money” which implies that a dollar earned today is more valuable than a dollar earned tomorrow. It is to be noted that projects with zero or positive NPV are acceptable to a company from a financial viewpoint as the return from these projects equals or exceeds the cost of capital. Internal rate of return (IRR) is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero. IRR represents the discount rate at which the present value of the expected cash inflows from a project equals the present value of the expected cash outflows.
Demand side policies are those that manipulate the level of aggregate demand (AD) to achieve one or more economic objective. The policies can be fiscal policies (changes in government spending and/or taxation), or they might be monetary policies (which are largely changes in the short-term rate of interest). The four major macroeconomic objectives are a sustainable level of economic growth; low inflation; low unemployment; and a medium term balance on current account. Recently the government have used loose fiscal policy and the MPC have reduced the rate of interest. These are designed to increase the level of AD and increase in national income.
Who should lead the way for Pan-Europa? They should incorporate strategies that would increase their stock price. Due to low stock prices, raiders are buying the stocks. They should increase net income and gross sales to drive up the stock price. They should reduce their debt due to high debt to equity ratio and capitalize on their increased market share.