Fiscal policy concerns the use of changes in the amount of taxation (T) and government spending (G) to influence the national economy. Changing G will directly affect aggregate demand as AD calculated through the equation AD = C + I + G + (X-M). Not only does fiscal policy affect AD but also aggregate supply, however the affect on AD will be much more immediate whereas AS is affected indirectly over a longer period of time. Monetary policy concerns three main methods of government intervention in an economy; changing the money supply, changing interest rates and the exchange rate. Monetary policy will also indirectly affect AS, as well as directly affecting AD.
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.
Therefore, when the aggregate demand compared with the economic production capacity is quite low, expansionary monetary policy should be taken into use appropriately. Negative monetary policy is to reduce the level of aggregate demand by cutting the growth rate of money supply. In this policy, it is difficult to obtain the credit and the interest rate increases as well. Therefore, when the inflation is serious, the negative monetary policy is more appropriate. (Stanley Fischer,1993) Monetary policy includes seven aspects: I. controlling the amount of currency issue.
In addition, the essay will explain the negative aspects of free trade and how competition abroad has affected not only Australia’s economy but the economy of poorer nations and workers. Finally, this essay will briefly discuss the future of free trade explaining the direction of The Trans Pacific Agreement. Origins of free Trade Many Nations rely on free trade, including Australia to exchange goods and services. The purpose of free trade is to eliminate or reduce tariffs and taxes, increasing the efficiency and fairness between countries [pma.com]. The history of free trade between cultures and countries has been well documented.
The company operates in high inflation environments, especially in Argentina and Brazil and the effect of Mexico Peso crisis on equity market and currencies in Latin America In what currency are the cash flows denominated? Cash flows are projected in nominal local currency In what currency should the discount rate be denominated? Cash Flows Use US$ for all 3 countries because the others are highly inflationary currencies Exchange rate based on interest rate parity Discount rate should be denominated in US$ Match currency of cash flow To be expressed in terms of a particular currency unit. For example, a bond could be denominated in yen. 2.
It further goes on to say that immigration would affect both aggregate demand and supply levels of the economy. The article shows the different ways migrants would affect different areas such as labour supply, job search, capital stock, technology and so on. According to the author, inflow of migrants would definitely increase the level of demand and supply in the economy. It would also boost consumption levels which would in turn increase production levels. The article suggests that the key point to be considered is whether migration would add to the inflationary pressure in the economy.
Price inflation causes the value of a dollar to fall over time, and so the same dollar amount in two different years will usually represent different amounts of purchasing power. To counteract this problem, analysts typically adjust dollar figures to account for inflation. Figures that have not been adjusted for inflation are said to be in 'nominal dollars,' while those that have been adjusted are in 'real dollars. Using the nominal dollar does not give the correct short run cost estimaate. Following graph depicts the effect of inflation on cost One of the method firms use for adjusting for inflation is by deflating nominal cost data using an implicit price deflator.
Gross domestic product, adjusted for inflation, also known as "real GDP", can tell economists whether an economy is growing or contracting from year to year or from quarter to quarter, a key determinant in deciphering whether the economy is expanding or in a recession. Internationally, gross domestic product adjusted for some benchmark, usually the US dollar, is a good indication of whether a nation's economic output is increasing or shrinking relative to other nations of the world. To exactly know if GDP is a good enough indicator of understanding an economy, it should be compared to an equivalent form of indicator. This is where we come across GNP which is quite similar to GDP. So let us understand what GNP is in order to compare these two entities.
When determining the price of stock investors often rely on “The Firm Foundation Theory” or “The Castles in the Air Theory” which have contradictory connotation associated with stock market bubbles. Stock Market bubbles are abnormal increases in market value followed by leveling drop. “The Firm Foundation Theory” uses formulas and past information to determine stock prices, so when abnormal fluctuation takes place it will have a contrasting effect. “The Castles in the Air Theory” base it profit making on predicting what the other buyers will do and thus often searches for the formation of bubble. The term bubble when applied to the stock market refers to an overpriced stock.
The monetary policy is defined as “the actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as increasing the interest rate, or changing the amount of money banks need to keep in the vault (bank reserves).” The fiscal policy is “ the use of government spending and taxation to influence the economy. When the government decides on the goods and services it purchases, the transfer payments it distributes, or the taxes it collects, it is engaging in fiscal policy.” The world downturn is defined as “an extended period of international economic downturn. Generally, the International Monetary Fund (IMF) considers a global recession as a period where gross domestic product (GDP) growth is at 3% or less. In addition to that, the IMF looks at declines in real per-capita world GDP along with several global macroeconomic factors before confirming a global recession.