Paul Kevin Steurer Business Economics GM545 September 2012 Kevin.firstname.lastname@example.org Chapter 16, Question 6 Hyperinflation is when there is a very high and accelerating inflation. It can have a dramatic and devastating impact on the economy because when a country’s monetary system breaks down their currency loses its value rapidly, causing prices to rise in response. This usually happens when a country has more government spending than tax revenues in conjunction with printing more money to make up for the deficit. (Stone 436) One of the effects that have serious consequences is the reallocation of wealth from the general public to the government. People lose faith in the value of money and eventually end up bartering for goods.
Low purchasing power will directly affect the aggregate production, with fewer resources are used, unemployment rate rise, there is less pressure on price, and therefore reducing the inflation rate as the supply is greater than demand. An increase in interest rate will have multiple effects. Firstly it stops firms from expanding, when the purchasing power has reduced, firms sell less and make less profit. Firms will cut the production and size of their workforces to reduce their costs; unemployment rate rise and people are less likely to spend. Secondly, the saving ratio will increase; less money is in the circulation.
With these factors taken into consideration, a decrease in consumer expenditure would be a direct causation to a lowering of both organisations activity. For example, due to recession unemployment will rise as the companies can’t afford to pay employees, and therefor people as a whole have less money to spend, and so donating to causes such as Oxfam would come more unlikely as there will be less money revolving them. This could cause a cut on their government funding as more money will need to be invested to government funding for those out of employment. With a low flow of money inward to the company it means they wont afford the expenditure necessary to fund projects for helping those, therefore lowering the activity of the charity. The same rule may apply to Arsenal FC.
P1 P2 Y2 Y1 Real GDP AD AD2 Another reason why aggregate demand would fall due to a loss in consumer spending is due to the disposable income, as there will be cuts in public expenditure it is most likely that there will be cuts on welfare benefits so consumers will start to save more instead of spend. Similarly, as consumer spending which adds to aggregate demand, if it were to fall then the aggregate demand is likely to decrease and following on from this it also effects investments. As aggregate demand falls businesses will be less confident with their investments,
The less people spent, the less money businesses took in, and the less money businesses had to spend on workers, and thus had to begin layoffs. This led to a sharp rise in unemployment, and now there were less people spending less money inside of the US market, which lead to a further decrease in real GDP. This relationship between unemployment and real GDP was first quantified by macroeconomist Arthur Okun. “Okun’s law states that for every 1 percentage point by which the actual unemployment rate exceeds the natural rate, a negative GDP gap of about 2 percent will occur (McConnell-Brue
America is Unequal I think America is becoming more unequal because the rich keep obtaining money while the poor keep losing money. The middle and lower classes in America that rely on government help are suffering from the budget cuts. Today in the U.S people are looked differently because of the classes they are in. Education in the United States is one of the prime factors today. People who don’t get a higher education will more likely become jobless and therefore be in poverty.
Economic Order Quantity EOQ, or Economic Order Quantity, is defined as the optimal quantity of orders that minimizes total variable costs required to order and hold inventory. Every company worries about two things when deciding how to manage their inventory. How much should we order? And how often should we order? These represent variables that come with their own changing costs.
(Overall decline of market / demand) and the increasing price sensitive of customers. • Strong international player filling the needs of the booming industrial economy abroad leading to fact that Fortis is not yet ranked under the world TOP 10. Question 2) • Overall declining industrial economy in U.S lead to a decrease in demand and to high cost pressure within the industry. Given that, Fortis’s customers are becoming more and more price sensitive and less willing to pay premium prices. Additionally, the continuously increasing steel prices leading to higher production costs and impacting product’s margin.
Monopoly Diagram In the above diagram the firm maximises profit where MR=MC at output Qm. This output is allocatively inefficient because P > MC. This means consumers may face shortages and prices will tend to be higher, and output lower, than what would exist in a market with low barriers to entry. Also, if the firm faces little competition it will have less incentive to develop new products and respond to the needs of the consumers, leading to less innovation and less choice for consumers. The firm is also productively inefficient, because it does not produce on the lowest point of the AC curve.
According to Gallup, the lack of good jobs in America is a greater problem than the inefficient healthcare costs, runaway government spending, and even global terrorism. The lack of good jobs is a poignant crisis in America today, and is making our nation bankrupt. When GDP is up, there are more jobs in a nation, resulting in better welfare. This is why GDP is so important to the welfare of its citizens. GDP is the sum of all goods and services produced in a country during a year (Ferrell).