In theory, governments need not to intervene, as it is argued that freely floating exchange rates will automatically move to restore equilibrium on the current balance of the balance of payments. For example, if the current balance of the balance of payments in the UK was in a deficit, meaning that the value of imports exceeds the value of exports in that particular period, the demand for sterling pound will fall and the value of sterling demand for foreign currencies will rise. The external value of the pound would fall, making UK exports more price competitive and UK imports less competitive in the international market. Export sales therefore rise and import purchases fall, correcting the current balance deficit. The opposite occurs for a balance of payments surplus.
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.
Since capital is assumed to be the only binding production constraint, investment (I) in the Harrod-Domar model is defined as the growth in capital stock. I = (change in K) But investment is also equal to savings (S), which is equal to the average propensity to save (APS) times GDP (Y). Denote APS = s I = S = APS * Y = s*Y So, ICOR = (s Y) / (change in Y) Rearranging terms, G(Y) = (change in Y) / Y = s / ICOR Growth Rate of GDP per Capita The growth rate of GDP per Capita is defined as G(Y/P) = G(Y) – G(P) From (1), G(Y/P) = s / ICOR - G(P) (2) where G(P) = the population growth rate (1) Thus, a 1 percent increase in population growth will cause the growth rate of GDP per capita to decrease by 1 percent. The empirical question is whether policy makers can achieve a constant marginal product of capital when the centralize investment decisions. Examples 1.
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.
The GDP value would then decrease, due to the move from Point A to C, and increase employment which would decrease savings. In addition, there is an inverse relationship to both bond prices and interest rates because as one increase in value, the other decreases, and vice versa. 2. IS-LM Model--Suppose that you have the following equations for the IS-LM model. The following are the equations of the IS-LM model, here including a feature that taxes are not simply given but depend on income through a tax function, T(Y).
The weighted average cost of capital is the maximum rate of return a firm must earn on its investment so that the market value of company's shares will not drop. This is consistent with the firm's overall objective of maximizing wealth. WACC is a calculation of a firm's cost of capital; each category of capital is equally weighted. All capital sources; common stock, preferred stock, bonds and any other long-term debt, are included in a WACC calculation. Everything being equal, the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC means a decrease in valuation and a higher risk.
The fed has to set a lower reserve requirement, which allows banks to loan out more money, which generates more interest, which could lead to periods of inflation and could have worse consequences if the government does not react quickly enough. Inflation would decrease the purchasing power of an individual's money, which would lead to more saving and less spending. (Fried) Less spending would mean less money being injected into the circular flow of our economy and would lead to economic crisis. However, many critics also use this to determine how national debt does not have a huge impact on the economy. A huge national debt has no effect on the money market.
(4 marks) c) Setting MRS=MRT, solve the resulting equation algebraically for l as a function of G. (6 marks) d) What happens to consumption, wages and output as G increases? (6 marks) Question 2: Now consider the same representative agent, but subject to a proportional tax, so that the budget constraint is now C = (1 − t) z (1 − l) where t is the tax on wages. Assume z=1. a) Solve for labour supply as a function of t. (6 marks) b) Now assume that there is a target level of government spending, with a balanced budget: G = tz(1 − l) What is the value of t that maximizes tax revenue G? (6 marks) 1 City University London Intermediate Macroeconomics 1 Joe Pearlman c) Sketch the Laffer curve for values of t from 0 to 1.
SCF-Direct and Indirect Methods SCF-Direct and Indirect Methods A company may use a direct or indirect method to record cash flow and convert net income from accrual to a cash. The Financial Accounting Board allows both presentation methods of cash flows since both are appropriate depending on the company, both methods arrive to the same total amount. The main difference between direct and indirect methods is the way each method arrives to the amount and how it breaks down operating activities. The direct method of cash flow includes more details on operating activities; this method is also used to settle net income and cash from operating expenses. I believe the direct method is a better way for a business to keep track of cash flow because it accounts for every operating activity.
Therefore, if MPC and consumer confidence is at a low, consumers will spend less and save more therefore resulting in a decrease in total consumption levels. This consequently will result in an increase in taxation, as there is a decrease in the circular flow of income, meaning governments have to increase taxes in compensation for the lack of spending. Due to this taxation increase the level of real disposable income, or RDI, amongst consumers will decrease and therefore decreasing consumer