...Chapter 1: Introduction Introduction Over a decade, the consensus of economics growth remains the key focus for every nation notably in least development countries (LDC). Poverty eradication, income distribution and welfare enhancement often discussed widely by these nations. Economic growth is often seen as the 'holy grail' of economic policy. This simplistic emphasis on economic growth is often criticized because of the limitations of economic growth in improving living standards. Another question arise is does economic growth promote sustainable improvement on country development? Malaysia economy has been transformed from a protected low income supplier of raw materials to a middle income emerging multi-sector market economy in the past 20 years. This is driven by the export of manufacturing goods, particularly electronics and semiconductors, which constitute about 90% of exports. In this paper, the primary objective is to investigate what is the relationship between openness, inflation and FDI with economic growth. Export and import often plays pivotal role in determine the gross domestic product (GDP) in a nation. In particular, the research question to be outlined is how does openness, inflation and FDI affect economic growth. Multinational corporations (MNCs) are those organizations that own or controls productions of goods or services in one or more countries other than its home country. MNC plays major role in foreign aids recipient countries, it contribution to...
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...(2) In this next point I hope to determine in detail all the characteristics of the UK economy, government fiscal and monetary policies and how each one effects on the Tesco PLC organisation. I plan to give a clear and comprehensive look into each of the factors which build the UK economy and analyse and evaluate with strong evidence of application to theory throughout the report. The UK has a democratic, parliamentary system of governance known as the Westminster system. The structure of the administration ensures that there is an adequate separation of powers between the executive branch, led by the prime minister, the bicameral legislature and the judiciary, and that there is a system of checks and balances in place. The current population of the UK is 64.1 million. The UK was one of the largest macroeconomics in the world. It was seen to be one of the strongest and most stable economies before 2007, however post 2008 economic deceleration began and the GDP growth rate fell to 0.7%. In 2008, the economy entered into a recession, with a predicted negative growth rate of -4.5% for the following year. (Data monitor Statistics) The current conservative government’s main economic aims are Economic growth with more goods and services produced in the economy, alongside low inflation, little unemployment with a Fair distribution of income. (HM Treasury) Taxation comes in two forms direct taxation (taxation on income and profits) and indirect taxation this is taxation on expenditure...
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...requirements. These loans from the Federal Reserve enable them to meet these requirements. An increase in the discount rate means a decrease in the money supply and a decrease in the discount rate means an increase in the money supply. The discount rate is used to influence the economy. The discount rate is used to stimulate the economy. It helps to stop inflation or to increase spending, depending on the current health of the economy. * * * How does the discount rate affect the decisions of banks in setting their specific interest rates? * Since the discount rate controls the amount of money in the reserve it also affects interest rates on loans in the loanable funds market. A lower discount rate means more money supply which also means a lower interest rate. A high discount the rate equals a lower money supply and a higher interest rate. These all control the health of the economy. Interest rates are the prices that are charged or paid for the use of a financial asset (Colander, 2010). Financial assets are key variables in the financial sector and they can consist of either money or credit cards. However, money does not collect interest unless it is from the loanable funds market. In order for money to be considered in the loanable funds market it must be able to return into the loanable funds market for instance, an individual...
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...Economic policy is the government attempting to stabilize the economy for the good of all people. Ways in which the government attempts to reach their goals is by being in charge of setting the right levels of taxation, government budgets, money supply and interest rates in the economy. All of these actions that the government takes influence the economy in some way. “Some types of economic policy actions can include setting interest rates through a federal reserve, regulating the level of government expenditures, creating private property rights and setting tax rates” (economic policy). Economic policy has many goals. Economic growth is one goal. If incomes of consumers and businesses are increasing over time then economic policy is working well for the economy and its people. Full employment is another goal. This goal for economic policy is to ensure that every member of the labor force who wants to work will find work. The last goal to mention is price stability. The goal of price stability is to stop both deflation and inflation from occurring. If inflation is set too high then prices of goods in the economy will be too high and not sold as much because consumers will not be able to afford them. “In an effort to eliminate uncertainty, the Fed has set a target rate of a steady 2% inflation rate” (McMahon). The Federal Government has an involved role in maintaining America's economy; they need to find the right balance working with numbers and economic expertise. When...
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...Why Inflation Is Considered a Bad Thing LaQuan Howell Embry-Riddle Aeronautical University Abstract Economist for a long time have argued about the causes and implications of inflation. This research aims at identifying the various negative implications that inflation causes. The research indicated that inflation causes negative effects like increase in prices of goods and services, interrupted purchasing power of consumers, and slow economic growth. Introduction Inflation is defined as the decrease in the value of money. It is the continued increase in the level of prices for products and services especially over a short duration of time. This means that the value of a currency does not stay constant during period of inflation, and the purchasing power of consumers’ declines. Thus, whatever consumers earn, will buy less of a good or service. When inflation increases it results to an increase in the prices of commodities, and this may bring about employees demanding an increase in wages. This normally translates to a decrease in profit for the company. Consumers will have less amount of money to use; this could translate to a decrease in company sales. Disadvantages of inflation Inflation is usually considered to be an issue when the rate rises above two percent. The higher the rate of inflation is, the more the problems it causes. Inflation affects the menu costs of goods and services. Menu...
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...Fisher Effect and the Quantity Theory of Money Eric Mahaney 4/7/13 EC-301-1 The Fisher effect and the Fisher equation were made famous by economist Irving Fisher. He created his equation by rearranging the equation for real interest rate, which is (r = i - π). Real interest rate equals the nominal interest rate plus inflation. This is a very basic equation. Fisher manipulated it to solve for i, in order to understand the effect that inflation has on nominal interest rate. The famous equation is i = r + π, nominal interest rate equals real interest rate plus inflation. This is basically saying that the nominal interest rate can be changed by a change in either the real interest rate or inflation. The Fisher effect is the one to one relationship between the inflation rate and the nominal interest rate. According to this model, as inflation increases, the nominal interest rate should also increase by the same proportion. The main concept behind the Fisher effect is that higher inflation causes higher nominal interest rate. (Mankiw, 91-92) By using the Fisher effect along with the quantity theory of money, the effect that money growth has on nominal interest rate can also be analyzed. The quantity theory of money is M*V=P*Y or the quantity of money multiplied by the velocity of money equals price multiplied by output. The velocity of money is assumed to remain constant in order to simplify the model. Therefore, PY is determined solely by the quantity of money. PY...
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...3 different business/economic cycles – a total of 6 economic aggregates – which will include a recession period and an expansion period. I will choose the current economic cycle as the basis to compare the performance of the economy since December 2007 to that of the other 2 business cycles on the basis of the 6 Economic Variables. As a data consistency analysis measure, I will make use of data from Federal Reserve Economic Data (FRED) and National Bureau of Economic Research (NBER) websites in my research. In simple terms, an economic/business cycle refers to fluctuations in aggregate production, trade and activity over several months or years in a market economy. The economic cycle is the upward and downward movements of levels of gross domestic product (GDP) and refers to the period of expansions and contractions in the level of economic activities (business fluctuations) around its long-term growth trend. These fluctuations occur around a long-term growth trend, and typically involve shifts over time between periods of relatively rapid economic growth (an expansion or boom), and periods of relative stagnation or decline (a contraction or recession). Business cycles are usually measured by considering the growth rate of Real Gross Domestic Product (Real GDP). Despite being termed cycles, these fluctuations in economic activity can prove to be unpredictable. A. F. Burns and W. C. Mitchell, Measuring business cycles, New York, National Bureau of Economic Research, 1946. Now...
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...product (GDP) is the indicator of the economic health of a country. Also a measure of the dollar value or goods produced at a given time period. Real GDP is nominal GDP adjusted for inflation. Real GDP is also what is important to a society because it measures what is really produced. Nominal GDP is a gross domestic product (GDP) number that has not been adjusted for inflation. Unemployment rate are rates at which people are either looking for a job or just simply does not have a job. It is measured by the number of people reportedly in the country at one time adjusted by those who are eligible to work and are not. Inflation rate are rates at which the economies prices are adjusting upward or downward. Prices increase and decrease and the measures show the strength or power. Interest rate is tax added back to the payback (what you owe). Fundamentals of Macroeconomics Paper Macroeconomics deals with such issues as national economic output and growth, unemployment, recession, inflation, foreign trade, and monetary and fiscal policy. Using macroeconomics we will study and explore the economy at the aggregate level because it is concerned with the workings of the whole economy or large sectors of it. The sectors include our government, households, and businesses. There are a multitude of different economic activities that affect our government, households, and businesses considering the following economic activities purchasing of groceries, massive...
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...and finally I have chosen inflation in Russia. Inflation, as one of the main macroeconomic issues, is a really urgent problem of today. In some countries the rate of inflation is 5 %.while in others 15%. Today. we will discuss history and modern peculiarities of the Russian inflation. So,here is the plan. Definition Inflation is a sustained increase in overall level of prices, as measured by some broad index (such as Consumer Price Index) over months or years, and mirrored in the correspondingly decreasing purchasing power of a currency.An increase in inflation means an increase in prices. This affects whether or not a consumer is able to afford the higher price. Inflation directly affects the value of the currency because when inflation goes up, the value of a currency goes down, and so does the consumer's purchasing power. Inflation especially affects consumer behavior when wages do not increase to accommodate the increase in prices. As people's inflation perceptions tend to affect their economic behaviour, it is important that they stay close to measured inflation rates the history of inflation in Russia First inflation in Russia was associated with the introduction of paper money or bills. These funds were issued by the decree of the Catherine II. The dominant ideology in the economic environment relative to the coverage of the budget deficit by issuing paper money led to a glut of money supply in the economy, which resulted in growth of inflation. In general, the periodic...
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...[Cover page] Policy Analysis Unit (PAU) Working Paper Series: WP 0604 Inflation and Economic Growth in Bangladesh: 1981-2005 Shamim Ahmed Md. Golam Mortaza December 2005 Policy Analysis Unit (PAU) Research Department, Bangladesh Bank Head Office, Dhaka, Bangladesh (www.bangladeshbank.org.bd) (www.bangladesh-bank.org) Policy Analysis Unit* (PAU) Working Paper Series: WP 0604 Inflation and Economic Growth in Bangladesh: 1981-2005 Shamim Ahmed Research Economist, Policy Analysis Unit Research Department Bangladesh Bank Md. Golam Mortaza Senior Research Associate Centre for Policy Dialogue December 2005 Copyright © 2005 by Bangladesh Bank * The Bangladesh Bank (BB), in cooperation with the World Bank Institute (WBI), has formed the Policy Analysis Unit (PAU) within its Research Department in July 2005. The aim behind this initiative is to upgrade the capacity for research and policy analysis at BB. As part of its mandate PAU will publish, among other, several Working Papers on macroeconomic research completed by its staff every quarter. The precise topics of these papers are chosen by the Resident Economic Adviser in consultation with the PAU members. These papers reflect research in progress, and as such comments are most welcome. It is anticipated that a majority of these papers will eventually be published in learned journals after the due review process. Neither the Board of Directors nor the management of Bangladesh Bank, nor WBI, nor any agency...
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...include adjusting monetary policy, price stabilization, monitoring and controlling inflation, and maintaining low interest rates to encourage economic growth. Aside from these very important responsibilities the Federal Reserve also acts as a financial institution for the United States government as well as central banks to foreign countries. The Federal Reserve is also responsible for ensuring adequate research is conducted on both the United States economy as well as the individual regions within the United States. They also take up the responsibility of educating people on what they do and how they do it through many different channels of media, such as: speeches, publications, web sites, and educational seminars. What are the factors that would influence the Federal Reserve in adjusting the discount rate? When it comes to the Federal Reserve adjusting the discount rate there are a few factors that play an influential role. The current state of the economy and the direction that the economy is moving are the biggest factors. Should the economy be growing too fast, prices becoming inflated, and a noticeably large amount of money in the economy then the Federal Reserve would want to slow down the economy a little by increasing the discount rate, or interest rate. This increase would help to take some money out of the economy which will slow down economic growth and reduce price inflation. If...
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...Assignment: The Key Concepts in Economics Jennifer McDonald Professor Camille Castorina ECO 100 - Principles of Economics February 28th 2016 The Key Concepts in Economics The economic article that I analyzed is “Unemployment rate falls to 5.1 percent, but Americans are not finding pay increases,” from The Washington Post, written by Chico Harlan and Ylan Q. Mui. The key points of this article discuss a possible slight increase in interest rates, the decrease in the unemployment rate, non-management employees’ wages not increasing, and economic uncertainty in China. This possibility of uneven growth in the economy is causing the stock market to become uncertain (Harlan & Mui, 2015). With unemployment and the price of oil being so low the economy should be growing, but with wages not increasing this could be the cause of the uncertainty in the markets. This could also be due to the last financial crisis that economy is still trying to recover from. Job growth and inflation are linked, if more people are employed prices for goods and services go up do to consumption, but even with job growth consumers are not making purchases, this can be due in part to the wage stagnation (Harlan & Mui, 2015). Another factor to the slow rise in inflation, could be a global economic slowdown which could be due in part to a decline in China’s economy; this could cause ripples in other nations’ economies now and in the future. Which could further lower prices of...
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...1. Introduction Economy of a nation defines the future of its people. It determines whether a country is going to sustain or fail. Economic growth plays a pivoted role in improving nation’s gross happiness and ameliorating the lifestyle of its people. Economic growth is defined as “The value of all the products manufactured and sold in a country of the course of one year along with everything that people do and get paid for, all that amounts to the economic growth.” (Sandford and Bradbury, 1970). When people earn more money and then buy more products and services the economy grows. Politicians also want to see the economy grow, that’s why they work towards achieving greater employment, state prices and a balance between imported and exported goods. More growth means more money. The economic growth should be achieved in a way that it must reach to the point where the economy has finally matured. The resources that industries require are limited and the need for raw materials often doesn’t take nature into account. That is why rapid or poorly planned economic growth starts to have bad impact on quality of life, that’s why countries like Germany, Bhutan etc. plan their economic policy keeping in mind about nature’s safety and gross domestic happiness (Rodrik, 1996). 2. Economic Policy An economic policy is a very complicated area but it can be categorized into following major areas 1) Fiscal Policy: which refers to government’s budget. In other words, it deals with...
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...1. What factors contributed to inflation during late 70s? One of the factors that contributed to inflation during the late 70s was a second oil shock. 1979 was supposed to be a moderate year on world oil markets, but the situation changed rapidly and spiraled out of control with Organization of the Petroleum Exporting Countries (OPEC) preannounce price increases to 14.5% over the year. In 1979, the Shah fell in the Iranian Revolution and the western influence over Mid-East oil shrank even further. Two weeks after the fall of the Shah, the anti-western Ayatollah Khomeini came to power and took control over Iran and soon brought havoc to the energy markets that were reminiscent of the initial energy crisis of 1973-1974. As a result, the second oil shock hit the western countries in 1979. During the second oil shock, there was no shortage in the supply of oil but production fell from six million bbl./day in 1978 to next to nothing during the months of revolutionary upheaval. The impact on oil prices was devastating, causing oil price spike in price from $12.70/bbl. to $18.70/bbl. by midyear. After recovering slightly from the 1978 low, it was followed by the depreciation of the dollar; thus, this caused the inflation of the late 70s. According to Exhibit 14, the effective exchange rate index fell to the lowest of 92 points during 1978-1980. The weakness in the U.S. dollar continued to push U.S. consumer prices to increase thus causing inflation because of the heavy demand for...
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...Inflation Tutorial http://www.investopedia.com/university/inflation/ Thanks very much for downloading the printable version of this tutorial. As always, we welcome any feedback or suggestions. http://www.investopedia.com/contact.aspx Table of Contents 1) Inflation: Introduction 2) Inflation: What Is Inflation? 3) Inflation: How Is It Measure? 4) Inflation: Inflation And Interest Rates 5) Inflation: Inflation And Investments 6) Inflation: Conclusion Introduction During World War II, you could buy a loaf of bread for $0.15, a new car for less than $1,000 and an average house for around $5,000. In the twenty-first century, bread, cars, houses and just about everything else cost more. A lot more. Clearly, we've experienced a significant amount of inflation over the last 60 years. When inflation surged to double-digit levels in the mid- to late-1970s, Americans declared it public enemy No.1. Since then, public anxiety has abated along with inflation, but people remain fearful of inflation, even at the minimal levels we've seen over the past few years. Although it's common knowledge that prices go up over time, the general population doesn't understand the forces behind inflation. What causes inflation? How does it affect your standard of living? This tutorial will shed some light on these questions and consider other aspects of inflation. (Page 1 of 7) Copyright © 2010, Investopedia.com - All rights reserved. Investopedia.com – the resource for investing and personal...
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