...Name Institution Instructor Title Describe the terminology of macroeconomics including GDP, GNP, national income business cycles, monetary policy, fiscal policy, inflation and unemployment Macroeconomics is a broad sub-field of economics that establishes the behavior, outlook and structure, collective and established decision making system of an economy at large and usually involves national economies, regional and global economies with little or no involvement of the individual markets. Gross National Product is a determining tool in macroeconomics that measures a nation’s economy and status through international investments and residents working over-seas. GNP excludes any product values produced by foreign investors within the country. GNP is a great indicator in macroeconomics when assessing economic progress in comparison with Gross Domestic Income. (Clark & Montjoy, 2001) Macroeconomics uses GDP to determine the value of all market products and services produced within a given boundary usually a nation in a period of one year. At every stage of production, the value of all goods is added and the economic growth established based on the previously assessed standards. Macroeconomists explain that unemployment tends to reduce with a rising GDP rate since the output is increased and thus need for more skilled and unskilled labor force. Inflation gives an explanation on the rate at which product prices increase over time. Macroeconomists study this phenomenon...
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...1.1 BACKGROUND OF THE STUDY According to (Federal Reserve Board, 2006) monetary policy is the process by which the monetary authorities of a country usually the (Central Bank) controls the supply and circulation of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. (Khan,2010) also argued that, many developing countries have adopted exchange rate regimes with more flexibility and thereby greater scope for monetary policy because in a globalized world, there is less time to adjust to shocks and greater need to achieve closer convergence of economic performance among trading partners. Monetary policy in Ghana has changed immensely in line with changes in financial...
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...investigates the effects of Monetary policy on some significant economic variables like exchange rate, gross domestic product and inflation using data from 1960-2010 to analyze the results. We have taken the data in percentage form. A great number of empirical studies on the relationships of monetary policy and inflation are available and most of these have analyzed the effectiveness of monetary policy in controlling inflation in Pakistan. In this paper we have presented the effectiveness of monetary policy it’s framework and data estimation through which we reached to the conclusion that monetary shocks do affect real variables like GDP, inflation and exchange rate. Pakistan has been estimated by a number of researchers and it has been recognized that monetary phenomenon are responsible for the high levels of inflation. Keywords: Monetary Policy, Inflation, Exchange rate, Economic Growth, Gross domestic product and Pakistan. Introduction This paper attempts to examine the long-run effects of Monetary Policy on several economic variables such as inflation, economic growth that is gross domestic product and exchange rate in Pakistan. For this purpose, analysis have been employed for the period 1960-2010. As monetary policy actions affect policy variables with a significant gap and with high degree of unpredictability and insecurity, it is key to predict the probable impact and degree of monetary policy actions on the real variables. Usually, policy makers and central banks...
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...Chapter 15 Monetary Policy Xingfei Liu, Ryerson University Interest Rates and Monetary Policy 15 LEARNING OBJECTIVES LO15.1 Discuss how the equilibrium interest rate is determined in the market for money. LO15.2 List and explain the main functions of the Bank of Canada. LO15.3 List and explain the goals and tools of monetary policy. LO15.4 Describe the overnight lending rate and how the Bank of Canada directly influences it. LO15.5 Identify the mechanisms by which monetary policy affects GDP and the price level. LO15.6 Explain the effectiveness of monetary policy and its shortcomings. LO15.7 Describe the effects of the international economy on the operation of monetary policy. 2 15.1 The Market for Money and the Determination of Interest Rates 3 KEY GRAPH - The Demand for Money, the Supply of Money, and the Equilibrium Interest Rate FIGURE 15-1 (a) Transactions demand for money, Dt (c) Total demand for money, Dm and supply (b) Asset demand for money, Da Rate of interest, i percent 10 7.5 Sm 5 + 2.5 = 5 0 Dt 50 100 150 Da 200 Amount of money demanded (billions of dollars) 50 100 150 200 Amount of money demanded (billions of dollars) Dm 50 100 150 200 250 300 Amount of money demanded and supplied (billions of dollars) ...
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...Introduction Over the last 12 months, the excessive sovereign debt problems in Portugal, Ireland, Italy, Greece, and Spain which all are members of European Union led to a crisis in the global financial system. As the European Monetary Union members use the Euro as the common currency, they do not have abilities to use independent monetary policy, the solution of this debt crisis which can influence the whole global financial system becomes to difficult to be found. Chart 1: How country debts and budget deficits compare [pic] Source: Eurostat Newsrelease Euroindicators 2010 According to the Chart 1 above, the debt of Italy is 115.8% of GDP and Greece (115.1% of GDP) is closely followed, while Ireland has the highest budget deficit of 14.3% of GDP and next is Greece (13.6% of GDP). However, the European Union member states were required to have 3% for the ratio of the actual government deficit to GDP as market prices and 60% for the ratio of government debt to GDP at market prices (Treaty on European Union, 1992). It is clear that all member states shown above broke the standard of Treaty on European Union and have excessive deficit and debt relate to the GDP. Government debt is defined as the government borrowing in order to satisfy the short-term liquidity needs or the longer-term budget capital expenditures (Edirisuriya, 2010). The government debt usually can be caused as an accumulated governmental deficit over several years or several decades. A large scale of...
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...The Federal Reserve Bank As the United States moves towards a globally interdependent marketplace, the global monetary stakes have become much higher. The United States Congress established the Federal Reserve in the early 1900’s. A country’s debt can now become the world’s debt, and the role of the U.S. federal banking system is now considerably more under pressure and scrutiny than ever before. As we have been seeing with the current liquidity crisis in the U.S., and how it has affected U.K. and Asian markets, strong, comprehensive policy-making is now crucial to sustaining long-term economic viability. The American economy is a complex balance of services, financial, manufacturing, agricultural, and banking industries. For this reason, the U.S. is a global economy, relying upon foreign investments and trade to create and retain wealth. Over the years, America has evolved from farming-based, to industrial, to a services-based economy. As a result, the banking system from its inception has weathered the many growing pains associated with a new government and currency, instituting regulations and a centralized bank to examine the economy, and implementing policies intended to offset factors negatively affecting the general financial health of the country. Despite the growing need for quick, precise actions by the Federal Reserve System, the decision-making regarding the economy is often met with controversy. The recent bail out plan, passed by Congress...
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...B.A. Honors in Economics (2nd Year) Term Paper: Fiscal Policy & Monetary Policy under Republican & Democratic Government in US Submitted to: Prof. Ganesh Manjhi Submitted By: Simran Jain, Manika Agarwal, Namisha Mehra & Nitima Mehra Abstract: This study has been put forward to compare the effects of Fiscal and monetary policy on GDP under Republican & Democratic Government in US. Estimated the data yearly from 1981-1989 (Ronald Reagan Republican Government) & from 1993-2001 (bill Clinton Democratic Government). Although considerable variations exist in the results, overall the generalized impulse response functions suggest that there is comparison between the policies of both type of government .And thus to check who had better monetary and fiscal policies. Acknowledgement: We would like to thank Prof. Ganesh Manjhi for his guidance and support throughout the course of term paper. 1. INTRODUCTION Ronal Reagan was US president from January 20, 1981 – January 20, 1989 which was the republican regime. He was the first conservative President in more than 50 years. His philosophy was “government is not the solution to our problem, government is the problem.. Reagan further removed controls on oil and gas, long distance phone service, as well as interstate bus service and ocean shipping. He promised to reduce government spending and regulations. But Reagan did not reduce other government programs. He expanded Medicare, and increased the payroll tax...
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...The Impact of Monetary Policy on Economic Growth and Inflation in Sri Lanka C.Amarasekara 1 Abstract Based on a vector autoregressive (VAR) framework and utilising both recursive and structural specifications, this study analyses the effects of interest rate, money growth and the movements in nominal exchange rate on real GDP growth and inflation in Sri Lanka for the period from 1978 to 2005. The results of the recursive VARs are broadly in line with the established empirical findings, especially when the interest rate is considered the monetary policy variable. Following a positive innovation in interest rate, GDP growth and inflation decrease while the exchange rate appreciates. When money growth and exchange rate are used as policy indicators, the impact on GDP growth contrasts with established findings. However, as expected, an exchange rate appreciation has an immediate impact on the reduction of inflation. Interest rate innovations are persistent, supporting the view that the monetary authority adjusts interest rates gradually, while innovations in money growth and exchange rate appreciation are not persistent. Several puzzling results emerge from the study: for most sub-samples, inflation does not decline following a contractionary policy shock; innovations to money growth raises the interest rate; when inflation does respond, it reacts to monetary innovations faster than GDP growth does; and exchange rate appreciations almost always lead to an increase in GDP growth. The...
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...2014 GDP Growth Rate During the first quarter of 2014, the United States GDP (Gross Domestic Product) Growth Rate grew only 0.1%. This type of growth makes our economy look worse than it really is performing. There were many different factors that helped hold back the economic growth. One major factor was weather. Weather actually decreased consumption of housing and goods, although it did boost spending on utilities. During 2013, exports to China and business investments on aircraft were very high. A partial pullback in these areas also contributed to an abysmal GDP Growth Rate. The stockpiling of inventories dropped by the extensively as they were moving at unsustainable rates at the end of 2013. U.S. GDP only grew in 2013 at a rate of 1.9%. There are many factors that will only allow slow growth in the GDP. These factors or forces are the following: • Washington’s attempt to cut government spending. • High structural unemployment. • Personal consumption is at 70% of the current GDP. There are a few forces that are worrying analysts about the growth of the United States GDP growth rate. These forces while they will only happen in certain scenarios will also weigh on the GDP growth rate. Below are the forces that and what their effects are on the GDP growth rate. A cutback on the quantitative easing by the Federal Reserve is huge fear of analysts. The cutback will result in higher interest rates on loans and mortgages making getting a loan for individuals...
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...Russian GDP Following the section about Russian output, we now turn to the BRICS country GDP, Inflation, and Monetary Policy. All three of these areas of the Russian economy depend immensely on the product that is 70% of Russian export: Oil. We see that each year there is a dip in the price of oil Russian (for example 1998 and 2008) we see a dip in GDP and a rise in inflation. Hence, the monetary policy set by the Central Bank of Russia is contingent upon the gas price. The Russian GDP has been growing staidly since 2008. We see that before the 2008 global financial crisis, Nominal GDP was on an annual rise of 7%. However, in 2008 the Oil price plummeted from 147.00USD/barrel to 50.00USD/barrel. This caused a government shortfall in the 08-09 fiscal years, and resulted in a sharp dip in nominal GDP from which Russia has yet to recover. However, despite the 2008 crisis, the Russian GDP has been growing 4.3% annually since 2008, as the price of oil continues to rise. In 2011, as Russian citizens are getting back to work, the current GDP per capita is $13,236 USD. The primary problem with the Russian economy is its historically high inflation. Only recently has the Russian economy seen an inflation number in the single digits (3.7% as of Feb. 2012). Nevertheless, in 2011, the inflation rate was a little bit under 10% and is has been in the general 10-15% range since 2004, with the 15% spike in 2008. The reason for the low inflation rate this year is based in three main...
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... The policy makers in every economy play an imperative role in regulating the macroeconomic activities with the intention of maintaining the economic stability. In essence, economic stability is vital for improving the social welfare of citizens, as well as the economic growth. The current United States economic outlook is not good. The average American is not doing well though there has been an improvement in market performance. The 2009 financial crisis continues to affect the United States economy. High unemployment level is the major economic issues that the country is still experiencing. The unemployment rate is still high although there has been a small improvement in job creation. As a result of unemployment, the consumer confidence as well as business sentiment continues suffering. At present, inflation is not a critical threat to the United States. The Gross Domestic Product is flat. In fact, the growth of real GDP has been excessively slow. The monetary and fiscal policies can help the policy makers in solving the present unemployment problem facing the country. In particular, the policymakers ought to consider implementing both expansionary monetary and fiscal policies since the current level of unemployment is essentially cyclical. With regards to the expansionary fiscal policy, the policy makers should implement it through taxation, government purchases, and transfer payments. Alternatively, the policymakers should implement expansionary monetary policy decreasing...
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...will also analyse and review various policy tools that are often used by the government to guard against recession or to reduce the impacts of recession on the economy and the people. The essay will be divided into two parts. In the first part, the meaning of recession will be provided and why recession can be considered as an economic problem will be explained. Also, the first part will explain how the strength and depth of recession can be measured. The second part of this essay will explain various economic policy tools that government often use to make sure that economy of a country grows. Part 1 Recession is defined as a condition whereby a country experiences temporary economic decline, during which time the trade and industrial activities in the country are reduced; and the Gross Domestic Product (GDP) of the country fall in two successive quarters (Arnold, 2014). A recession can also be said to have occurred if there is a big reduction in the economic activity of a country, and this last longer than few months (Arnold, 2014). When there is a recession in a country, there will be a fall in the country’s industrial production, employment, real income and wholesale –retail trade (Arnold, 2014). This means that recession often has negative effects on the economy of a country and that recession can lead to unemployment for people and lack of profits for businesses (Arnold, 2014). From the above definition, it can be assumed that if the GDP of a country fall for six months,...
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...Inflation and unemployment were not improved by monetary policy Abstract The global financial crisis made a long term negative effect on the economy all over the world as well as New Zealand. GDP and inflation decreased with a high level of unemployment rate. This essay is going to discuss the effect of the actions from reserve bank. According to their response, the IS-LM, AD-AS and Phillips models will be used to analyze the effect of change in OCR on economic activities. Furthermore, some previous literature will be used in this essay which is relative to some problem happened during the recession. Introduction There is a big impact on the economic environment following the 2008 financial crisis. New Zealand faced a negative effect on unemployment rate, income, inflation and output and etc. as an important part of developed country. The main aim of this essay is to investigate what monetary policy has been used in response to the recession and whether it is useful to make a significant recovery. The financial crisis can be seen as a very serious problem in New Zealand. The stock market got hit seriously because the investment, income, confidence, employment rate etc. all fall. During the recession, the unemployment rate rose from a low of 3.5% in December of 2008 to a high level of 7.3% in June of 2012. (TRADING ECONOMICS, 2013) The New Zealand GDP had a negative growth during 2008 and 2010 because many businesses shut down and the unemployment rate increased...
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...Monetary Policy of Bangladesh Lecture Synopsis: 2 NSU, MBA Program Dr. Salehuddin Ahmed(Sld) BUS 530 (Section – 1 & 2); SPRING, 2013 Introduction Both in developed and developing economies, monetary policy seeks to maintain price stability accompanied by sustained stable output growth in the face of internal and external shocks that are faced from time to time. For developing economies like Bangladesh with significant underemployment/under exploitation of production factors, stimulating higher growth is imperative for rapid reduction and eventual elimination of endemic poverty, and is therefore an overriding priority. The stimulus provided by monetary policy in accommodating the growth aspirations must not however jeopardize macroeconomic stability and future growth; and the pursuit of monetary policy comprises of various supportive measures to attain the highest sustainable output growth while adjusting smoothly to internal and external shocks that the economy encounter from time to time. History and Objectives of Bangladesh Monetary Policy Objectives of the monetary policy of the Bangladesh Bank as outlined in the Bangladesh Bank Order, 1972 comprise of attaining and maintaining of price stability, high levels of production, employment and economic growth. In the decades of seventies and eighties, monetary policy in Bangladesh was conducted with full direct control on interest rates and exchange rates, as also on the volumes and directions of credit flows...
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...switch. The best way to approach this scenario requires researching the economy in terms of GDP growth rate, interest rates, level of unemployment, the business cycle, fiscal policy, monetary policy, international trade, and demographics from a macroeconomics perspective. The macroeconomic factors to be considered from the view of the organization are: GDP growth rate, Business cycle, Fiscal policy and level of unemployment, monetary policy and interest rates, International trade, and Demographics. Business Cycles, Unemployment, Inflation, International - Comparative Advantage, Exchange Rates, Trade, Monetary Policy and Interest Rates, and Fiscal Policy and Unemployment are the variables that are critical in addressing the issue. The United States has one of the most diversified and most technologically advanced economies in the world. Finance, insurance, real estate, rental, leasing, health care, social assistance, professional, business and educational services account for more than 40 percent of GDP. Retail and wholesale trade creates another 12 percent of the wealth. The government related services fuel 13 percent of GDP. Utilities, transportation and warehousing and information account for 10 percent of the GDP. Manufacturing, mining, and construction constitute 17 percent of the output. Agriculture accounts for only 1.5 percent of the GDP, yet due...
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