In the book, Hamilton’s Blessing, Gordon’s premise is that the national debt of the United States has become so high that concerned individuals no longer think of it. Gordon uses economic history and theory to explore the start, rise and decline of the United States Debt. The first sentence in his book reads “The United States was born in debt.” The book traces the ‘curse’ of the national debt dating back from 1792 when Alexander Hamilton proposed the virtues of America’s debt. Gordon offers a ‘biography’ of the debt making the book a human drama as he explains the positive myriads ways that it has influenced and shaped the history of America economy. Gordon is attempting to provide the audience with a brief history of the American debt
The free cash flows are discounted at firm specified hurdle rate or weighted average cost of capital or risk adjusted discount rate. Real options, on the other hand, is the right, but not the obligation, to acquire the present value of the expected future cash flows by paying a premium at the time or before the opportunity ceases to be available. The NPV method of valuation does not capture the value of real options. NPV technique is all or nothing. NPV only uses information that is available at the time of consideration of an investment.
Third psychological research suggests that positive sentiment generally guides people to underestimate risk or take more risk. Fourth, the influence of sentiment fluctuations on equity price volatility is stronger when investors are less risk averse and more patient. The above analyses reveal that varying sentiment factors significantly influence price volatility for both assets. Shifting sentiment factors that influence equity and bill prices may also affect the expected returns of both assets.
There he argued for a monetary approach to the origins of the cycle. In his Prices and Production (1931), Hayek argued that the business cycle resulted from the central bank 's inflationary credit expansion and its transmission over time, leading to a capital misallocation caused by the artificially low interest rates. Hayek claimed that "the past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process". When Hayek first introduced his business cycle theory, he based his judgment on five building blocks. First, Wicksell’s theory of the cumulative process, in which, price variances are caused by the inconsistency in the price level resulting from fluctuating
The Capital Asset Pricing Model is the pioneer model in asset pricing. The model was initially introduced by Jack Treynor (1961, 1962), William Sharpe (1964), John Linter (1965) and Jan Mossin (1966). They developed the model independently on the earlier work of Henry Markowitz (1959) on diversification and modern portfolio management. But Sharpe (1964) Capital Asset Pricing Model is the most important asset pricing equilibrium model that provides the relationship between expected return and risk associated with capital assets. For the contribution in financial economics Sharpe, Markowitz and Miller was awarded Nobel Prize in 1990 jointly.
This essay discusses the economic contribution of Bertrand by firstly explaining his model and secondly evaluating the value of it in terms of the economical sciences. Next, it is going to state that a more important economic contribution of Bertrand is that his theory was the base for Edgeworth model and finally it establishes that Bertrand was the first economist that examines an oligopoly where firms set prices and therefore it is a
This thought was argued that it only work well when both consumption and production operate in Free Market according to both Marshall and Jonathan Schlefer. Alfred Marshall was an economist who wrote “Principles of economics”, and his most famous quotes is “All wealth consists of desirable things which humans wants directly or indirectly, but not all desirable things are wealth”. While Jonathan Schlefer is an economist writer and editor in the independent and Harvard Business School, also he writes articles on Harvard Business Review according to his LinkedIn profile. In his article “There is No Invisible hand” that was published on Harvard Business Review, he claims that from 1870’s till 1970’s trying to prove the concept of invisible hand, economic theorists concluded that there is no reason to believe markets are led as if by invisible hand to an optimal equilibrium. He also supported his opinion with a real recently happened life example; the financial crisis that appeared in 2008 and the debt crisis that almost threatened the economy of both USA and Europe.
Preferences: A recursive-utility function is used to understand the agent’s risk preferences. This utility function takes into account current consumption, risk-aversion coefficient, subjective discount factor and elasticity of intertemporal substitution (IES - impact of return on savings on current consumption). The result of this was if risk aversion is more than the reciprocal of IES, then an agent will prefer early resolution of consumption uncertainty, and vice-versa 2. Consumption Dynamics: Here, the model brings out the relationship between both the uncertainties, asset prices and the economic growth. It comprises of: (i) decomposition into good and bad components of total macroeconomic uncertainty, affecting good and bad consumption shocks respectively, (ii) direct impact on future economic growth of macroeconomic volatilities The result of the model was when good volatility rises, future consumption growth rate rises too and a rise in bad volatility reduces future economic
Swan (1956) Solow 's model fitted available data on US economic growth with some success. In 1987 Solow was awarded the Nobel Prize in Economics for his work. Today, economists use Solow 's sources-of-growth accounting to estimate the separate effects on economic growth of technological change, capital, and labor (Nawaz, 2006). 2.1.2 Assumptions The key assumption of the neoclassical growth model is that capital is subject to diminishing returns in a closed
Capital Asset Pricing Model:- Capital asset pricing model (CAPM) is a theoretically model used to determine required Rate of return or expected return of an asset with its relationship between Risk which is user in the pricing of risky securities or stocks. This means that the higher risk you take, higher potential return should be to offset your risk, this model is dependent on a risk multiplier called the beta CAPM Model assists the investor to calculate the Risk and what type of return they should expect on their Investment. Ra = Rf + βa (Rm-Rf) Where Rf is the Risk free rate βa is the Beta of the security Rm is the expected market return. Investors need to be compensated on Time value of money and Risk where Time value of money is mentioned