This is primarily a tool at the disposal of the central bank of a country which uses different tools to manage the macro economic variables of a country to keep the economy stable or to stabilize it in situations of fluctuations. Monetary policy can be expansionary or contractionary depending on whether the money supply is being increased or decreased in the system so as to affect economic growth, inflation, exchange rates with other currencies and
A diminished currency value would lead to a higher relative wealth position of foreign investors and thus lower the relative cost of capital. Malaysia have a significant impact to the inflows of Malaysian foreign direct investment. Under the fixed exchange rate policy, Malaysia was able to sustain and attract inward foreign investment due to the lower costs of production compared to others affected countries. The depreciation in the host country exchange rate will increase the FDI inflow since it reduces the cost of capital investment. Currency of Malaysia appreciates because of their increment in relative wealth and this will make external finance become more costly than internal
The 2008-2009 Financial Crisis The 2008-2009 financial crisis was the worst financial crisis since World War 2, it had threatened the total collapse of large financial institutions all around the world, which in return was prevented by the bailout of banks by national governments. Despite this stock markets had still
Keynesians place a greater role for expansionary fiscal policy (government intervention) to overcome recession. Keynesian economic theory relies on spending and aggregate demand to define the economic marketplace. Keynesian economists believe the aggregate demand is
Poverty in 1920’s America was defined by making less than a certain amount of money each year, which was determined by the government (BBC). The masses were indifferent to the amount of people impoverished, proving the mindset of false prosperity. The preconceived notions that the U.S. economy would be unimpaired were soon disproved by the Great Depression. People who were impoverished were getting loans, and buying luxury items (Facts). This lifestyle of believing in the false prosperity and not realizing the problems during the 1920’s of America caused people to suffer more.
Joshua Bradshaw Mr. Brown English 11 B/Period 4 18 March 2016 Causes and Effects of the Great Depression Over the course of the Great Depression, the United States’ economic and social well-being was immensly impacted. Debate on what one thing caused the Depression is futile as it was an accumulation of many different events. Although different, these events, as result, caused the Great Depression. The Dust Bowl of the 1930s took its toll on the failing farms. Along with the stock market crash of 1929, overproduction, and corruption in the world economy, the United States plumetted into the worst economic depression it had ever experienced.
Currency fluctuations normally happen in countries where they practice the free exchange rate system. Currency fluctuation is a situation in an economy where the value of the value of the currency rises, fall or both frequently against its major trading currencies for a period. While some currencies fluctuate freely against each other, such as the Ghana Cedi, Japanese Yen and the US Dollar, others are tied. They may be pegged to the value of another currency, such as the US dollar or the Euro, or to a basket of currencies (Farlex, 2009). Changes in interest rate affect currency value and exchange rate.
Following the stock market crash, the threat of losing money stored in financial institutions caused an alarm among the citizens. As a result, bank runs occurred. These runs were detrimental to the viability of the banking industry. Banks didn’t have the cash on hand to be able to distribute the large withdraws. In this time during the 1930’s, over 9,000 banks failed.
Under the recessionary gap, an easy monetary policy should be exercised. In this situation, the Federal Reserve can increase the money supply by lowering the required reserve requirements, buying government securities in the open market operations, and by lowering the discount rate. To increase the money supply, the Federal Reserve has to lower interest rates through the money market. This would cause an encouragement to businesses to do more investment spending, which would shift the aggregate demand curve outwards. In other words, the Fed can increase the money supply by lowering interest rates and stimulating investment spending.
This lowers aggregate demand in the economy. Or vice versa, lower interest rates will stimulate the economy with higher spending, increasing demand. What is Fiscal Policy? On the other hand, fiscal policy involves changing tax rates and levels of government spending to influence aggregate demand for goods in the economy.Keynes ' model of government intervention focuses on government fiscal policy