A high inflation will depreciate the domestic currency and an increase in inflation will increase the demand for foreign goods. It also decrease export, leading to balance of payment deficit. Hence, exchange rate on the foreign base countries currency will rise which appreciate the home base currency, (Madura, 2008). He also explained the relationship using the purchasing power parity. The theory of PPP states that a basket of a good in one country should have the same cost in another country, taking into account exchange
Since asset ownership is the main carrier for households to transform current income into future consumption, asset allocation has important implications for the wealth accumulation. Differences in portfolio across households may shape the response to aggregate consumption in changes of macro variable and fiscal policies (Bertaut &Starr, 2000). To sum up, a better and in-depth understanding of household portfolio decision may provide richer insight into household financial theory. Thus, the main research question of this study
In Foreign, the changes in real factor prices are just the reverse. Putting together the Heckscher-Ohlin theorem and the Stolper-Samuelson theorem, we can conclude that a country’s abundant factor gains from the opening of trade (because the relative price of exports goes up), and its scarce factor loses from the openings of trade. In the Ricardian model, we would consider two goods which are cloth and wine. aLW/aLC < (a* LW)/(a*LC) The
The conceptual framework developed describes the services from microfinance institutions to the small and medium enterprises and links with the outcomes which are measured by social economic growth of the SMEs to the borrowers after investment. The outcomes are measured at both business and household levels. MFIs services are expected to have influences not only on the financial performance of SMEs but also on the owners’ life standard and community at large. Therefore, the conceptual framework developed reflects also the outcome of financial performance of SMEs at household level this is due to the assumption that an increase on growth of SMEs result into an increase of owner’s wealth and overall standard of living since the profit obtained from enterprises activities enables the SMEs owners to meet his/her living expenditure, ownership of more fixed assets and increasing their confidence. Guy Vincent (wwwgdrcorg) refers to this change of economic state as getting out the vicious circle of poverty.
.3.3 Inflation Rate The inflation rate used as an indicator in measuring the stability of economic condition for a particular country (Rashid et al., 2011). In financial theory, inflation rate reflected by consumer price index (CPI) represents all the price of goods and services will go up and it need to take more money to buy the same items. Moreover, high inflation is likely cause a great impact on economic activities of a particular country because it reduces the purchasing power of domestic consumers and it would lead to currency value decline. The previous researchers believe that the inflation rate will influence the stock market return. There are many empirical studies establish that the inflation rate has an impact on stock market
In the late 20th century, the literature on welfare effects of inflation has been polarised by contributions from Lucas (1993, 2000), Gillman (1993, 1995) and Dotsey and Ireland (1996). According to Chen et al. (2014), inflation is the sustained increase in price level that results in the decrease in welfare of Chinese citizens. The findings from this study is intriguing as it proves that if inflation increases by 0.1% in China, the welfare of Chinese citizens will decrease by 73.0 to 164.1 RMB. Importantly, this study also argued that the welfare costs of inflation vary depending on the different income groups.
Gordon’s (1959) argument is that the motive to pay dividends is to increase the share market prices of the companies. Gordon’s model obviously relates the market value of the company to its dividend policy. The major determinants of the market value of the share are the perpetual stream of future dividends to be paid, the cost of capital and the expected annual growth rate of the firm. However, the Gordon’s theory on dividend policy states that the company’s dividend payout policy and the relationship between the firm rate of return and the cost of capital influence the market price per share of the company. Gordon shares almost the same assumptions with Walter.
Article 4: “The Political Effects of Ageing on Inflation”, Vlandas, Tim, 2016, Interneconomics. • Contribution: The aim of this paper is to answer the following question: why do different countries have different inflation rates? • Findings: The findings of this paper are that countries with more elderly citizens (such as Japan), adopt more economically orthodox policies , which has a direct impact of lowering the inflation rate. Article 5: “Issues in the Inflation Outlook”, Parry, Robert T., 1996, Federal Reserve Bank of San Francisco • Contribution: This Article treat inflation globally and talks about the issues that may occur because of inflation. • Findings: Globalization and growth of labor compensation cost are some of the main issues of inflation and should be taken into consideration while testing the different hypotheses in order to determine the variables that impact the most
Therefore, it is of great importance to study the behavior of inflation, especially the principal determinants of inflation. Policy makers have to consider inflation properly and determine appropriate monetary policies. As China has become increasingly important to the world’s economy
The accounts of British and U.S. economic predominance are cases in point. The two former hegemons have had substantial roles in promoting global economic growth during their years of prominence, with the latter continuing its dominance. The rise of the United States as an economic hegemony followed the decline of the British domination and the Great Depression after the Second World War. The U.S. mainly drew on its increased production capacity and advancement in research to achieve economic dominance. The U.S. was committed to restoring competiveness, stability, and openness primarily by reviving the European and Japanese economies through currency devaluation to enhance exportation from these economies.