In as much as inflation causes harm on the economy, it also helps in lifting it up and also ensuring the governing authority is executing its mandate. For example, when inflation occurs, it makes the macroeconomic sections arm of the government to review their policies and exchange systems and think of new macroeconomic policies to stabilize the economy. Moreover, inflation ensures that there is more money flowing in the economy since people literally break the banks to get cash so that their cash at hand can match the hiked prices (Chand, 1). However, this might have a long term effect of leading to a rise in a valueless currency. For example, in the case of Zimbabwe in Africa, inflation completely devalued its currency hence you might have to carry a whole large bag of solid cash and only exchange the cash with a small
Economic profit is a performance measure between return on invested capital and the cost of capital, multiplied by the invested capital. This calculation is based on the relationship between the cost of capital and operating profit. The following is an EVA calculation for Apple: According to the WACC calculation, Apple pays 7.56% on every dollar financed. This equals 7.56 cents per financed dollar. For every dollar that Apple spends on investments, they must make $.0756 plus the cost of the investment just for this to be practicable for the company.
The ratio of return on equity shows how much profit is made by a company as compared to its capital. It shows the ability of a firm to generate profit from its shareholder investments. Return on equity is also an indicator how effective is the management at using equity for growth and operation. For Talke, the trend of return on equity is consistent to net profit. This is due to the shareholder’s equity only increasing by the profit for the year for the period under consideration.
Return on equity (ROE) Return on equity ratio is a measure of profitability that calculates how many profit a company generates with each dollar of shareholders' equity. This ratio compares the amount of the profit for the period available to owners with
Nelson (1976) also studied on macroeconomic variables which is expected rates of inflation and unexpected changes in the rate of inflation, results found that inflation do negatively influence the stock returns. Moreover, Yartey (2008) examined the institutional and macroeconomic variables that underwrite to stock market development. Through employing panel data of 42 emerging economies covering the period between 1990 and 2004, he found that income level, gross domestic investment, banking sector development, private capital flows, and the liquidity of stock markets are fundamental determinants of stock market development. He also confirms that political risk, law and order, and administrative quality are important causes of stock market development, as they enhance the viability of external
Inflation commonly reflected by an increase in the general price level of good and service in a particular economy. As high inflation happen in the economy, the real purchasing power of consumer tend to diminish; while in the banking sectors, the real rate of return of bank asset tend to trim down compare to liabilities. The inflation level of the country is one of the important determinants of banks‟ profitability as it affects the real rate of return of bank’s assets. Zeitun (2012) assumed that inflation could be an important macroeconomic factor that affects the banks‟ profitability in which the impact of inflation is depending on how quickly is the increase in operating expense as compares to the inflation rate. Perry (1992) suggested that
This created access demand on the sector, so that explain high inflation in the real estate . NET EXPORT Exports is Saudi Arabia are always greater than its imports; that because of the oil exports, which are the biggest part of the nation’s economy. Therefore, Saudi Arabia always has a trade surplus The affects of inflation Inflation is not only a source of uncertainty, inefficiency and distortions, but also it obstruct decision-making and planning, and removes the incentive to save. If inflation is not contained in the initial stages, it can become firmly entrenched and would eventually undermine economic growth. Solution to solve inflation In order to solve inflation- regulate the transferring of foreign currency reserves by government .
History has shown that too much tightening of monetary policy to solve cost-push inflation will lead the economy to a recession. The central bank should tread carefully on how high to take interest rate. Increment in interest rate will lead to high cost of borrowing; thus, it will ultimately slow down the economic growth (Taing, 2014). This can also be linked to the theory that is covered in the unit plan. During the cost-push inflation, the government intervention by using contractionary monetary or fiscal policy will shift the aggregate demand curve to the right, thus, the price level decrease but the output level will decrease
High unemployment means that labour resources are not being used efficiently. Hence, full employment should be a major macroeconomic goal of any government because it maximizes output. Inefficiently of using labor resources will cause to high unemployment rate. The result shows that the economics in Malaysia is better with high employment. In economics, unemployment statistics measure the condition and extent of joblessness within an economy.
An expansionary approach fabricates the total supply of trade out the economy rapidly or reduces the financing cost. Right when the national bank needs to finish an expansionary monetary approach, it goes to the security market to buy government securities with money, accordingly extending the money stock or the trade accessible for use out the economy. Expansionary approach is for the most part used to fight unemployment in a subsidence. A contractionary approach of course decreases the total money supply or grows it just step by step, or raises the financing cost. Right when the central bank needs to complete a contractionary money related course of action, it goes to the security market to offer government securities for trade out this way decreasing the money stock or the trade accessible for use out the economy.