Moreover, lower interest rate would increase in current account balances by since lower interest rates will raise in aggregate demand and then raise in aggregate demand will cause more imports and thus result in trade deficit. But because of QE is correlation effect between countries means that it is causal inference—when one country imports much, exports will follow. Hence, actually QE effects is result in increased trade balances rather than trade
.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
If the firm is operating at point Q1, P1 any increase in price for factors of production will lead to increase in price that is moving from point P1 to P2 quantity supplied decreases due to increase in cost for factors of production moving from Q1 to Q2. As firm’s main aim is to make and increase profits, they will need to increase price, and this causes
When there is high gearing, the profits available to shareholders are reduced due to interest paid on loans. The costs of the business can increase as well if the interest rates rise. However, high gearing is not necessarily bad. It can signify that the firm is seeking expansion plans, and have taken the chance to capitalise by borrowing at low rates. As for low gearing, more profits are distributed to shareholders due to lower interest bills.
Also, it refers to the general price level increase because of increasing of consumer which is manifested in consumer price index (CPI). CPI is used by the consuming public to recognize how their purchasing power is getting effected. It aims to compare the cost of purchasing the market basket bought by a typical consumer during a specific period with the cost of purchasing the same market basket during earlier period. (Gwartney, James D.; Stroup, Richard L.; Sobel, Russell S. 1999) Due to real factors, the demand-Pulled Inflation will occurred by issues such as: fall in tax rates, without change in government spending, increase in investments, increase in government spending without change in tax revenue, decrease in savings, increase in exports, and/ or decrease in imports. For instance, buyers started generating more income or more volume of money, thus there will be high demand and the price of the goods or services will be increased.
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
It does so by managing the interest rate. Inflation is defined as a persistent increase in the average price level in the economy, usually measured through the calculation of a consumer price index (CPI). High interest rates will affect both investment and consumption, which will affect the aggregate
There has been an increase in minimum efficient scale. If minimum efficient scale rises, the domestic market may consider too small to meet sales demand, which would be spurring mergers and acquisitions to gain economies of scale. Secondly, the deregulation of financial transactions has increased the profitability of enterprises. The
For those who may not know what inflation is: Inflation is an increase in the price of goods and services in an economy over a certain time. So when a price rises, each unit of currency buys less than what it would have before, and then obviously when the price of a good or service decreases, each unit of currency buys you more than what it would have previously. Inflation can have both positive and negative effects on an economy. Negative effects of inflation are; possible shortages of goods as people buy in bulk in fear that the price will increase again and the chance of a lack of investment due to uncertainty of future inflation. The positive effects are there too, of course, they are: a high rate of inflation enables a boost in economic growth.
when the economic activity is high, the stock prices are also high indicating the prosperous outlook for sales and profit of the firm. Many countries of world are plagued by a rising rate of inflation. Economic analysis helps in providing an explanation of why inflation has taken place. It also suggests ways in which rate of inflation could be brought down, so that economic development could