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
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.
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
Therefore, government could use supply side policies to deal with the unemployment situation such as in interventionist supply-side policies will increase the levels of human capital of an economy by support education and training institutions with subsidies or tax benefits and for market-based supply-side policies will reduce trade union power. Trade union power will lower the costs of production to firms and increase the number of workers that firms may hire. Although supply side policies can decrease unemployment,
As a consequence of higher economic integration, dollarization might lead to real convergence in terms of GDP levels and convergence of business cycles with the issuing country. Finally, shocks might become more symmetric between the dollarized country and the respective anchor country, while business cycles might become more synchronized; in turn further fostering integration (Winkler et al
Moreover if the country wants to use Fiscal Policy in an inflation situation the government should regulate changes in tax and their spending. In regulating tax policies and spending the government need time so the monetary policy is considered the best option when there is an inflation. Deflation in an economy is considered a serious issue around the world because it is considered that it could turn a recession into a full blown depression. This happens due to prices of goods and services are already
If we will increase one more labourthen our output will also increase. But if the economy have a lot of labour, increasing one more worker will not cause output to rise as much. As a result, the economy will grow at a steady rate, with GDPgrowing at the same rate as the increase in workers and productivity. Key Terms: Gross domestic product (GDP) : – GDP is the total value of all goods and services produced in an economy during a set period of time. Economic growth : – Economic growth occure when a country’s production of goods and services increases over time Domar Model : – This is a growth model which is used in development economics that states an economy’s rate of growth is dependent on the level of saving and the capital output ratio.
Inflation: Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. GDP: Gross domestic product is the best way to measure a country's economy. GDP is the total value of everything produced by all the people and companies in the country. Dependent Variable Bank Performance: Bank performance may be defined as the reflection of the way in which the resources of a bank are used in a form which enables it to achieve its objectives. ROE: A measure of profitability that calculates how many dollars of profit a company generates with each dollar of shareholders.
When firms are optimistic about the future, investment spending increases, and vice versa. Marginal efficiency on investment (MIE) also contributes to the volatility of investment spending in investment. MIE is the expected rate of return over cost of an additional unit of a capital good. When MIE increases, investment spending increases because firms believe that they will get a higher return
This is important because when a currency is not stable, prices are rising (inflation) or falling (deflation), and this may lead to distortion and undermine of the country 's long-term economic growth prospects. If inflation is too high, people will worry about their purchasing power of money balances. This will result to a bigger demand and needs for the real assets such as houses and properties, which is considered to be "inflation-proof". There would be less investment in production capacity of the