An expansion of the economy brings about a corresponding increase in quantity demanded for normal goods while a contraction in the economy causes a decline in the demand for the normal goods. On the contrary, the demand for inferior goods is not recurrent (Pech 24). The more the positive value for income elasticity of demand for a product is, the more sensitive consumer demand is to the fluctuations in national income. Banks can take advantage of the income elasticity of demand by analyzing the patterns in demand for money by its customers as their real income changes.
Activity IV: 1. a. the effective loan yield will decrease as a result of the increase in the LIBOR and the bank may not be able to make loans in the future. b. the effective loan yield will increase as a result of the decrease in the LIBOR and the bank would be able to offer more loans in the future. 2. a.
For instance, if a country's economy were to goad a huge expands in yield at a rate in any event as high as the measure of obligation adapted, the inflationary weights would be evened out. This can just happen if part banks really give the abundance cash out as opposed to storing the additional money. Amid times of high monetary yield, the national bank dependably has the choice of restoring stores to larger amounts through raising premium rates or different means, adequately turning around the moving steps
When this new shift is taken into consideration, the labor demand would need to also increase to accommodate the new consumer demand. Thus, the change to wage rates would be subject how much labor supply and labor demand shift; a larger shift in supply over demand leading to decreased wage rates and vice-versa. Consequently, the resulting outcomes from immigration could be positive, negative, or neutral towards economic factors. Luckily, the historical outcomes from immigration for the US, especially for wages, have largely been positive. Separate studies actually have shown that immigration alone, between 1990 and 2007, rather than decreasing wage rates has raised real wage rates by six
Influence of inflation on growth velocity of the money explained due to the fact that buyers increase their purchases in order to protect themselves from the economic losses owing to the decrease in purchasing power of money. The coefficient of monetization The important indicator of status of money supply step forth the coefficient of monetization that is equal to: C=M2/GDP The coefficient of monetization permits to answer if there is enough money in circulation. It shows how much GDP provided with money (or how much money is there for $ GDP).
Economic growth means an increase in real GDP. This increase in real GDP means there is an increase in the value of national output / national expenditure. The benefits of economic growth include: Higher average incomes. This enables consumers to enjoy more goods and services and enjoy better standards of living.
It is the rate at which depository institutions borrow and lend from one another in the federal funds market. The FOMC’s open market operations lower the rate by increasing the reserves supplied to the economy, or alternatively, raise the rate by reducing the supply of balances. Due to a term structure of interest rates, the changes in the short-term interest rates are transmitted to the long-term interest rates since the financial markets expect the changes to persist for an extended period of time or assume that they convey information about the future monetary policy. Also, the inflation inertia ensures that the change in the federal funds rate effectively influences the real interest rate which is equivalent of the cost of borrowing. By altering the cost, federal funds rate indirectly affects the spending and investment by households and businesses, which on their turn, impact output and inflation in the economy.
If interest rates increase, it will become attractive to invest money in that country because investors will get a higher return from savings in that country’s banks. Therefore the currency demand will rise. But higher interest rates will have a negative impact on the country. This is due to the reduction in purchasing power of the consumer while the loan borrowers have to pay more interest.
In his book “Economics in One Lesson”, Henry Hazlitt states that economic fallacies are spawned by “the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all group; it is the fallacy of overlooking secondary consequences” (1979). Hazlitt continues to say that “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups” (Hazlitt, 1979). The Federal Reserve is a good example of a system put in place for the