However, the existence of economies of scale in manufacturing means that a nation that is successfully competing in foreign trade can expect that the advantage of an expanding market will increase it competitiveness. In analysing british post war economic policies, kaldor (1971) argues that the poor economic performance was due to insufficient demand. The importance of the idea of export led growth gave rise to a policy debate on the best means for securing full employment. However, any attempts to generate a substantial and long term improvement in competitiveness through the exchange rate may require a large reduction in the nominal rate with repercussions for inflation, real income and economic stability. This led kaldor and others to argue for some form of protection of competitive manufactures.
So instead of trying to aid a housing bubble by raising interest rates and risking a rise in unemployment, a macroprudentialist will look to impose higher loan-to-value ratios on mortgage lendors, and will try to reign in just the housing part of the economy instead of affecting it as a whole (Z.G., 2014). The desire for implementing macroprudential policy has mainly stemmed from the last major crisis from the end of the previous decade. Policymakers had to react to the crisis quickly which meant that often there was not time to do the adequate research on some of these tools. Also research requires data which sometimes cannot be obtained without testing how these policies work in real life. These are the reasons that policy came before research in this field, but comprehensive research efforts over the last few years are trying to fill this gap (Galati, 2015).
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
Many economists have argued that determining a growth strategy is not a simple task for any state, and in any case it is, the developing countries will have grown enough to move their economy with the developed country. It is out of this problematic issue of determining the right formula to apply in a given country that is aimed at achieving a desired economic growth, Economist Solow to come up with Solow Growth Model, which emphasis on the progress in technology that result in the growth of an economy. Solow argued that without the use of technology, economic growth will cease due to diminishing returns in inputs (Solow, 1956). Despite the fact that this factor of technological development has not gained universal acceptance, it has influenced
.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
Foreign Aid and Economic Growth The economic objectives of foreign aid are to induce high growth rates in Less Developing Countries which in turn will generate additional domestic savings and investment. However, there is much dispute as to whether development assistance to poor countries has been successful in achieving these objectives. There have been numerous attempts to investigate the effects of foreign capital in terms of direct foreign investment, and foreign aid and other foreign inflows on developing countries, their results have been conflicting. Aid antagonists like Bauer claim there is a negative causal relationship between aid and growth in less developing countries. This is because aid retards growth by substituting
CHAPTER ONE 1. INTRODUCTION 1.1 Background of the Study Governments make use of different macroeconomic policy instruments such as fiscal and monetary policies to stabilize the macro-economy and brig about growth to their respective countries. The efficiency of these instruments is still a source of ongoing arguments. The extremity in the debate is to the level that some economists arguing ineffectiveness of fiscal and monetary policies in all countries. There is another group who regard them as important policy tools, while they agree that their effectiveness might depend on different conditions in the economy.
It also places certain people within the spectra of the economy. This is because politics has the ability to define who has the economic resources. We note that in the global context as well, there are consequences of unequal distribution of resources. An unequal resource distribution may lead to a political unrest and according to Acemoglu and Robinson (2006), “economic institutions are endogenous”. This means that some individuals will be given more benefits than others in economic resources which may end up in a total decline in economic growth.
Inflation is also an ill for the growth of an economy. While looking at the relationship, the writers had to be also looking into other variables such as investment and capital formation of the economy. Throughout the study, the movement of inflation and economic growth, fact concrete conclusion is inverse relationship can be easily inferred. During the 1970s (in this period) inflation and economic growth had positive relationship, after this period the rates started to be high later the studies conclude it to be a negative relationship. Similarly,
There are few benefits come under trade liberalization to the term of economic development will be discussed. Poverty Reduction First benefit of free trade or low-tariff or taxes in global trade in developing country will be poverty reduction according to many researches. Literally income of poor in developing countries will increase in the result of increasing in export or import. Some advanced countries set high tariff or restriction to protect domestic industries but once they lower down the tariffs or remove restriction, export from developing countries will increase eventually. Developing countries access new market and increase export result in create more jobs, increase income of poor, increase in foreign direct investment.