The first and foremost aim of the Central Bank is to maintain the inflation level to the minimum. The Quantitative Easing policy is differing and very inflationary since it uses money for both lending and keeping as reserves. Nevertheless the economic policy on the other hand states that the effect of inflation will be good when Quantitative Easing is used, when the economy goes down as it will encourage the economy as a whole initially. But it will create problems in the longer run as the effects of such a simulation will be an extreme challenge to deal with when the economy gradually recovers. Secondly, quantitative easing can lead to a fall in the interest rates in the short term and an increase in the rate of inflation in the longer run, hence causing an instability in the financial system as well as an increase in the interest rates, therefore it is essential for the central banks to keep the interest rates
Usually the consequence of systemic risk taking place is a recession thus a slowdown of the flow of money unless a minimal risk is involved which could have been noted during the economic crisis in 2008. Nevertheless, as well as particular sorts of risks, interrelated companies could also be a part of systematic risk should they represent a significant part of their respective industries. Idiosyncratic risks generally affects whatever the investor in the same way since it stems in rather uncontrollable aspects, such as inflation or deflation, interest rates increasing or decreasing and tax policies changing. The important key to cope with idiosyncratic risk is to diversify one’s investments and try to minimize the eventual consequences of the risk thereby, which could be demonstrated on sports betting. The moment the match is on, contradicting bets will be of increasing and decreasing odds according to the score which sooner or later provides the bettor with a possibility of an “insurance” by placing a stake on the contradicting bet secondary to the initial one so that he or she break even at
While doing so, this paper pointed out why calls for protectionism are greater during sharp economic contractions. It then tried to explain why the increase in protectionist measure even during the sharp contraction of 2008-2009 was fairly modest. This paper then finally concluded by providing insights on why international trade/ business is essential for the development and prosperity of a country. References Bonciu, F., & Ghibutiu, A. (2011).
3.2.4 Governments The existence of the shadow economy has major implications for governments. Firstly, as a result of the loss of state revenue from taxes, the quality of public services will deteriorate, which may lead more individuals into the shadow economy. These individuals will evade taxes which will continue to feed this vicious circle, and economic growth could be negatively impacted. Another effect of the shadow economy is the loss of regulatory control over the quality of jobs and services. Economic projections can be distorted (imprecise estimates of GDP and unemployment rates) which can lead to unreliable fiscal and monetary policies along with the ineffective use of scarce resources, such as government spending and human capital.
1. INTRODUCTION Economic growth is how our country uses scares resources in order to improve the economy. Examples of scarce resources are coal, gold, diamond and raw materials. In order to be profitable we need to use these resources wisely and without any waste, do anything valuable to get money. This is where the business cycle is relevant.
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. The decline is also instigated by mismanagement of affairs in politics, for example Zimbabwe started off as a thriving economy but through the mishandling of political affairs and misunderstanding of the economic policies that governed the country, the political decisions taken caused an economic decline. The influence of politics on economics is demonstrated by examples of inflation. If a country is under inflation, the economy is forced to cut down on the budget deficit. Economic development affects the evolution of institutions and political change.
The government by lowering interest rates and printing money can fuel inflation ultimately leading to a bubble. Investors are encouraged to borrow from banks and invest in assets, like stocks and real-estate. As a result demand exceeds the availability of assets, which in turn causes an “asset-price bubble”. Therefore, lenient government policy relating to credit and money supply very often fuels a financial bubble. “The classic explanation of financial crises, going back hundreds of years, is that they are caused by excesses — frequently monetary excesses — that lead to a boom and an inevitable bust” (Taylor, 2009).
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,
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
This data collection should allow this study to acquire an acceptable level of trustworthiness, even when taking into considerations some limitations that may occur. Section 1: Introduction Introduction Unemployment as an economic problem exists in each countries and it is often a measure of the health of the economy. It is known as waste of scarce economic resources and as a result it decreases the future growth potential of the country’s economy (Riley, 2005). It is essential to understand the factors which causes the unemployment and its relation and impacts to other economic issues. For instance, of the causes are considered the extreme unemployment benefits, excessive minimum wage and hiring cost, too high real wages level, the disparity between the unemployed labour and job offers on the market in terms of skills and many others reasons (Bell, 2000).