… Setting an effective discount format largely depends on the way consumers think about savings from discounts. Previous studies suggest that while consumers’ cognitive process of gains and losses is carried out in relative terms, they tend to think about a presented discount percentage, rather than absolute terms (Russo & Schoemaker, 1989). More recent research confirms these findings. According to Giuliana Isabella at al. (2012),”in high discount rates, there is a high intention purchase when the discount is presented as a
Introduce cuts in government spending is known as retrenchment. Retrenchment often refers to bring down the size of government spending as a percentage of GDP. The governments introduce spending cuts when budget deficits are too high and need to be reduced. If the government lowers its expenditure it would have to be less concerned with the debts it owes to institutions it has borrowed from. Lower debt levels will encourage the private sector to invest.
Baker and Wurgler (2004a) proposed a catering theory of dividends. They argue that investor demand for dividend-paying stocks is time-varying, thereby causing the relative prices of dividend-paying and non-dividend-paying stocks to fluctuate. Therefore, the company's cash dividend decision is due to investor demand. The main purpose for doing so is to generalize the catering theory so that it
Furthermore, Mitchell, &Utkus (2003) also have adopted life-cycle hypothesis to evaluate the enthusiasms of households planning for retirement. They discovered that patterns of household saving behaviour can be explained by life-cycle theory. The statement is supported by Mitchell &Utkus (2003)’s study where savings generally increases with income and age, as well as positively correlated with education and accumulated wealth. They found that younger employees are more likely to be net-borrowers, as they borrow from the future by means of their use of debts to boost current consumption; whereas middle-age employees are tend to be net-savers and purchasers of financial assets and enter phase which they accumulated for their life upon retirement. Retirees’ labour income will be weaken or vanish which will then diminish their financial assets to finance old-age
Another argument refutes the claim that lower taxes for the rich encourage them to invest more which brings about economic growth. In the late 1920s and once again in the earlier part of the last decade, a lot of money was put into speculative investments than productive investments. Hence, increased government spending on improving the labour force and infrastructure through revenue generated from taxes can possibly be more effective than investments in driving economic growth. Now let us look at the other side of the coin – the negative impact of taxation. Taking into consideration other factors such as government spending, business cycle conditions and monetary policy, research has consistently pointed towards the fact that taxes have a significant negative effect on economic
In a recession, demand is depressed, and it is expected to have a budget deficit. Trying to attain a budget surplus in a recession will involve higher taxes and lower spending – but these policies could make the recession worse. Therefore, it is better to wait until the economy recovers, and automatic fiscal stabilizers improve (higher growth automatically leads to higher income tax revenues)
If employers are paying employees more then they will raise costs to offset the added expenses. This will cause the buying power of the dollar to decrease, making it so people who received the minimum wage increases will not be making any more money than they otherwise would’ve, and people who did not have their pay increased, will be making even less money then they had used too. This would do nothing but increase the poverty rate even higher, doing exactly the opposite of what the counter argument says it would. The second way this counterclaim is disproven, is because of the increase people will see in the cost of living. With the price of housing, food, etc.
Broadly put, the economic benefits of limited liability rule arise from asset partitioning which includes risk allocation, economies of monitoring, economies of share transferability (capital market facilitation) and stimulates investment. This section discusses these benefits and under what condition will they be maintained. The primary benefit of limited liability rule that is affirmed by scholars is risk allocation. Limited liability rule allows investors to diversify their investment by partitioning their asset to minimize the risk of losing all of their investment at once (don’t put your egg in one basket strategy). This particularly benefits “absentee investors” as written by Blumberg.
The capital need theory can help to explain the reasons behind the disclosure of voluntary information made by companies. Healy and Palepu (2001) pointed out that managers are motivated to disclosure more by decreasing information asymmetry problem and eventually decreasing cost of external financing. The capital need theory predicts that with increased voluntary disclosure investors’ uncertainty is minimized which results in lowering company’s cost of capital (Schuster and O’Connell, 2006). The theory suggests that voluntary disclosure helps in achieving a company’s need to raise capital at a low cost (Choi, 1973). This theory implies that company’s managers are motivated to disclose more information to enables them to raise capital on the best available terms (Gray et al.,
One of the QE effect is called commitment effect because of that affects the premium portion of the yield of financial assets that are imperfect substitutes for the monetary base which means premiums would be reduced by decrease uncertainty over future short-term interest rates and hence would lower long-term interest rates. Bank would be announced that maintained the new policy regime which are lower long-term interest rates until CPI inflation become zero or more would lower expected short-term rates (Kimura & Small, 2004). Such effects would tend to be discourage saving and encourage borrowing to markets. It also view as a way increasing the stock market along with enhancing wealth for individual (Buttonwood, 2013). 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.