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
aggregate output/income. And another reason-being that, Central bank will attend to bring down inflation by rising interest rate, which will lead to a decline in consumer spending and investment spending. As a result, we will have a recession. On the other hand, Inflation can be damaging to the economic growth since it induces economic agents to divert away their funds from productive activity and productive investment in an attempt to avoid the inflation effects on income (small 1998:37). During inflationary period people get confused and become uncertain about what spend to their money on or where to invest it.
The value of a country's needs and its currency is the amount of goods and services by a unit of currency in the country can buy decision, namely the decision by its purchasing power, and therefore the exchange rate between two currencies can be expressed as the ratio of the purchasing power of the two currencies. However, the size of the purchasing power is reflected by the price levels. Based on this relationship, domestic inflation will mean their currencies depreciate relative to foreign currencies. Relative PPP definitely makes up for some deficiencies in terms of purchasing power parity. Its main points can be simply stated as: currency exchange rate between the two countries will be based on the difference between the two countries the rate of inflation and adjust accordingly.
An expansionary approach fabricates the total supply of trade out the economy rapidly or reduces the financing cost. Right when the national bank needs to finish an expansionary monetary approach, it goes to the security market to buy government securities with money, accordingly extending the money stock or the trade accessible for use out the economy. Expansionary approach is for the most part used to fight unemployment in a subsidence. A contractionary approach of course decreases the total money supply or grows it just step by step, or raises the financing cost. Right when the central bank needs to complete a contractionary money related course of action, it goes to the security market to offer government securities for trade out this way decreasing the money stock or the trade accessible for use out the economy.
On the other hand, international trade is modified in that inflations causes uncertainty that in turns dejects prolific activity, investing, saving and eventually diminishes the competitive factor of a country in international trade. Inflation is known to cause an economic depression which can lead to more adverse effects for example industries can run out of business, and employed people can be rendered jobless (Handley & Kyle,
Nevertheless, during period of recession, there is the tendency that the tax revenue decreases (at the same time with decrease in GDP) and public expenses (ex unemployment benefits) increase. Those social safety nets increase public expenses but limit further contractions of the national income. If states with weak economic system are obliged to implement the heavy fiscal policies (reduction of expenses and increase in tax revenues) in order to reduce the national public debts, then unemployment and protracted contraction of GDP can occur. The Spanish case shows the groundless analysis proposed by the European Commission as a general solution to an incoming crisis: the cut of public spending. Spain is experiencing a financial recession since 2011 due to the public debt and profound banking crisis caused by the fact that the financial markets are mostly closed within the country.
The price will raise when a government prints too much money, because the money loses some its value. To make up this loss of money the government or even businesses will raise prices. This is called inflation in the economic world. 10. How does the economy affect your personal
Therefore, there is a risk, which may cause investors to remove investments causing a huge fall in value of the country’s currency. Policies that can address long term current account involves: 1. Currency Weakness- Depreciation in exchange rate might make exports more competitive and become cheaper to foreigners, which will increase demand for exports. This could also cause higher economic causing an increase in aggregate demand. 2.
However, they need to balance this and not be so draconian that they discourage foreign direct investment (FDI). Anti-Tax Avoidance Directive: The focus anti-tax avoidance directive (ATAD) issued by the European Union (EU) is to address mismatches between member states in the EU. Member states now want to address mismatches between member and non-member states known as hybrid mismatches. Common Consolidated Corporate Tax Base: The common consolidated corporate tax base (CCCTB) is a proposal aimed at having a single set of rules to be applied in calculating taxable profits throughout the EU. It is expected that compliance will be mandatory for large MNC’s who have the resources to engage in aggressive tax planning.
This is due to the losses in short run forces those sellers who cannot cover their AVC or TVC to leave the market. As many firms exit the market, this will lead to a decrease in the market supply. Therefore, the supply curve shifts to the left, equilibrium market price will increase, profit will increase. Firms continue to leave until the remaining firms are no longer suffering losses until economic profits are zero. 3.0 HOW IS THIS RELATED TO