... CIRCUMSTANCES UNDER WHICH FDI CREATE A CONDITION FOR A VIRTUOUS CYCLE OF ECONOMIC DEVELOPMENT Lecturer CIRCUMSTANCES UNDER WHICH FDI CREATE A CONDITION FOR A VIRTUOUS CYCLE OF ECONOMIC DEVELOPMENT This paper delineates and discusses the circumstances that Foreign Domestic Investments creates conditions for a virtuous circle of economic development. To have an imperative explanation of the concept, it is prudent to define the unembellished concept ‘Foreign Direct Investments.’ It refers to the process whereby the populace of a country acquires the full control and ownership of assets with the sole purpose of controlling production, distribution and other activities of a firm in another country. It is ...
... Introduction. New Zealand being the only OECD country to have 14 quarters of unemployment below the 4% mark has prompted some to label it as an “unemployment miracle”. Despite this low unemployment rate, the country has failed to experience tremendous economic growth in recent years. More so, New Zealand has maintained an inflation rate well above its target limit of 3% not withstanding its five years of tight monetary policy. This has prompted analysts, economists; policy makers, educationists, etc to ask whether the above facts are interrelated. In particular, is New Zealand’s low rate of unemployment related to its slow economic growth, or is the low rate of unemployment related to its high rate...
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... entry is Supply and Demand Cavallo, A., World oil production: focus on non-OPEC supplies: a summary of the recent National Academy of Science workshop on supply and demand
World Oil, April, 2006 by Alfred Cavallo
The petroleum that is hidden under the earth will not last forever. This is the doom’s day scenario that some countries are presently studying. The United States National Academy will hold a workshop on the trends in WORLD OIL SUPPLY AND DEMAND. The topic focused concentrate on peak petroleum production to supply the world’s hunger for fossil oil. The aim is to produce new petroleum supplies thereby reducing demand. Basic economics tells us that if there is abundant supply, the sellin...
... ONE: a) M1 is a sum of currency held by individuals and businesses, traveler’s checks and checkable deposits at banks and other s.
Nov 2010 = $391.7 Billion
Nov 2011 = $410.8 Billion
b) Percentage Change = Percentage Change in Money Supply
= (410.8 – 391.7)/391.7 * 100
c) Non-M1 M2:
Nov 2010 = $6933.4 bn
Nov 2011 = $7437.7 bn
Total Saving Deposits:
Nov 2010 = 5275.5
Nov 2011 = 5982.9
Total Small Denomination Time Deposits:
Nov 2010 = 948.5
Nov 2011 = 768.7
Retail Money Funds:
... - Power of the Federal Reserve in Monetary Policy Table of Contents Introduction 3 Federal Reserve and Monetary Policy 3 Recent Actions 4
The central bank of United States of America is better known as Federal Reserve. It is an independent organization which is created by congress for keeping the country’s monetary as well as the entire financial system healthy, stable, safe and flexible. Today, Federal Reserve’s three key functions are providing and maintaining an efficient and effective payment system, supervising and regulating banking operations throughout the country and developing the country’s monetary policy (Federal Reserve Bank of Dallas, n.d.). This p...
... Economic Signals and Cost-Benefit Analysis in Macroeconomics [N a m e] ECONOMIC DATA AND SIGNALS: Economic and business analysts have been using different economic data in order to predict the future situation and conditions. This economic data is used as signals for the future conditions and thus have important place in the process of business situation and condition analysis. Such data and signals are known as the economic indicators. These economic indicators are set of macroeconomic data which is used by the analysts in order to understand and analyze the existing situation along with predicting and forecasting the future possibilities. These economic indicators and signals are beneficial for...
... Signals and Cost-Benefit Analysis in Macroeconomics [N a m e] QUESTION ECONOMIC DATA AND BUSINESS CONDITIONS ANALYSIS: In order to survive in this highly competitive world, it is important for the businesses to carefully analyze and interpret the situation before coming up with different strategies. It is essential for the organizations to capture large set of information or data and monitor it cautiously. One of the most important data in this regard is economic data. For this reason, most of the business analysts uses different economic data in order to interpret important signals about the future condition of the economy and country. By analyzing the economic data and associated signals, business ...
... A MACROECONOMIC VARIABLE Introduction Indeed, macroeconomics is an aspect of economic studies that makes it possible to undertake a study of the economy of a country as a collective unit (Barbakadze, 2008). This means that macroeconomics is the study of the economy as a whole. This depicts the huge nature of macroeconomics that makes it relatively difficult to study as a single subject. To this end, macroeconomics is studied using various variables of the collective economy. In the present study, the inflation rate of Canada is studied as one of the core macroeconomic variable of the country that helps in determining the macroeconomic status of Canada. The inflation rates of the country shall be...
... economics Table of Contents Introduction: Neutrality of Money 3 Explanations provided by Macroeconomic schools of thought 4 ical Economics 4 Keynesian Economics and Monetarist Principles 5 New Classical and New Keynesian economics 6 Post-Keynesian Economics 7 Conclusion 8 References 8 Introduction: Neutrality of Money The concept of neutrality of money had first been proposed by classical economists who denoted that a rise in money supply could only affect nominal variables but not the real ones. In other words, a change in money supply could actually lead to a change in the general price level of the economy without creating any influence over its aggregate demand and supply schedules, rate of...
... Intermediate Macroeconomics Managing the Economy: August work: California’s Fiscal Rules The of California’s Quest for a Non Deficit Economy The economy of a state is one thing that plays a major role in the lives of the citizens. It is always important to ensure that there is a continuous effort to ensure that the economy is in the right state to get assurance that a state can sustain itself properly. Reliable report has it that the state of California has history of large budget deficits. The budgets are known to have created undesired effects to the livelihood of people and institutions in this state of the United States of America. There are many known causes of the successive deficits in the...
... One: Discussion Question What has happened to the U.S. money It now sports BIG heads and soon will come in colors! In own words elaborateon:
(1.) Where does money come from What gives money is value
Money is produced by the economy's central bank designed for facilitation of transactions among individuals. Money is only valuable because of its purchasing power. Money is a store of value because it can be exchanged for goods and services.
(2.) How do we create money
We create money by increasing our productivity and saving to earn interest.
(3.) Who is the current Chairman of the Federal Reserve System (FED) Why do many consider the FEDs Chairman to be more powerful than the President of the US...
... head: Macroeconomics Macroeconomics Insert Insert Grade Insert 16 March Budget Deficit Introduction
Most government budgets are often subjected to implication complexities considering their enormous sizes. Governments need to put in place indicators that would convey information regarding the impact of their fiscal policies on financial resources and domestic demand. Indicators to fiscal stance should be able to reflect economic activities and their implications on the economy, in a manner that is comprehensive. The government needs to put considerable efforts to come up with conceptually appropriate and accurate indicators with respect to impacts of their fiscal policies. Moreover, ideal and functio...
... Defined in the broadest of sense, macroeconomics is concerned with behavior and policies that affect the whole economy of a country at an aggregate level. It deals with the behavior of economy as whole- consumption and investment, the trade balance, unemployment, inflation, the budget, the interest rates, and national debt (Dornbush et. al. 2007). The Keynesian macrotheory was based on the premise that it is possible and desirable to control the levels of aggregate demand and unemployment. The monetarists believed that it is not necessary for macroeconomic policy to be over-ambitious and proposed a limited role of government. The current global crisis has once again raised the importance of...
... 2 Real GDP Growth for Quarter IV and Quarter I: It is being forecasted that the real GDP will grow by 0.75 percent in the fourth quarter of 2012 and by 0.875 percent in the first quarter of 2013. The similar trend has been projected by IMF (IMF, 2012). The main reason behind the increase in the real GDP growth is the declining inflation in the last quarter (RBA Statistics). It is evident that any change in the inflation rate has direct impact on the output level and overall GDP (Leamer, 2009). The decreasing inflation rate will push the Reserve Bank of Australia (RBA) to cut down the interest or cash rate. The decrease in the interest or cash rate will encourage the consumers and investors to spend...
... Effect of Oil Price Changes on the Buying and Selling Economies Summary Arguably, modern day economic structures of many countries are dependent on crude oil, as the major source for energy and being in significant demand throughout the world. The top suppliers of oil include Russia, Saudi Arabia, The United States, China, Iran, Iraq, United Arab Emirates, Canada, Venezuela, Mexico, and many more, having strong implications on their economic stability and thereby, influencing global consumption and expenditure rates through international trade to a substantial extent. The specific objective of the paper is to illustrate the effect of price change in the international market of crude oil on buying...
... article published in the Wall Street Journal on March 15, called Japan Adds to Global Economic Woes written by Patrick Barta, Joshio Takahashi, and Bob Davis is a very informative piece of literature. The main thesis of the article is that the catastrophic earthquake that hit Japan has affected Japan so much that it will have global economic repercussions. Natural disasters are unpredictable events that can have a deep impact in an economy. The normal economic cycle associated with natural disasters such as earthquakes is for the economy to have a temporary slowdown as production seizes which is then followed by reconstruction spending and a recovery in the economy. Japan is considered the strongest ...
... MACROECONOMIC ANNOTATION OF THE NEW YORK TIME’S ARTICLE “AS ECONOMY SLOWS, CHINA EASES MONETARY POLICY” [your teacher’s of the course]
In September 2008, the Politburo, China’s highest-ranking decision-making body announces a change in the monetary policy in the economy. As the country for the long time employs a tightening policy in order to combat inflation, the country takes on a reverse direction through a loosening monetary policy. In order to sustain development in the country, the Politburo believes that previous efforts are not enough when protecting the country from the global economic downturn. As the country’s exports begin to slow, its real estate industry weakens, and the lost in ...
... How to Stabilize Interest Rates Lowering interest rates will counter consumer’s pessimistic view on the economy, and thus they will purchase goods available locally rather than purchasing imported products. People hold money as a store of value, conduct transactions and precautionary reasons. As interests rates go higher, people are less willing to hold money because it opportunity costs increases, as portrayed by the graph below.
Quantity of Money
2. To reduce increase in household consumption, I would increase interest’s rates, in a bid to discourage consumption, and encourage savings because rewards for saving will be higher.
3. One of the major policie...
... HERE YOUR HERE HERE HERE The United s and Trade QUESTION 12 a. Consumers gain surplus as a result of the pricereductions that occur when tariffs are eliminated. Under the law of demand, as the price falls, consumer demand rises with removal of the tariffs. Surplus gains are represented in the diagram by (A + B + C + D).
b. Producers lose surplus in this situation with tariff removals. Producer surplus is represented by Quadrant A in the diagram. Changes that occur to the supply curve and the demand curve would reduce producer surplus as these lines connect at the Pw line for new non-tariff pricing.
c. The government loses revenue when the tariffs are removed. This is represented by a shrinking Qua...
... I In an economy without an external sector, both the money market and the commodity market behave according to the principles of the ical model.
A few assumption for classical model:
prices & wages are perfectly flexible
equilibrium level of income/output at any time is at full employment
labour market clears
QUESTIONS Explain, with the help of appropriate diagrams(s) what happens when
1. the government increases its expenditure and finances it by selling bonds to the non-banking private sector
In the classical model, total supply of loanable funds (S) is equivalent to household saving. The funds supplied are loan out and the household receive payment from the i...
... EC Referred work July Each question is worth 20 marks Answer the following on US data using http research.stlouisfed.org/fred2/
(a) Calculate the 12-month percentage increase in CPI, and plot against the unemployment rate. Do you see any evidence of a Phillips curve relationship?
Using the values and from the graph we observe that the effect of eyeballing which already indicates some tim...
... ical Analysis and Policy The following discussion pertains to the new macroeconomic policy as developed by economists of the world keeping in mind the possibility of a shock in output and employment levels such as those seen in the Great Depression of 1929. The depression caused the world’s macroeconomists to alter their theories in order to make allowances for paradigm shifts resulting from changes in interest rates and money supply. The original macroeconomic equilibrium takes place when Aggregate Supply of Funding = Aggregate Planned Expenditure = Gross Domestic Product. The ASF line was a vertical line with interest rates measured along the y axis. Thus, the ASF line was unresponsive to changing ...
... 3-16 Points: 50 Case 5 Case Studies Chapter 20 Case Studies These cases are available to online at www.4ltrpress.cengage.com/econ.
The Poorest Billion
Not long ago, the world was one-sixth rich and five-sixth poor. Now, thanks to impressive growth in places like China, the world is more like one-sixth rich, two-thirds not rich but improving, and one-sixth poor and going nowhere. Most developing economies are experiencing a rising standard of living. But that still leaves about a billion people trapped in economies that are not only extremely poor, but stagnant or getting worse. All told, 58 countries fit into this poorest-billion category, including 70 percent of sub-Saharan Africa plus the likes of...
... methods which governments can create money - pros and cons calculating reserve ratio and total money supply from banking systems What will happen to interest rates if the money supply and demand change.
How does change in interest rate affect investment
Money is the main tool through which todays economic transactiosn are being carried out and it acts as a means of payment or means of exchange. It is also a store of value and a unit of account. Its liquid nature makes it easy to transport and facilitates transactions through payment and exchange. Money comes in many forms and now the modern era is seeing e-currency which is echanged and used as means of payments through e commerce sites. These e cur...
... full full April 19, Introduction Analysis of economy is of extreme importance for the proper growth and development of a country. Economy represents the financial system, wealth, education standards, and social and industrial structure of a country. There are four major divisions of economy, which include primary, secondary, tertiary, and quaternary divisions. Economics is one of the fields of study related to economy, which examines and analyzes all divisions of the economy. Two major categories of economics include microeconomics and macroeconomics. Microeconomics deals with the study of human actions and behaviors, which have the tendency to affect the supply and demand system, whereas...
... Macroeconomics using the sticky-price model of aggregate supply, explain in detail why there is a positive short run relationship between aggregate price and output
Unexpected changes in the money supply change the relative prices of sticky-price and flexible-price goods, so the real effects of monetary disturbances can differ across sectors. With certain parameter configurations, the model has the ability to produce endogenous price sluggishness in the flexible-price sector because the equilibrium response of those prices to a change in money is small in the short run. With other parameter configurations, the response of flexible nominal prices to a monetary disturbance is sufficiently large that t...
... to microeconomics and macroeconomics Economics can be defined as social science that deals with production, consumption as well as distribution of services and goods. The interaction of the economic agents is the focus of the subject. The primary textbooks on economics try to distinguish between macroeconomics with that of microeconomics.
What is macroeconomics?
Macroeconomics deals with the analysis of the entire economy which includes issues with capabilities to affect the economy. Macroeconomics uses the general equilibrium theory to study the economy as a whole. Some of the aggregates used by macroeconomics for the study are national income and output level (productivity), the rate of unemployme...
... Macro Economics Introduction Macroeconomics refers to a subdivision of economics that handles the performance, behavior, structure, and decision-making of the entire economy (Abel, 2010). This includes global, regional, and national economies. Macroeconomics and microeconomics are the two most general areas of economics. Macroeconomists study combined indicators such as Gross Domestic Products (GDP), unemployment rates as well as price indices in order to understand how the whole economy works. Macroeconomists create models that clarify the connection between factors such as national income, consumption, output, unemployment, savings, inflation, investment, international finance, and international...
... & Macroeconomics Even though Microeconomics and Macroeconomics may appear to be the same thing, there are distinct differences between the two. The one thing that these two concepts have in common with each other is that they both come from the main category of economics (“Difference”). The prefixes of these two functions give an indication of their origin—micro is smaller while macro is larger. This is just a simple explanation of these two economic principles because, in reality, it is a lot more complicated than that. Microeconomics is to do with the market’s supply and demand factors that establish the price levels of an economy (“Difference”). Macroeconomics is similar to this except that it...
... Introduction This present paper is an essay that largely focuses on macroeconomics and it covers five critical areas pertaining to this subject. The areas covered by the essay include the definition of the term macroeconomics, secondly, the objectives of macroeconomics, and thirdly, the essay will explain why macroeconomic objectives are significant in the United Kingdom. The fourth section will explain the redistribution of income and wealth narrowing the gap between the rich and the poor in the United Kingdom. Lastly, the essay will look into regional policies within the United Kingdom that encourage companies to set up factories or business establishment in low socio-economic areas in a bid to...
... Weekly Journal – Chapter 6 Chapter 6 of the book d as Macroeconomics and ed by Paul Krugman and Robin Wells introduces the subject of macroeconomics and start with a differentiation of the characteristics of macro level and micro level of economics. In this chapter the author has identified various portions of macroeconomics that impact the way an individual saves and spends in their daily lives. One of the concerns of macroeconomics is the changing face of the economy of the nation and how it affects businesses and individuals. In this section the chapter talks about the recessionary face of the economy when the businesses are suffering losses and a result of these losses they decrease their labor...
... GOVERNMENT DEBT Location Government Debt Government debt refers to the amount of money owed by the government to individuals, institutions and other government. The government debt includes the total amount owed by various branches of the government ranging from the municipalities, state to the federal government (Barro 2008, p. 29). Government debt can be classified into two categories namely the internal and the external (Chamberlin and Yueh 2006, p.86). Internal debt refer to the amount of funds collected within the country from local investors and government run institutions such as pension trust fund. External government debt refers to the aggregate funds collected from outside the country from ...
... AND MACROECONOMICS [Insert al Affiliation] Economists separate economics into two major branches macroeconomics and microeconomics. These two major components of economics look at the subject in both at broad and narrow levels (Mankiw, 2014). In essence, Chris Rodrigo defines the two concepts in his article “The economic divide” (Rodrigo, 2012). The article basically points out the difference between the two economic concepts.
For one, macroeconomics gives a large perspective of economics. It is concerned majorly on how the overall economy operates. This branch of economics deals with economic aspects such as employment, inflation, gross domestic product. On the contrary, microeconomic deals with ec...
... Head: UNIT INDIVIDUAL PROJECT Unit Individual Project in APA Format by In our daily lives we make decisions which are often based on the two large branches of economics—macroeconomics and microeconomics. It should be noted that these two disciplines are both concerned about decision making which maximizes the allocation of resources (Perloff 2004). However, the main difference between macroeconomics and microeconomics is the scope that they cover.
Microeconomics, in a sense, focuses on the discrete component of that makes up the economy including an individual, single household, or a particular business organization (Investopedia 2008). This encompasses the specific allocation of goods for individua...
... Macroeconomics Macroeconomics refers to a branch of economics that deals with the aggregate performance of the structure, behavior and the decisions of the entire economy (Marshall 6). This may include regional, national and global economies. According to Marshall (6), the main economic factors examined in macroeconomics are gross domestic rates, prices indices as well as unemployment rates. Thus, macroeconomics is more concerned with developing models that depict the relationships between factors such as inflation, national income, savings, investment, unemployment, consumption, international trade among others (Marshall 8-9). These factors often influence each other.
As opposed to microeconomics, ...
... American Economic Association The website contains information about American Economic Association (AEA). It is an economic organization situated in Nashville Tennessee. The organization publishes the famous journal called American Economic Review. The purpose of the organization is to encourage economic research, particularly statistical and historical research of industrial life. The organization also advocates for perfect freedom of the economy (American Economic Association 1). It does not align itself with any form of economics. The organization has membership from professional, business and university teachers of economics. Others are from state, local and federal government. The organization...
... of Macroeconomics - Chapters 5 and 12 - Chapter 5 – The Open Economy (pp. 116 – 146) A closed economy or a pure domestic trading is totally different from an open economy wherein international trading of goods and services takes place. Under a closed economy, the formula Y = Cd + Id + Gd wherein C, I, and G stands for consumption, investment, and government spending (p. 116). Using the formula Y = Cd + Id + Gd + EX – IM wherein EX stands for export and IM for import, it is given that the total value of annual spending in an open economy will never be equal to the total output of goods and services (p. 116 – 117).
In an open economy, it is necessary to take note the total net export of goods and serv...
... ONE SHOULD NOT BE UNDULY ALARMED BY THE SIZE OF GOVERNMENT DEBT AS IT DOES NOT NEED TO BE REPAID AND THAT THIS IS A DEBT THAT WE OWE TO OURSELVES. DISCUSS Name: Instructor: Task: Date: There is no alarm for the government’s debt size as it does not need to be repaid and that this is a debt to us Introduction Government debt refers to the aggregate value of the bonds and securities that the government has incurred in deficits. This debt is outstanding and financed through borrowing (Wells & Krugman, 2009). These finances are necessary in funding government operations and implementing monetary policies that solve the populace’s problems and cushion them against recessive economies (Pentecost, 2010)....
... and discuss the development of Macroeconomic theory and policy since the 1930’s, clearly highlighting the major areas of controversy and consensus Macroeconomics deals in the lessons related to aggregate prices, income, products and services pertaining to a country’s economy or the global economy. Federal government uses macroeconomics to assess and analyze the alterations in rates of taxation and supply of money which in turn influence the economic parameters like inflation and unemployment. John Maynard Keynes developed Macroeconomics in order to build theory and policies in order to ensure Great Depression of the 30s does not happen again. Keynesian economists Before Keynes, the classical school...
... Assume the federal government runs huge budget deficits today to finance, say, Social Security, Medicare, and other programs for elderly,and finances these deficits by selling bonds that raises interest rate. Since business often borrows money to invest, and interest is the cost of borrowing, these higher interest rates will reduce investment. Describe why this scenario is likely to be bad for the macro economy. This scenario runs counter to a sound fiscal policy. Financing deficit by borrowing in the futures through bonds with a premium interest is not a good prescription to finance additional expenditures. Running a budget deficit places upward pressure on interest rates (Arestis & Sawyer, 2010,...
... Nasser Al-Emadi Number: 201-004 Dr. Martin Sabo Supply and demand of commodities are concepts in economics, which are important to understand. Supply is mainly determined by the will of producers and manufactures to distribute products while demand is determined by the willingness of consumers to purchase a product. This paper will discuss the underlying factors, which affect supply and demand. These are prices, speculation, government policies, tastes and preferences, and changes in income.
Supply and demand in economics are two concepts, which carry a lot of significance as they determine the success and profitability of any given business. Demand, in this context, refers to the quan...
... 11th November Fiscal and monetary policy theories and application Fiscal policy entails the process through which government collects tax and spends it to achieve economic development. Taxation is one of the key avenues though which governments collect revenues from local and foreign residents. Three main aspects that make up fiscal policy include consumption, investment and government spending. The three aspects add up to determine the equilibrium level of the gross domestic product. On the other hand, monetary policies entail the strategies that are undertaken by the central bank to control money supply. In the regulation of the money in circulation, central bank makes adjustments to the interest...
... I. Introduction The basics of the Keynesian theory Keynesian in the face of a Great Depression Aggregate demand distress The Monetarists counteract
The lasting contribution of the Monetarist Counter-Revolution
A. The Contemporary Relevance of the Keynesian Economics
B. The Monetarist Counter-Revolution in the Modern Times
C. Friedman’s Monetary Theory
Keynesians against the Monetarists
Date of Submission
Martine H. Saboo
The discipline of macroeconomics will never be complete without the discussion of the fundamental foundations of economic analysis which are Keynesian and the Monetarist. In this paper, the two opposing economic frameworks will be dis...
... Principles of Macroeconomics Principles of Macroeconomics Unemployment is considered to be one of the biggest macro economical problems. Unemployment can be expressed either as a number or as a percentage of labor force. The most common definition that economists use for the number of unemployed are those between the ages of 18 and 60 who are without work but who are available for work at current wage rate. If the figure is to be expressed as a percentage, then it is a percentage of the total labor force, labor force is defined as those between the working age who are willing and able to work. Unemployment can be measured by the claimant count or the standardized ILO unemployment measure. (Abel,...
Conflict between the Governments Macroeconomic Objectives
Microeconomics is a branch of economics that deals with the study of the collective behavior of the economy. It does not deal with the individual market but with the behavior and structure of whole economy. Moreover it is related with national income, rate of growth, rate of inflation, rate of employment, gross domestic product, gross national product and other variables which may influence the economy.
In US, Macroeconomics helps to forecast economic conditions in making better decision for better standard of living and growth for firms, industry and government. Most of the time conflict may arise when the objectives...
... XXXXXXXX XXXXXXXX XXXXXXX XXXXXXX XX – XX – 2009 Macroeconomics – Business Activities, Employment and Inflation
The relationship between money and the GDP of a country is an essential factor that needs to be understood. This paper deals with the effects of the business activities on inflation and employment. To do so, the paper has dealt with some essential aspects like the Equation of Exachange, Multiplier effect, and Keynesian Model. The paper provides a surface level explanation of these theories and concepts and deals more on the Keynesian model and concepts like the ‘Full Employment GDP’, ‘The Deflationary Gap’, and ‘The Inflationary Gap’. This will give an overall view of the relatio...
... Weekly Journal Chapter 6 Individuals have to take various macroeconomic factors into account while making spending and saving decisions. Chapter 6 of the book introduces macroeconomics and several macroeconomic factors that affect every human beings decisions making. The chapter states that macroeconomics deals with the overall economy of a particular nation. One of the subjects of macroeconomics is recession that has a major impact on the spending patterns of individuals as well as businesses. During a recession, business experience a tough time to continue operations as they experience a decline in their sales and to continue operations it even reduces its labor force to decrease cost of...
... the Marginal Propensity to Consume The marginal propensity to consume or MPC is the portion of income that is spent for every additional income (Mankiw 2009, p. 373). Mankiw provided an example (2009, p. 373): if the marginal propensity to consume of a household is ?, this means that that for additional extra pound that a household earns, the household saves ?0.25 and spends ?0.75. Mankiw’s discussion used dollars as the currency unit. Assuming a constant MPC across various levels of income, a graphical representation of the MPC is in Miles and Scott (2005, p. 295). Figure 1. Disposable income and MPC Source: Miles and Scott (2005, p. 295) It can be found in all textbooks in macroeconomics that the...
... rule of capital accumulation and macroeconomic policy The long-run growth model or the Solow Growth Model was developed by Nobel laureate Robert Solow. This model discusses about the long run accumulation of capital stock that is consistent with the steady state rate of growth in the particular economy. This is the neo-classical model of economic growth. In 1946, Robert Solow and T. W. Swan independently developed this exogenous growth model. This steady state rate of growth is consistent with the economy’s natural rate of output. Policymakers use this model to understand why different countries grow at different rates and this is the main relevance of this model. But this steady state rate of...