Bonds, Inflation and Interest Rates - Assignment Example

Assignment Article: http www.ghanaweb.com/GhanaHomePage/business/artikel.php?ID=272591 Terms: Bonds, Inflation and interest rates Application: The article states that Ghana investors have high affinity to long term bonds making provided that inflation is controlled. The inflation of this country rose up by 10.4% making the central bank to boost the returns on Public debts with an aim to cover for the losses of cedi. The Ghana government plans to create infrastructure fund to discourage borrowing of short term nature for investment. If the borrowing is made long term it will ease or reduce inflation in the economy of Ghana. The government of Ghana opted to sell the long term bonds in order to get funds for the infrastructure. In 2012 the fiscal deficit of this country increased to 12% of the GDP hence pushed interest rates up. Due to this situation it has been focused that the interest rates will remain high and there will be more transaction of long term bonds (Melvin & Boyes, pp.149) In general to stabilize the economy of this country, a few things need to be done. From the article, it is well spelt out that the Ghana investors are highly attracted to long term bonds. Selling of Long term bonds with high interest is a central bank initiative to control circulation of money and to reduce inflation. In the short run, borrowings have led the state into public debts and increased inflation. The government therefore, sells bonds on long term to invest in infrastructure that can service government debts and reduce the economies deficit. To ensure stability, the bonds should be sold in a long term and not on short term as many firms may take loans and fail to pay them in time hence creating debts. Therefore, long term bonds should be sold at high interest to reduce inflation and stabilize the money markets. Assignment Two Concept: Change in demand Definition: The change in demand occurs when there is either an increase or decrease of demand for a good of service Article http://www.beefcentral.com/trade/article/1708 “Big seasonal shift in demand for grilling cuts” Action: The change in weather to winter has led to fall in demand for grill cuts. There has been change in weather from summer to winter. Because of the change in weather many consumers have moved into using crock pots in their houses for meat. There has been decrease in demand of grilled meat as change of weather is unbearable. For this reason consumers have resorted to other alternatives. Reaction: as there has been a fall for demand of barbecue cuts, there have been opting for things like slower cookers and crock pots. In the market the supply of grilled meat has increased as the demand for them has gone low forcing the prices to fall. The lowering of prices is to attract consumers as there is no enough demand to meet the supply. The sales department is therefore forced to export the barbecue products to overseas to meet the dispose of the surplus. It can be derived from the reaction that that change of the season to winter has led to the changes in demand. Most of the consumers prefer to stay in orders than to go to the grill to purchase meat. This in turn decreases its demand automatically and the supply increases. Compared to other meat like chucks and blade the grill meet has changed in its demand. Therefore, the government opts for other forms of meet as there demand has been maintained. There supply should therefore be increased to compensate for the gap that might have been created by the grill meat (Melvin & Boyes, pp.52) Assignment three Article: http://articles.washingtonpost.com/2013-04-05/opinions/38300337_1_minimum-wage-fair-labor-standards-act-workers Position: I agree that Stevenson’s assumptions of minimum wage that minimum wage takes care of everyone. The minimum wage always remain the same unless change by the government. If the minimum wage is increased the unemployment increases. The minimum wage cuts across everyone but they vary depending on the terms of employment. The government has the role to set minimum wages depending on the prevailing conditions. Terms: Factors of production In this particular article the factor of production that the author points out is labor that has wage as its reward. In an economy there is floor or minimum setting of wages for various employees. The supply of labor in a market should meet the demand firms. This is only satisfied by the minimum wage rates. The two parties should not be left in a position to negotiate and therefore the demand and supply of labor should be balanced. This can be only be solved by keeping the minimum wages where they do neither increase nor decrease. Shortage of labor always triggers increase in the minimum wages as the supply of labor is always low with high demand. The government therefore is forced to entice labor by introducing incentives to attract them (Melvin & Boyes, pp.5) Inflation Inflation is the sharp increase in prices of commodities in the economy. The increase in price is caused by more money supply in the economy. Inflation can be controlled by use of monetary and fiscal policy. Inflation in the economy makes the minimum wage to fall with time. The escalating prices and living standards make the supply of labor to surpass its demand thereby making the minimum wages to fall. Inflation makes the firm to be advantaged form the high living standards. This makes the firms to lower the minimum wages as the supply is too much to satisfy the demand. Law of demand The law of demand states that an increase in price of goods or service leads to increase in demand and a decrease in price of goods and services will lead to a decrease in the demand. In this article the law applies on the minimum wages. The increase in the living standards has led to the increased in demand for goods increasing the want for money. This has forced the individuals in the economy to look for work making the demand for labor by firms to fall. Due to the increased pressure in the supply of labor, the employer is forced to low the minimum wages to accommodate the pressure. Unemployment Unemployment comes in when the firms are unable to absorb the increase supply of labor in the economy. In the article the increasing living standards have led to an increase in minimum wage. The increase in minimum wages has led to increase in unemployment in the economy. The unemployment is brought about by imbalance in labor supply and demand. With an increase in the minimum wage, the firms are unable meet the wages of the laborers. Therefore, the firms will only absorb a few people leaving most individuals unemployed. When there is an increase in the supply of labor there is preference to high skilled labor. This leaves other laborers with no skills or low skills with no job. The unemployment in the economy is very dangerous has it leads to other social evils. Assignment four Article: http://economix.blogs.nytimes.com/2011/08/16/its-the-aggregate-demand-stupid/ “It’s the Aggregate Demand, Stupid” Terms and definitions: Aggregate demand Aggregate demand is the spending by government, households and businesses to consume services and goods or invest in equipment, machineries and structure. Aggregate demand curve shows a relationship between price levels and expenditures. An increase in price levels leads to a fall in expenditure. A decrease in price levels leads to an increase in expenditure. Wealth effect of the aggregate price It is the effect on wealth that is brought about by changes in the aggregate price. If there is an increase in the price of housing there will be increased aggregate demand to invest in housing and if there is a decrease in the price of housing there will be decreased aggregate demand to invest in housing. Connection: In the article, Bruce states that the U.S government is striving at creating employment and moving the economy forward. The economy cannot do match on the statement but to make sure the aggregate demand is increased. This means that the government has to increase their spending, households and businesses to consume services and goods or invest in equipment, machineries and structure. The federal government has an option to increase aggregate demand by investing in projects and direct employment of workers. This appears to be impossible due to political indifferences in the congress. This leaves the consumers as the only way to increase the aggregate economy. According to this article it would be difficult for consumers to spend due to unemployment. The high rate of unemployment decreases aggregate income. Furthermore, there is negative spending in the economy as most consumers are saving to cover the wealth that had been lost. The wealth changes affect the aggregate demand in that the consumers spend a portion of their wealth. The consumers are more likely to increase their spending habits with a notion that the increase in wealth will be permanent. Economists argue that house investment is more stable compared to having wealth in the stock market. This made many people to resort to house investments thereby reducing savings. Many people continued to invest in housing as they received more money and anticipate more in the future. The effect of this on the economy will be negative. This is because with more anticipation investment may lead to a double fall in prices leading to deceleration in the growth of the economy. To view on how money is spent on the economy, one needs to know the speed with which money flows in the economy. If the speed with which money flows in the economy is high it means that the money supply is also high. This will lead to increased demand aggregate as consumers will spend more. If the speed with which money flows in the economy is low it means that the money supply is also low. This will lead to decreased demand aggregate as consumers will spend less. In case of decrease in the velocity of money, the federal government can pump more money in the economy but it may only lead to inflation as the velocity of money may drop faster compared to the money supply in the economy. In the short run the inflation will increase the aggregate demand but in the long run it may cause problems to the economy. Assignment five Website: http://www.frbsf.org/news/speeches/2013/john-williams-0221.html?utm_source=frbsf-news-speeches&utm_medium=frbsf&utm_campaign=presidents-speech-2013-02-21 “The Economy and Monetary Policy: Follow the Demand” Concepts Long term interest rates and long term interest rates Connection to Terms in Chapter 14: Short term interest: Normally monetary policy depends on the short term interest target, the Feds rate. Long term interest: the government can create public communication and purchase long term assets are two ways to lower interest rates in the long term Connection The connection with the topic is shown when the Federal applies short term and long term interest rates changes to correct inflation and unemployment situations. With an increase in the minimum wage, the firms are unable meet the wages of the laborers. Therefore, the firms will only absorb a few people leaving most individuals unemployed. When there is an increase in the supply of labor there is preference to high skilled labor. This leaves other laborers with no skills or low skills with no job. The unemployment in the economy is very dangerous has it leads to other social evils. Normally, the monetary policy depends on short term interest rate changes. For provision of support to the economy the government have put stimulus in place. There have been two tools that the government has relied on. The first tool is public communication intended at regulating expectations on the future track of the government rates. The Federal influences the public’s expectation of short term rates of interest. The low yield expectation on assets of a short term nature for a long period attracts investors to hold and buy long term securities. The action increases the prices and lowers their yields. The tool works well when the aim to maintain interest rates low is credible and clear. An economy might suffer inflation when prices in the economy increase. As the escalating inflation may lead to increased unemployment there is need to contain it. The cause of unemployment is that if the interest rate in the short term is decreased there will be no need for savings. This will make money supply in the economy to increase. The increase in money supply will lead to increase in prices which may lead to inflation. With increase in inflation, the unemployment level with go up as a result of increased living standards that would lead to increase in supply for labor than the needed demand. To solve the situation the government is forced to increase the interest rates in the short term. It will encourage consumers to save more due to the high rates of interest. Monetary policy applied in the situation is by increased interest rates making it consumers to anticipate for more in the short term. It is advisable that interest rates on the long term should be increased for the economy to be stabilized. The Federal government advices the on long term interest increases as it eases inflation in the economy. This will attract investment in the economy as more people will be willing to take on long term investment. Works Cited William B. & Michael M. Macroeconomics. Cengage publishers (2010) Read More