...2000. The household savings rate in the US actually became negative! Graphs ppt People save more when higher IR, Spend more when low IR 1. Monetary policy (low short term IR) The literature has identified a number of channels through which monetary policy might have contributed to the build-up in financial imbalances. Most of these are thought to have worked through policy rates that were kept low for too long.8 Loose monetary policy (a low short-term rate) may have i) reduced the cost of wholesale funding for intermediaries, leading those intermediaries to build-up leverage ii) may more generally have caused banks to take more risks, including credit and liquidity risks (iii) may have increased the supply of and demand for credit (mortgages), causing asset (house) prices to rise 2. Global imbalances ( low long term IR) Rising global imbalances are associated with a greater spread of current account positions across countries and larger net flows of capital between countries. global excess of desired savings relative to desired investment—a “savings glut(과잉)”— had reduced long term rates globally, including in the United States.(significant increase of supply of saving cause a low ir), it argued that high capital inflows were an important reason of low IR from 2003- 2007 High capital inflows in turn (i) can reduce the cost of wholesale funding for domestic banks in international markets (ii) may reduce long–term interest rates (and thus compress spreads)...
Words: 4500 - Pages: 18
...long run? If so, what deter- mines the long-run rate of growth? Which economies will grow the fastest? And what kinds of policies can governments use to accelerate advances in living standards? These questions were central for those who studied growth in the 1950s and 1960s, and remain so in the recent revival of interest in long-run economic performance. Two observations have motivated many of the recent contributors to growth theory. First, output expansion has outpaced population growth in the 200 years since the industrial revolution. Second, different countries have remained on seemingly disparate growth paths for relatively long periods of time. Related to this second observation is another: in cross-section and timeseries data, we find national and regional growth rates correlated with a variety of economic, social, and political variables, including many that are affected by government policies. These observations have led the current generation of growth theorists to formulate models in which per capita income grows indefinitely and long-run performance reflects structural and policy parameters of the local and global economy. With this apparent similarity of intentions, recent research efforts have headed in several different directions. One strand of theory continues to see capital accumulation-though conceivably with a broad interpretation of that includes human capital-as the driving force behind economic "capital" * Gene M. Grossman is the Jacob R. Viner Professor...
Words: 10469 - Pages: 42
...be able to: ̈ Understand that economic growth is due to growth in inputs, such as capital and labour, and to improvements in technology. ̈ Understand that capital accumulates through savings and investment. ̈ Understand that the long run level of output per person depends positively on the savings rate and negatively on the rate of population growth. ̈ Understand that the basic economic growth model predicts that standards of living in different countries will eventually converge. 61 62 PART 2 The Economy in the Long Run and the Very Long Run e have enormously higher incomes than did our great-grandparents. People in industrialized nations are far wealthier than people living in less developed countries. In fact, North Americans and many Europeans had higher incomes a century ago than people in poor countries do today. What accounts for these vast differences? What will determine our standard of living in the future? Growth accounting and growth theory answer these questions. Growth accounting explains what part of growth in total output is due to growth in different factors of production (capital, labour, etc.). Growth theory helps us understand how economic decisions control the accumulation of factors of production, for example, how the rate of saving today affects the stock of capital in the future. Figure 4-1 shows GDP for four countries over more than a century and a half. The graph has three striking characteristics. First...
Words: 11083 - Pages: 45
...Index * Introduction * Definition * Purpose * Benefits and costs of reserve accumulation * Theories of reserve accumulation * History of Foreign Exchange Reserves * Adequacy and Excess reserves * List of countries by Foreign Exchange Reserves * New Realities of Forex Reserves and Management * Conclusion * Reference SIGNIFICANCE OF FOREIGN EXCHANGE RESERVES Introduction Foreign-exchange reserves (also called forex reserves or FX reserves) are assets held by central banks and monetary authorities, usually in different reserve currencies, mostly the United States dollar, and to a lesser extent the euro, the United Kingdom pound sterling, and the Japanese yen, and used to back its liabilities, e.g., the local currency issued, and the various bank reserves deposited with the central bank, by the government or financial institutions. Deposits of a foreign currency held by a central bank. Holding the currencies of other countries as assets allow governments to keep their currencies stable and reduce the effect of economic shocks. The use of foreign exchange reserves became popular after the decline of the gold standard. Definition In a strict sense, foreign-exchange reserves should only include foreign currency deposits and bonds. However, the term in popular usage commonly also adds gold reserves, special drawing rights (SDRs), and International Monetary Fund (IMF) reserve positions. This broader figure is more readily available...
Words: 7085 - Pages: 29
...forces behind cross-country variations. Neoclassical growth theory proposes that cross-country and per capita income will converge due to diminishing returns to capital and the diffusion of technology. There are samples of countries that display this ‘absolute convergence, however, such a phenomenon is not universal. These seemingly inexplicable variations in growth present an important question of what are the determinants and is there a role for stabilizing policy. Explain why the study is important. Why is economic growth so important? Coexistence of Growth miracles, Growth Disasters Barro (1991) provides that it is ultimately the relationship between the level of human capital and initial GDP that allows some poor countries to converge on rich countries. Ultimately, our conclusion parallels that of Barro’s and we find that the driving determinants of growth are Human capital, Investment and the initial GDP level. Our analysis follows the key ideas and assumptions of Barro’s model. We use both Primary and High School enrolment as a proxy for the accumulation of Human capital, however, this does pose some restrictions on our analysis. To examine this, a new index of human capital stock will be recommended. Most significantly… Summarise the findings of the paper. Our finding will ultimately accord with recent models such as Lucas [1988] and Romer [1990] that assume constant returns to reproducible capital. Although in these models the growth rate is independent of the...
Words: 4117 - Pages: 17
...QUESTION 1 Using the Solow Growth Model to explain the growth miracle in China since 1980: 1. What were the main engines of growth for China for the period 1980–2013? 2. Do you expect China's exceptional growth record to continue in the near future? Why or why not? 3. Can the Chinese experience be replicated in other less developed countries? 1. Introduction China has been the subject of economic and social experimentation since the establishment of the People’s Republic of China in 1949 (Assbring 2012, 4). Still, up until the late 1970’s, China was one of the poorest performing economies in the world, impaired by social unrest and economic inefficiencies (Fan, Zhang and Zhang 2000, 8). After a change in leadership in 1978 and while witnessing the success of other East Asian economies in particular, Emperor Deng Xiaoping initiated economic transformation through the implementation of policies embracing the open market. As a result, China has been able to maintain an impressive growth rate averaging 10% over more than three decades; an achievement unsurpassed by any other economy (Ding & Knight 2008, 2). This unprecedented sustained growth begs the question of what is driving this growth and whether this growth can continue to be maintained in the future. Furthermore, is it possible for the Chinese growth “phenomenon” to be replicated by other countries? This paper intends to address these issues by employing the Solow Growth Model (SGM) as a means of...
Words: 3528 - Pages: 15
...Introduction Investment Climate means the general economic conditions affecting the financial markets. A favorable investment climate encourages businesses to improve efficiency and productivity in order to increase revenues and capital available for investment. It also gives investors confidence in the market and encourages them to invest more capital. Investment Climate The investment climate in a country is the collective set of incentives which establish the “rules of the game” to which economic actors must adhere. Set by a wide variety of sources, including government policies, cultures of public administration, and institutional, social, and physical infrastructure, the investment climate determines the level and uncertainty of returns expected by economic agents and consequently impacts the quality and quantity of investment and the incentives to productively employ inputs. The investment climate can be broken down into the following three main areas: (1) Macroeconomic and Trade Policy - The capacity of domestic institutions and economic policy (e.g. fiscal, monetary, trade, and exchange rate policy, administration of customs and ports, security of property rights, strength of rule of law, and political stability) to reduce costs of international trade and finance and ensure a consistent and non-distortionary basis for investment, production and exchange; (2) Microeconomic Framework - The contribution of microeconomic regulation (e.g. rules governing...
Words: 4757 - Pages: 20
...PESTLE elements LEARNING OUTCOMES The application of trade theory to explain the benefits of engaging in International Trade Economic Implications of a country’s membership of a trading bloc for a business Compare the various types of Foreign Direct Investment (FDI) and analyze how they may affect the various countries involved as well as the businesses within these countries INTERNATIONAL TRADE THEORY Four Theories of International Trade are: Absolute Advantage Product Life-cycle Theory New Trade Theory Porter’s determinants of National Competitive Advantage MERCANTILIST THEORY States that nations should accumulate financial wealth, usually in the form of gold, by encouraging exports and discouraging imports. Aim is to maximize exports and minimize imports. Rest on the idea that if one country gained, then another must lose. MERCANTILIST THEORY Problems : This theory excludes the fact that in some cases it is good to import. By discouraging import the population will have to do without certain consumer items. ABSOLUTE ADVANTAGE This concept is generally attributed to Adam Smith . Refers to the ability of a country/firm to produce greater output of a good or service than other countries/firms using the same amount of resources. Smith argued that a country should specialize in producing those goods/services for which it has an absolute advantage. Countries would benefit/gain if they export only those good/services in which they...
Words: 2401 - Pages: 10
...FACTORS THAT AFFECT THE GROSS DOMESTIC PRODUCT OF THE PHILIPPINES Table of Contents I. Introduction 1. Background of the Study 2. Statement of the problem 3. Objective of the study 4. Significance of the study 5. Scope and limitations II. Review of related literature 1. Unemployment Rate 2. Unemployment Rate and Gross Domestic Product Growth Rate 3. Savings 4. Savings and Gross Domestic Product Growth Rate 5. Inflation Rate 6. Inflation Rate and Gross Domestic Product Growth Rate III. Operational Framework 1. Presentation of Data 2. Description of Variables 3. A-‐priori Expectations 4. Model of the Study IV. Methodology V. Empirical Results and Interpretation 1. Summary of Data 2. Regression of the Model 3. New Model of the Study 4. Testing for Multicollinearity 5. Testing for Heteroscedasticity 6. Testing for...
Words: 4784 - Pages: 20
...COLLEGE OF MANAGEMENT AND SOCIAL SCIENCES DEPARTMENT OF ECONOMICS DISCUSS THE VARIOUS ECONOMIC GROWTH THEORIES AND DEVELOPMENT THEORIES HOW CAN SUCH THEORIES BE USED IN ECONOMIC DEVELOPMENT IN NIGERIA. COURSE TITLE THEORY OF ECONOMIC DEVELOPMENT COURSE CODE;ECO 2911 INTRODUCTION According to Dennis Goulet in The Cruel Choice, “it matters little how much information we possess about development if we have not grasped its inner meaning”. Development is not purely an economic phenomenon. In an ultimate sense, it must encompass more than the material and financial sides of people’s lives, to expand human freedom. Every nation strives after development. Development and growth should therefore be perceived as a multidimensional process involving the reorganization and reorientation of the entire economic and social systems. The sources of economic progress can be traced to a variety of factors, but by and large, investments that improve the quality of existing physical and human resources, increase the quantity of these same productive resources, and raise the productivity of all or specific resources through invention , innovation and technological progress have been and will continue to be primary factors in stimulating economic growth in any society. ECONOMIC DEVELOPMENT THEORIES Definition of economic development It can be defined as the increase in the standard of living of a nation's population with sustained growth from a simple, low-income economy...
Words: 6595 - Pages: 27
...1. Most companies in the clothing and shoe industries favor outsourcing production to countries where labor is abundant, particularly to Southeast Asia and the Indian subcontinent, but those firms do not integrate with their suppliers there. Technology and capital intensive firms, on the other hand, tend to integrate with their suppliers. How can this be explained? Answer : At the beginning of the 90s, the two most fundamental determinants of competitiveness in footwear production were considered to be, production costs and the differential impact of trade barriers. At that time other, less quantifiable factors that influence competitiveness were considered to be the following: technological developments; proximity to major markets and the role of quick response; requirements for high quality production; access to technology and management, design and marketing skills; the increasing importance of offshore, joint venture and contract production and some more country–specific factors such as political and infrastructure constraints and the availability of raw materials and components. The importance of trade barriers and quotas may also diminish with China’s admission to the WTO. Trade barriers and existing quotas in the EU and the United states would fall and the possibility for China to negotiate worldwide reductions on import duties would be open. The global supply chain of footwear which developed in the last decade and which is replacing the traditional pattern of...
Words: 2928 - Pages: 12
...opinion leaders found themselves both impressed and frightened by the extraordinary growth rates achieved by a set of Eastern economies. Although those economies were still substantially poorer and smaller than those of the West, the speed with which they had transformed themselves from peasant societies into industrial powerhouses, their continuing ability to achieve growth rates several times higher than the advanced nations, and their increasing ability to challenge or even surpass American and European technology in certain areas seemed to call into question the dominance not only of Western power but of Western ideology. The leaders of those nations did not share our faith in free markets or unlimited civil liberties. They asserted with increasing self-confidence that their system was superior: societies that accepted strong, even authoritarian governments and were willing to limit individual liberties in the interest of the common good, take charge of their economies, and sacrifice short-run consumer interests for the sake of long-run growth would eventually outperform the increasingly chaotic societies of the West. And a growing minority of Western intellectuals agreed. The gap between Western and Eastern economic performance eventually became a political issue. The Democrats recaptured the White House under the leadership of a young, energetic new president who pledged to "get the country moving again--a pledge that, to him and his closest advisers, meant accelerating America's...
Words: 6453 - Pages: 26
...A modern financial system Learning objective 1.1: explain the functions of a modern financial system • The introduction of money and the development of local markets to trade goods were the genesis of the financial system of today. • Money is a medium of exchange that facilitates transactions for goods and services. • With wealth being accumulated in the form of money, specialised markets developed to enable the efficient transfer of funds from savers (surplus entities) to users of funds (deficit entities). • A modern financial system comprises financial institutions, instruments and markets that provide a wide range of financial products and services. • A financial system encourages accumulated savings which are then available for investment within an economy. • Financial instruments incorporate attributes of risk, return (yield), liquidity and time–pattern of cash flows. Savers are able to satisfy their own personal preferences by choosing various combinations of these attributes. • By encouraging savings, and allocating savings to the most efficient users, the financial system has an important role to play in the economic development and growth of a country. Learning objective 1.2: categorise the main types of financial institutions, being depository financial institutions, investment banks and merchant banks, contractual savings institutions, finance companies and unit trusts • A range of different financial institutions has evolved to meet the needs...
Words: 4075 - Pages: 17
...produce other objects and services whose use satisfies human wants. The administration of resources does not always create economic problems. There are lots of these resources that are more than enough to satisfy all of human wants and needs completely depend of them. One such resource example is “Air”. Such type of resources are known as free resources where it’s not necessary to organize its use because there is no side effects or waste for any inefficient use of such resources. On the other hand, scarce resources are resources that are not sufficient to fulfill human wants and needs completely. Therefore, these types of wants can only be partially satisfied. This reflects the problems of administration which are the subject matter of economics. Firstly, one of the problems of administration is to make sure complete utilization of scarce resources, because incomplete utilization may cause dissatisfaction to human beings. Secondly, in cases where these scarce resources are fully utilized, there is still an ongoing administrative problem of allocating the resources as required by the different uses to satisfy various wants and needs. In such a case, when scarce resources are completely utilized, a complete satisfaction of any one want can only be gained at an incomplete or lesser satisfaction of other alternative wants and needs. Another problem of administration of the resources includes the distribution among the consumers of the resources or good/service produced with the use of...
Words: 7798 - Pages: 32
...at either the market price or the sinking fund price (usually set at par), depending on the structure of the provision. The provision may be for a specific number of bonds or a percentage of the bond issue. The bonds selected for repurchase are generally selected at random. b) Explain the impact of a sinking fund provision on: i. The expected average life of the proposed security. We would expect a fraction of the total bond issue to be retired before the stated maturity data under the sinking fund provision. Therefore, the sinking fund provision decreases the expected average life of the proposed security. ii. Total principal and interest payments over the life of the proposed security. The sinking fund provision does not affect the total principal payments that investors would receive. However, investors may receive their principal repayments earlier than expected if the firm invokes the sinking fund provision. The sinking fund provision could decrease the amount of interest payments investors would receive since an early retirement of a bond under the sinking fund provision would cut off all further coupon payments from the bond. c) From the investor’s point of view, explain the rationale for demanding a sinking fund provision. From the investor’s point of view, the reason for demanding a sinking fund provision is that it reduces the firm’s credit risk. The option to retire a bond issue...
Words: 6386 - Pages: 26
