...THE ECONOMY CAUSED BY THE GOVERNMENT. DUE: 14TH FEB 2011 Introduction Government plays a major role in the economy; government policies on the tax rates , and allowances ,levels and types of expenditure ,interest rates and credit availability ,public service provision ,pension installment and on many other issues have a major impact on the economy. So, with all this key roles its not unusual that mismanagement occurs courtesy of the government .and in a mixed economy like Kenya the government becomes the anarchist in all matters business. In Kenya the most outspoken mismanagement is seen in the embezzlement of public fund, so In this report we shall go further than just the obvious mistakes and craftiness of governments in general. How the government mismanages the economy. The government has policies in place that ensure easy control of the economy and sanity in the otherwise busy world of business. Although most of these measures are put in place to help the administrators to serve the people more effectively it end up doing the opposite. The most common of this is fiscal policy 1. Weak fiscal policy This is the name given to the government policies which seek to influence government revenue. Change in the fiscal policy influences the equilibrium level of the national income, which has great implications on output, employment and inflation. In most cases the VAT (value added tax) is the most abused of this and has a major problem...
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...December 1, 2012 International Crisis in Lending Lessons to be learned Group V Samantha Jeffrey Gabriella Stankovic Na-taisha Williams The debt crisis played a huge role in international lending. This report will discuss how economic crisis can result from many different factors such as changes in government policies which result in failure, and the cost of bank bailouts. Least developing countries also learned a lesson about how interest rates and low exports and imports played a major role in the financial crisis. These countries also tried to stabile their country's currency by fixing its exchange rate to that of the United States, which also resulted in failure. European countries also integrated their currency to Euro that caused a major crisis in lending. All are major factors that contributed to a crisis in international lending. Countries need to know what they are doing wrong before they can solve their problems. The historical events discuss will help serve as answer of how it can be resolved. Sovereign risk is the risk of lending money to the government with the risk of not being able to repay the obligation. There is always a risk in lending but the previous debt crisis and the crisis that is occurring in Europe plays a role in whether financial institutes want to lend to governments. The sovereign risk is important in international lending because many countries borrow money and are unable to pay the money back. Greece is an...
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...FISCAL POLICY IN GERMANY AND IN GREECE DURING THE RECESSION IN 2008-2009 By Mohammad Waqas Approved _________________________________________ (……………………………..) A thesis submitted in partial fulfillment of the requirements for the degree of Bachelors of ……. May 2011 Abstract Recession has been a highlighted feature of the world economy over the past few decades. Recession has added importance to the discretionary fiscal policy because monetary policy and automatic stabilizers could not pull back the economy from recession on their own. The case of EU countries is of great significance in times of recession because of certain common policies which the member states have to follow. The research is theoretical in nature synthesizing previously done studies in the same field. Fiscal policy in Germany and Greece during the recession in 2008-2009 is being analyzed to come up with the better policy measure. TABLE OF CONTENTS Abstract……………………………………………………………………………….3 TABLE OF CONTENTS………………………………………………………….….4 1.INTRODUCTION ………………………………………………….………………5 2. OVERVIEW………………………………………………………….…………….9 3. RECESSION IN EUROPE 2008-2009…………………………………………..11 3.1. Recession in Greece………………………………………...…………...…..13 3.2. Recession in Germany……………………………………...…………...…..17 4. EU FISCAL POLICY………………………………………………………....….20 5. POLICY TOOLS………………………………………………………………….23 6. FISCAL POLICY IMPLICATIONS …………………………………………….25 6.1 Greece ………………………………………………………………………..25 6.1.1 Pre Crisis...
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...much alive even though many people have lost confident in the Great Recession. Under the difficult economic circumstances today, Brandon redefines the American Dream as the potential to work for an honest, secure way of life and save for the future according to the more intense spending habits of Americans. In order to living the American Dream, Brandon lists solutions to three main problems, inequality, economic insecurity and eroded faith in the American Dream. In sum, he believes that though existing, inequality is not a reason for the lost of American Dream in the poor and supporting the top businesses would help the recovery of economy. He also highlights the values and rules of the American Dream, which would help living and inheritance of this spirit. From my perspective, I agree with the main problems he concludes but for some of his solutions, I stand on the opposite site of the author. I think narrowing the income gap is very significant and so do supporting businesses, while the dependence of the spirit itself is in the less important position. Following are my analysis of each argument. According to the article, inequality is regarded as the most worrisome problem by many people. In contrast with economists like Robert Reich and Paul Krugman who believe that the concentration of wealth at the top would not help living the American Dream because it enlarges the income gap and exacerbates the Great Recession, Brandon thinks the income gap is not the excuse for losing American...
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... Exchange rate provides a clear indication of the health of the economy. The other macroeconomic indicators like the interest rate, inflation rate and industrial production, all have a strong influence on exchange rate as well. The policy issued by the monetary authorities and the government also play a major role in exchange rate movements. Exchange rate can be floating or pegged – floating exchange rate is determined by the market forces of demand and supply while pegged exchange rate is fixed at a specific rate determined by the government. The exchange rate facilitates smooth flow of goods and services among nations. The aim of this paper is to analyze the exchange rate between Indian Ruppe (INR) and United State Dollar (USD) over the five-year period ending in 2010. During this five-year period the United States experienced a recession, commonly referred to as the Great Recession, (2007-2009) as did most of the world. India however was not significantly impacted by the Great Recession. India’s exports did slow down though due to weaker demand from the developed nations (Exchange Rate Analysis for U.S.A Dollars and Indian). The appreciation of Indian currency compared to that of other developing economies also contributed to weak exports as it has made Indian exports expensive in relation to others. Below is a chart showing the exchange rate of INR to USD during our five-year period which I found on dollars2rupees.com. As shown...
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...In general the economy tends to experience different trends. These trends can be grouped as the business/trade cycle and may contain a boom, recession, depression and recovery. A business/trade cycle is the periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real Gross Domestic Product (GDP) and other macroeconomic variables. Samuelson and Nordhaus (1998), defined it as ‘a swing in total national input, income and employment, usually lasting for a period of 2 to 10 years, marked by widespread expansion or contraction in most sectors of the economy’. These fluctuations in economic activity usually have implications on employment, consumption, business confidence, investment and output. The Keynesian Approach, this theory shows how the collaboration of multiplier and accelerator can lead to regular cycles in aggregate demand. The Keynesians believe that economic activity is generally unstable and is subject to inconsistent shocks, usually causing the economic fluctuations and are attributed to the changes in autonomous expenditures especially investment. The Keynesian approach is pretty simple; higher investment will lead to a larger rise in income and output in the short run. This means that consumers will spend some of their income on consumption goods. This will give rise to further increase in expenditure. Ceteris paribus an initial rise in autonomous investment produces a more than proportionate rise in income. The rise...
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...on balance? In Addition, READ the attached article: G20 Process- from the economist. First of all it is important to understand the socio-economic, politic and geographic situation that both 1929 and 2008 crises were based. The great depression which originated in 1929 in US and spread world over by 1930’s was characterized by barren business and huge unemployment. The main cause of this depression which took all the nations towards financial crises was crashing of the stock markets in 1929. Thousands of investors lost their money in stock markets, leading to a longest recession which comprised huge layoffs, unemployment , wiping out of business activities and which left millions of people depending on government or charity for food. Both episodes were preceded by rapid credit expansion and financial innovation that led to high leverage. However, while the 1920s credit boom was largely US-specific, the 2004-07 boom was global. With much higher levels of real and financial integration than during the interwar period, a US financial shock now has a larger and more immediate impact on financial systems elsewhere. These greater financial vulnerabilities must be balanced against weaker global economic conditions in 1929. Germany was already in recession then. Wholesale and, to a lesser extent, consumer prices in major economies had already stagnated or begun falling before the onset...
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...For a company owning a worth business in any big stock market always have a tool to analyze its performance. The tool could be like an annual report which deliberately assesses a company’s fiscal health, financial status and market position within any specific period (Thomsett, 2007). Annual reports hold a great importance for organization, especially when the organization is owned by multiple owners or is a public limited firm (Thomsett, 2007). To develop the prospect of the company there is a need for a document like an annual report which gives year after year information about the company performance and growth tactics (Thomsett, 2007). There are different reasons of why enterprises give importance to annual reports. Some of the reasons include clean market analysis, comparative financial assessment and productivity analysis which is no other possible if there are no annual reports to compare. It has been that in markets where there is a major population of investors and share holders then enterprises come out regularly with the activity of reporting (Stittle, 2003). Enterprises know that by announcing their financial health (annual report) publically, they are able to connect to their shareholders, distributors and investors, which is very important for both growth and expansion of the business. Meanwhile, annual reports also assess market position as by expressing financial numbers the feedback of market (consumer, investor, shareholder and competitor) is testified and...
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...Literature Review The literature that will follow will include the reasons for the global financial crisis and what steps the government is taking to overcome or recover from the crisis. One of the main reasons emphasized in the following text for the crisis is lack of effective regulations. Moreover the most important financial alteration that various committee’s around the world are taking is strengthening the regulatory requirements on the financial institutions. Hereafter it could be settled that government intervention could have played a huge role in avoiding the crisis. Many countries around the world have to decide whether to regulate or not to regulate their accounting standards. Supporters of regulation usually state that the free market notion states that accounting information is like an economic good so it is best to leave the markets to decide what and how much information is needed. This will help achieve efficient market system, however this kind of a system exists only in theory and not in reality, and so then what is the point of a free market system when it cannot be efficient? (Y. Hong, 2007) The rewards of free market system are realized only when it is executed in isolation. But in reality, markets cannot be left completely on its own and some regulation or government intervention is required. Government intervention even at its minimum will not be able to achieve efficient markets and thus it is better to have a well regulated system. Free market system...
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...A recap of the events building up to The Real Estate Bubble, the causing factors of The Financial Crisis of 2008 and the likelihood and implications of an Economic Recession in 2016 Karan Sharat Nath Pace University, Lubin School of Business Kn31474n@pace.edu ------------------------------------------------- Table of Contents 1. Abstract 2. Introduction 3. The Real Estate Bubble and Great Recession 4. Signs that point towards a Global Economic Downturn 5. Conclusion: Consequences of a recession in 2016 6. Work Citied ------------------------------------------------- Abstract This research paper aims to briefly recap the events that led to the real estate bubble and global financial crisis of 2008, collect data that could indicate a financial downturn that could lead to a recession that is sparked in 2016 and understand the implications that a recession in 2016 would have upon the Global Financial System. The recession that ensued in 2008/2009 was the worst widespread downturn witnessed since the Great Depression of the 1920’s and 1930’s. Since the peak of the downturn the S&P has almost doubled and unemployment has dropped by nearly half. But at present many vital indicators that monitor US growth and economic activity are displaying so very troubling signs. With the majority of this growth over the last decade being enabled by central bank support and cheap money, expansion is not sustainable. Eventually the...
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...Assess the positive and the negative aspects of the United States political framework based on the ‘separation of powers’. The United States is a presidential democracy; its political framework is based on the separation of powers between the executive, the legislative and the judicial branches of government. This is in contrast to a parliamentary democracy where there is a fusion of powers between branches of government 1. It is often argued that a parliamentary system of government based on a fusion of powers is a more effective form of government, particularly when legislating. Although this may be the case, the US political system has overcome issues faced by most parliamentary democracies such as elective dictatorships and poor scrutiny of the executive. This has been due to the structure of the US political system based on the separation of powers. In this essay I will assess the positive and the negative aspects of the US political system. I will evaluate the advantages and disadvantages the separation of powers has brought to the US system of government. I will first assess the positive aspects of the US political system. I will then discuss the negative aspects of the US political system, finally drawing a conclusion. The ‘separation of powers is a central structural feature of the United States constitution’ 2. The US political system was designed first and foremost to prevent tyranny, something the founding fathers still feared even after America had gained...
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...Intro to Economic Thought (ECO 105) Robert Ellmann Financial Crises Irina Sterpu __________________________________________________________________________________ OUTLINE Introduction into the topic and its origins The Great Depression 1929-1939 German Hyperinflation 1918-1923 The Great Recession 2008 1973 Oil Crisis European Sovereign Debt Crisis 2009, onward Ruble Crisis 1998 Black Monday 1987 Conclusion References Financial crises – definitions and origin The majority of economists and monetarists define financial crises as a manifestation form of banking crises, with an impact on financial stability and reaching the state of collapse of the financial infrastructure in the absence of central bank‟s intervention. Financial collapse which affects most of the companies generates quickly problems over the banking system as the following consequences: the panic of the clients, inability to distinguish between the efficiency and the difficulty of banks, deposit withdrawals. Jack Reed, an American politician mentions: “The financial crisis is a stark reminder that transparency and disclosure are essential in today's marketplace.” In economic literature, the problems in the banking system are the main sources of the financial crises. All the economic collapses require injections of liquidity or public financial funds, in some cases, private funds from banks and international institutions. Financial crises have usually...
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...Critically examine the view that the debt crisis is a result of inappropriate development policies. (40 marks) In 2008, the total external debt for the world’s developing countries was US$3.7 trillion, and US$163 billion for the worlds least developed countries For the developing world as a whole, in 1991, the total external debt was $1.362 trillion, which was 126.5%of its total exports of goods and services in that year, and the ratio of debt servicing to the gross domestic product of the developing world reached 32.4%. For some LEDCs, debt stood at 98% (Congo) and 112% (Nicaragua) of their GDP in 1980. Consequently, we have the situation whereby the last ten years African countries have paid their debt three time over, yet are three times as indebted as 10 years ago. This phenomenon is the result of international debt growing enormously since the 1970s, which became apparent in 1982 when Mexico announced it could not repay its foreign debt. Other, especially Latin American economies, also faced crises in the 1980s and 1990s, when they simply could not service their debt repayments: they defaulted. Mexico was first in 1982, Argentina in 1999-2002. Many other LEDCs continue to exist in a state of massive indebtedness, which persists until the present day. Inappropriate development policies, that is, the ineffective economic policies of many LEDC governments, did cause the debt crisis and indebtedness, but this is an incomplete explanation. Debt and debt crisis...
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...Works Cited 14 Appendix A 15 Why you should be wary of the Japanese “revival” 15 Why were Keynesian ideas revolutionary? Keynesian economics is a macroeconomic theory developed by John Maynard Keynes, who is a British economist. According to Keynesian theory, government intervention plays an important role in the economy, and focuses on short-term goals. It is used mostly in times of recession, inflation, unemployment to stabilize the business cycle, therefore active government policy is required and government spending is a good way to put money back into the GDP. (hupii.com) Keynes is famous for his simple explanation for the cause of the Great Depression during the 1930s. His idea was based on a circular flow of money, which states that when spending increases in an economy, earnings will also increase, and the outcome it will lead to even more spending and earnings (economic growth). His ideas had led to a revolution in economic thought. (martinfrost.ws) During the period of World War 2, United States president has spent enormously huge on defence which has that helped revive the U.S economy. Besides that, Paul Volcker has overcome the recession on 1980 – 1982 with Keynesian method. He had applied the technique of increasing interest rates and constricting the money supply, as the results the economic is recover. On the other hand, Keynes claimed that depending on markets to obtain full employment was not a good concept. Therefore, Keynes has removed...
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...The Crisis Scenario around the British Pound in 1992 By the time the United Kingdom joined the European Exchange Rate Mechanism (ERM) in October 1990, it was already living a severe economic recession. A drop in industrial productivity and high levels of unemployment struck the nation after the economic growth of the 1980’s (Table 1 and 2). Table 1 – Unemployment Rate in UK in % Source: Office for National Statistics (UK) Table 2 – Industrial Production in UK: Percentage change year-over-year Source: www.tradingeconomics.com During the prosper economic period of the 1980’s there was strong private investment on household, meaning that the mortgage credit rose significantly. In the beginning of the 1990’s the level of private debt was unbearable (Graph 1). Graph 1 - Debt to income ratio Source: Bank of England High rates of unemployment, high private debt and lack of macroeconomic surveillance tools have been pointed out as the main reasons for the economic recession of the early 1990’s. A sharper control over macroeconomic policies as well as an effective control of inflation and the defense of competitiveness of the sterling within Europe was some of the goals the British government aimed at by joining the ERM. A central exchange rate for each participating currency was established against the ECU, the artificial unit of account that set the pillars for the Euro currency. In practice, the participating currencies where actually pegged to the German...
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