The effects of deflation can lead to a higher unemployment rate, an increase in the value of debt, lower capital investments and an obscured customer demand. All theses signs lead to contracting and degrading economy. This will eventually lead to a liquidity trap and can cause some serious problems. The liquidity trap leads to a prediction that there very might well be a recession or depression in the near future. The efforts of a central bank are not enough to stimulate the economy and the interest rate will remain at zero or a very low level.
What are the main reasons as to why this recovery has been so lackluster? The first reason is that the 2007-2009 recession was caused by the housing bubble and the collapse of the housing industry, which normally kick-starts recovery. After the 2007-2009 recession, since the housing prices are unlikely to return to previous levels, the economy is taking longer to recover. The second reason is that globalization has caused domestic employment to rise slower than if all the increase in employment goes to domestic hiring. (Joel, 2013) Compared to the past, we have more imports than exports (Olney, 2013); as the economy recovers, a greater part of the increase in GDP goes to foreign economies instead of our own.
during the last financial crisis (here: economic growth numbers hit the decline stage in 2007), especially to be noticed in the year 2009 in the displayed graph, people feel more reluctant to invest their money and tend to hold on to their limited financial assets. Therefore the government increased China’s money supply drastically, which explains the money growth peak of 2009 (28.42%). By increasing and decreasing the money supply China’s government attempts to control the economy. If the growth of the money supply is slowed too much, the economy will slow as well. In times of economic troubles an increase of the money supply intends to stimulate the economy with additional liquid assets.
Factors such as international conflicts, technological fluctuations and the endeavors of monetary legislators all contribute to the overall American economic status. When a recession does not occur, it can be concluded that the economy is not experiencing a true business cycle but is in a continuous expansion. The rate at which the economy is evolving can be assesse... ... middle of paper ... ...ommenced interest rate cuts because it was already at an all-time low. Federal income and estate taxes were slashed during President Bush’s presiding term in office. Trillions of dollars along with federal surplus has been replaced with diffident debits.
economy as a result of not only recession in the country,but also the slowing down of economic growth in other countries. Europe has not fully recoveredfrom its financial crisis and it might affect the U.S. due to the latter's dependence on othercountries for exports. The Minskian notion, from the economist Hyman Minsky, states thatovertime, capitalist economies will undoubtedly suffer from issues that plagued the U.S.economies recently, since capitalist systems encourage the growth of debt. The author providedgraphs and data for the GDP of emerging economies, such as China, and in comparison to theU.S. However, although these might look like credible facts, they are not up to date (none arerecorded for 2015), and therefore might be used to sway the reader's opinion on the matter.
When money is not pumping into the economy, its growth becomes sluggish. An economy may show signs of jobless recovery with a continual increase in the rate of unemployment. Such a growth may lead to a slow recovery from the recession in the future, or may be an indicator of double-dip recession. Due to increase in competition for jobs and wide availability of labor, the cost of labor decreases significantly. Those who are employed will be severely affected in case of a rise in unemployment in the economy.
Conclusion Unemployment is inversely related to changes in GDP. When GDP rises Unemployment goes down and when GPD falls Unemployment goes up. Striking a balance between these two is important. If unemployment increases too high then the economy is in jeopardy because too many people are without employment and cannot put money back into the economy, because there is not enough money in the system for employers to be able to hire new workers. Striking a balance between these three factors is vital to the functionality and growth of the U.S economy.
Fiscal is the use of a government taxation to influence the economy. Throughout the preceding decade, tax cuts have done a lot more to stimulate demand than increasing in public spending, partially because public works were extensively considered as inefficient. This suggests that a decrease in public works complemented by an identical decrease in taxes would enhance GDP (Gross Domestic Product). A rise in taxes would reduce growth and hence tax revenues, thereby increasing the government's deficit even further. Households in Japan know that taxes will become, and are an issue in which they will rise, thus they tend to save more with reducing the things they buy which then neutralizes the fiscal stimulus.
manufacturing and assembling steel into car. ‘Slower labor productivity growth in Europe than in the United States since 1995 reverses a long-term pattern of convergence. This has a negative impact on the turnover as it leads to lower growth contributions from investment in information and communication technology.’ (Bark, O’Mahony and Timmer, 2008) On the other hand, the retail industry is central to the UK’s economy: it employs in the region of 2.9 million people – 11% of the total UK workforce – and in 2010 UK retail sales stood at over £293 billion. Yet it is clearly facing severe challenges at the moment. (Barry Knight).
Equity investors currently appear to be demanding less of a dividend safety buffer than in the earlier stages of the post-March 2009 bull market. Expected corporate profits growth in the US in 2014 ranks lower compared to forecasts for the Eurozone and main emerging markets. US equity returns in 2014 may be capped by earnings growth, but the velocity of circulation of money could be particularly important by adversely impacting bond yields. There are some similarities between the current environment and 1987, implying some risks of an equity market correction, but, in the interim, the S&P500 could move higher.