The currency exchange rates have fluctuated wildly, yet the Japanese economy has long dogged the danger of an economic crisis due to the excessive cost of the yen against other major currencies in the world. The decline of the cost of yen under the Abe administration has raised the popularity of his economic policy, but it has its disadvantages. For the rise of the consumption tax, the Abe administration and the Bank of Japan is responsible to carefully evaluate both the positive and the negative impacts of the falling yen, and take counteractive actions to avoid an economic disaster.
Countries with low inflation rates will have a higher currency since there is an increase in purchasing power., but high inflation will decrease the value of the currency. The balance of payment includes all financial transactions with in a country and the balance of trade describes the difference between a country’s imports and exports. A surplus in the balance of payment would increase the national currency while a depreciation in the balance of payment would decrease it. Also a positive balance of trade, which means that there are more exports than imports, would increase the currency value because there is an increasing demand in a country’s currency. But a trade deficit would result in a currency depreciation for a country since there is more outflow of monetary payments to other countries.
The results suggest that Latin American firms increase their debt levels when inflation rises because in inflationary periods nominal liabilities, such as debt, depreciate in value, thus, become more attractive to the borrower. The ratio of stock market capitalization to GDP has a negative relation with all the dependent variables, as the capital market develop become a viable alternative; firms will tend to use less debt. On the other hand, the ratio of deposit money bank to GDP displays a positive relation with leverage - as the banking sector increases, firms will have more incentive to use more debt. For both variables, the results concur with Booth et al. (2001) and with Agarwal and Mohatadi (2004).
However, this model presented several challenges such as build up of excess capital for production leading to deflation. There was also a sharp focus towards export market which leads to fluctuation in currency and thus, the Yuan was appreciating against the dollar. Finally, it resulted to high trade surplus especially with the US leading to growth of credit and money supply. In summary, China growth model has been supp... ... middle of paper ... ...p labour will decreases due to increase in wages as well level of consumption. However, there is need for more sustainable economic reforms.
With interest rates, this allows banks to take a percentage of the consumer’s money and loan it out to others, thus allowing economic growth to be possible. Interest rates also allow lenders to have a “safety net” which is necessary because there is a possibility that the borrower would be unable to pay back a loan to the bank. A nation’s interest rates can be raised or lowered and these shifts in interest rates correlate directly to aggregate demand. Aggregate demand, is the total demand for final goods and services in an economy at a given time (Business Dictionary). A nation uses interest rates for economic growth or to help prevent inflation.
When the government has a high amount of debt it reduces government spending and budgeting. The less the government spends, the more unemployment levels rise. When unemployment levels rise the government has to spend more on welfare which is money spent with no productive aspects. This is a vicious cycle that is often repeated in many countries around the world because their currencies are linked with the US dollar. A country accumulates debt when the government’s expenditures exceed its income during a financial year.
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.
This has meant that the value of the pound has increased. However this is like a cobweb with many downsides such as a rise in inflation as exports are a component of aggregate demand. In the long run, those countries with higher than average inflation see their exchange rate fall. When inflation is high, a country becomes less competitive in international markets causing a fall in exports (a demand for a currency) and a rise in imports (a supply of currency overseas). A fall in the exchange rate may be needed to restore a country's competitiveness in overseas markets.
This is because government revenues decline during a downturn (tax revenues fall as workers lose their jobs and reduce their spending); meanwhile, expenses for unemployment insurance and other social programs automatically increase. I do not see the U.S. federal debt as a serious problem. We have a symbiotic relationship with China, they need us as much as we need them. They need a market like the U.S. to sell the goods they make. Unless China can find another country as big as the U.S. to sell their goods, the debt will not be a problem
In the short-run, the relationship between unemployment and inflation is inverse. This means that the change in one will have the opposite effect on the other. So here, a fiscal policy aimed at reducing unemployment will increase the interest rate. For example, if Bartavia decides to lower taxes to increase consumption thru use of consumer’s marginal propensity to consume, and the economy in general thru the multiplier effect, it will increase the aggregate demand for goods and services. Marginal propensity to consume is the idea that that consumers will spend more money if they have more, but increases in income do not lead to equal increases in consumption because people save some of the money.