( 1 May 2013, http://perspectives.pictet.com/2013/05/01/euro-area-deflation-is-looming/ last viewed 25 May 2014) The above diagram shows the inflation rate of Euroarea. During recession, the inflation rate of Euroarea did not fell a lot. This shows that ECB policy was successful to kept the inflation rate around the normal rate that is 2%. people and business to spend and invest more money. Since the interest rate is low, firms and people will tend to spend rather than put it into bank. This is because they think it is not worth to put their money in the bank when the interest rate is so low. Besides, low interest rate also encourage firms to get a loan from the bank with a very low interest rate. This could increase the consumer consumption. In Euroarea, governments increased taxes to rescue the economy. As the taxes increased, governments are able to get more money. Thus, they are able to reduce their debt. By reducing debt, government can slowly get out of bankruptcy. If a country is bankrupt, it will produce a lot more problem than recession. Therefore, this policy is good to prevent country from being bankrupt. As the debt is huge, governments try to reduce their spending. Since the government spending is reduced, the national debt will not increase rapidly. Futhermore, European Central bank helped to recover from recession by reducing interest rate. It is aim to reduced the inflation. As the inflation increased, people will need more money to buy a goods. To avoid this to happen, ECB reduce thr interest rate to keep inflation rate low. The above diagram shows the GDP growth rate of United States of America during the recession. From 2008 to 2009, the GDP growth rate of USA fell from approximately +3 to about -7. After President Obama created the Stimulus plan in 2009, the GDP growth rate increased rapidly from -7 to almost +5. This shows that the policy applied by US government works very well to help America recover from Great Recession. Besides, the US government did cut taxes. This was successful as it increased the net income of people. American can have more money in their pocket to spend. Moreover, the Federal Reserve decreased the interest rate to help United States to get out of the recession. Reduced in interest rate help the economy by encouraging 2009, the unemployment rate decreased gradually. This statistic shows that the policies of United States are very successful.
When the global financial crisis hit the world in 2008, the world feared it would be the worst the economy would have encountered since the Great Depression. Countries reevaluated their policies and looked up to the US and the strategies it would apply to get itself out of the crisis. The Economist proclaims that, “in the last quarter of 2008, the final three months of the Bush era, the American economy contracted by an astonishing 8.9%; by early 2009 job losses hit 800,000 a month”. The appointment of Obama at such a time when the US economy was crashing, led him to introduce the 2009 Stimulus Package. With mixed reactions with mostly in favor of it while some opposing it, the Congress eventually passed the bill on February 17th. This paper will argue on the effectiveness of the Stimulus Package proclaiming that while the package helped flourish the economy, the promises which were aimed to be long term, have mostly been transitory. This will be shown through the impact of the Stimulus package on unemployment, the Gross Domestic Product (GDP) and the direct transfers made, supported with existing empirical investigations.
When interest rates drop, money becomes cheaper to borrow. This encourages consumers to spend more money during this period. Low interest rate can also affect the price of housing as assets would be something worth to invest in and due to demand over supply causing the prices of property to sky
Firstly, the Euro debt crisis is supposed to be the most direct trigger for the recession and bring Euro with severe challenges. The Euro-zone crisis results from a combination of complex factors. Prokopijević(2010)argues that “Fiscal discipline in the euro zone was weak from its creation in 1999, but ongoing economic prosperity limited the damage.”It is not until Greek government revealed its unreal budget data in late 2009 that the euro sovereign debt crisis has been fully aware of. Every member states in euro zone is involved in this debt crisis for being in the same Economic and Monetary Union(EMU) and using the same currency, which indicates that an individual country in euro zone is essentially forfeiting its right to determine how much its currency is worth.(Nowak& Shachmurove,2012)The debt crisis in Greece brings confidential crisis not only to the countries like Greece, Italy and S...
It has been an experience that competency in mathematics, both in numerical manipulations and in understanding its conceptual foundations, enhances a person's ability to handle the more ambiguous and qualitative relationships that dominate day-to-day financial decision-making (Greenspan). This quote is from Allan Greenspan, the Chairman of the Federal Reserve Board who was arguably the most powerful man in the world. Greenspan was also extremely financially intelligent. Being financially knowledgeable is essential in surviving in the financial world today. Even more important is educating ourselves about interest rates because they play a huge role in our economy. I believe higher interest rates will improve the economy. Higher interest rates make it harder to borrow money, and in effect the value of the dollar increases and inflation goes down.
The recent global financial crisis that affected not only America but also Europe and other parts of the world resulted in massive unemployment. This is due to the high costs of operation that many corporations faced forcing them to cut on labor costs. There is need for European government interventions to avert this social crisis and prevent the occurrence of such a crisis in future. Unemployment has hit the service sector harder than other sectors with the following being the most affected: automotive, construction, tourism, finance and real estate. The global financial crisis has also increased consumer prices thus pushing inflation. According to McCathie, “the increase in July consumer prices to 1.7 per cent pushed inflation in the currency bloc up towards the European Central Bank’s target of keeping inflation at below, but close to 2 per cent. Eurozone consumer prices had stood at 1.4 per cent in June” (McCathie, 2010).
High inflation rates make central banks to increase their interest in overall. This often allows for limited growth and desire of money by different clients. The future looks bright as there will be a robust in economic improvements. By the year 2020, the employment levels will increase and this will also increase the operations of the economy as a whole. Favourable inflation rates will mean that people will be able to make purchases and save more. High interest rates will deny people a chance to borrow more from different financial institutions as required. Increased CPI wills the main driver for economic development in the world at large.
By doing this it allows the economies to become more reliable and better able to deal with shocks. Increasing the rate of recovery in output will allow economies to reallocate resources quicker which in the long run will mean less time wasted and more money put into the expansion of growth in said economy. The euro as a whole does not have an independent monetary policy or an independent exchange rate. This is a crucial issue which needs to be looked upon by the government in the near future. Due to this lack of independent structure, it is of vital import that the euro becomes more susceptible to shocks – whether they be large or small – to ensure that the economy remains stable throughout tough economic times. Being a member of the monetary union ensures a “higher degree of resilience” for each participating country. (Praet, 2105) By countries in the EU opting out of this monetary policy it weakens the economy as a whole. It makes countries who participate in this policy more vulnerable to a severe economic downturn due to the fact that they cannot adjust to shocks as quickly. This is due to the “spill over” of unemployment and lack of investments of countries not enforcing said polices. (Praet, 2105)
An economic recession is described as “a widespread decline in the GDP and employment and trade lasting from six months to a year.” (Word Net) The economic recession is an international problem that has been affecting countries like the United States, China, United Kingdom and others for over two years. The latest recession began when house prices and sales began to fall and large drop offs in business investments started. Another causing factor of the recession was citizens with bad credit buying houses and real-estate and mortgages not being paid. Countries began taking action in 2008 by implementing stimulus packages and bailout plans, which can help a country locally, federally and on a global scale. The United States stimulus package has been in effect for over a year and they have been distributing bailout money to large corporations, investing in infrastructure and public services as well as investing into green incentives. The States were one of the first countries to begin a stimulus package in 2008 under the Bush administration.
By now, the understanding of the ECBâ€TMs monetary strategy has greatly improved. â€The ECB today ranks as one of the most open, transparent and predictable central banks in the world, and they continually seek to improve their communicationâ€? ECB, 2004. "The ECB, 2004. " During the first five years of the existence of the Euro, the average rate of inflation in the euro area has been 2 per cent, which is in line with the ECBâ€TMs definition of price stability.
Eurozone crisis can be seen as the most important economic problem of the European Union in the history. Because of that crisis the currency union have faced the possibility of separation which is an extremely critical issue not only economically but also politically. Until the subprime crisis which became prominent by the bankruptcy of Lehman Brothers in 2008, the economic level of the EU members were similar. When the bankruptcy occurred those countries started to differentiate in a very significant way. Total government debt and also problems of banking sector lead many countries to negative GDP growth, high unemployment rates and more importantly social unrest.
Through utilizing inflation targeting, the RBA will usually raise interest rates if inflation appears to be above the target range of 1-3% in hopes of decreasing the inflation rate. The raised interest rates will then decrease the demand for money due to the higher opportunity cost of holding monetary assets.
The United States was in a recession from December of 2007 to June of 2009, according to the National Bureau of Economic Research (National). During that time the unemployment rate was in the range of 5% to 9.5% (Labor). What is confusing to many American is that while they are being told the economy is growing and the recession is over, the unemployment rate is still fairly high. In fact, only four months after the recession “ended,” in October 2009 the unemployment rate peaked at 10.1%. It has been steadily decreasing over the past two years to its current 9.0%. President Obama proposed the American Jobs Act to rectify the unemployment problem in...
The problems in Europe arose when 10 large Euro-zone banks asked for a bailout from the ECB. Lower confidence in markets led banks to cease capital flows which in turn led to financial strains on periphery governments. This ultimately worsened bank balance sheets and important credit creations, increasing government debts (see figure 3). However with all business cycles, there are booms and busts and it is the ECB’s job to smoothen growth over time. Nevertheless the Euro is hampering the recovery rather than stimulating the economies of various nations, and shows its inability to be a suitable optimum currency. These problems, were brought forth during its conception as the area seems to b...
Likewise, the monetary measures aimed at controlling the over money supply could reduce the inflation. So there is a need for improving monetary policy with the help of credit contraction, increasing reserve ratio of commercial banks, increasing bank rates, open market operation and other monetary
Euro area was in recession until the beginning of 2014 (Fig. 1, Appendix 1). The European Central Bank (ECB) had been cutting the basic rate until it almost reached zero in 2014 (Fig. 2, Appendix 1). Inflation was relatively low and a short period of deflation was observed in the beginning of 2015 (Fig. 3, Appendix 1). Although the unemployment rate was decreasing, it remained high in 2013 and 2014 (Fig. 4, Appendix 1).