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... derived from the fact that at any time people want to hold a certain amount of money in relation to their income. If the money supply exceeds what people want to hold, they will use it to increase their purchases or investments, which will rise total output or the price level or both. Conversely, if the money supply is less than they want to hold, their response will depress output or the price level.
The problem with managing the money supply so as to stabilize the economy lies in two conditions. First, an uncertain amount of time will elapse before a decision to change the money supply will result in an actual change and the effect is felt in the economy. Second, how much money people will want to hold at a time in the future is not predictable within a certain margin of error. It is possible that a decision to change the money supply that seems entirely appropriate to the state of the economy at the time may be quite inappropriate when the decision takes effect. If, for example, the economy is depressed, an increase takes effect, people may have reduced the amount of money they want to hold perhaps because they have become more optimistic about future conditions so that the increase in the money supply turns out to be unexpectedly inflationary.
An important ongoing support for the economic activity is provided by an accommodative stance of monetary policy with still-rooms underlying growth in productivity. But incoming economic data have tended to confirm that greater uncertainly is currently inhibiting spending, production, and employment. Inflation and its expectations still remain well contained. As the economy works its way through this position, the Committee believes that todays additional monetary easing should prove helpful. This action underlines that, against the background of the long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are balanced with respect to the prospects for the both goals in the future. Fiscal policy is another tool of government intervention for stabilization in economy of the country.
Fiscal policy is used as a tool by all levels of government. The term fiscal policy refers to the expenditure a government undertakes to provide goods and services and to the way in which the government finances expenditures. In 2002 the State Governments faced a combined budget gap of more than $ 40 billion, as a result of an overspending budget in the 1990 s. More tough choices for the governors are expected to arise in 2003. Its important that governors do not make mistake of raising taxes in order to balance budgets, as many of them did in the economic slowdown of the early 1990 s. As many economists, I think we should reduce and cut tax rates, this way we can return to the fiscal and economic health.
A rise of the economy, with increasing incomes, raises the tax base and raises the revenue if tax rates are unchanged. Expenditures for unemployment compensation also fall as the economy rises, and some other expenditures tied to earnings or employment also decline. Thus the deficit declines or the surplus rises as the economy rises. The reverse happens as the economy falls. When the economy declines and income falls, private after-tax incomes fall less than they would otherwise do, because some of the decline is absorbed in a decline of taxes. In addition, unemployment compensation and other government payments make up part of the loss of private incomes.
This cushioning of the decline in private after-tax incomes tends to limit the decline in private spending and so to limit the multiplication of the forces of decline in the economy. A similar process occurs in the other direction when the economy rises. Traditionally, the main objective has been to ensure that budget balancing would require that if the government spends money, it must also make decision to raise the money. From this standpoint expenditures have been defined comprehensively, so that no activity that might by any standard be considered expenditure escapes the budget-balancing discipline. This goal calls definition of the deficit that would make it seem very large, to put the maximum restraint on spending. Economists have two interests in the definition of the budget.
One is to measure the impact of the budget on the demand for output. This is also known as the deficit on income and product account. It is also the deficit that fits into the proposition that private savings equal private investment plus the deficit. A second one of the budget deficit in economic analysis is to measure the effect of the government on total investment. If interest is only in private investment, the income and product account deficit serves the purchase. But if the interest is in total investment, including the investment government makes, as in buildings, the deficit should exclude the governments investment expenditures.
Nowadays surplus in the social security accounts became much larger than it had previously been, and government outlays for the costs of deposit insurance also became very large. Index of Consumer Confidence is used to analyze the situation of the economy and consumers satisfaction. The Consumer Confidence Survey is based on a representative sample of 5000 US households. NFO World Group conducts the monthly survey for The Conference Board.
The Conference Boards Consumer Confidence Index, which has declined for five straight months, rebounded in November current year. The index now stands at 84. 1 (1985 it was 100), up from 79. 6 in October current year. The Expectations Index rose from 81. 1 to 88. 4, but the Present Situation index remains relatively flat, edging up to 77. 6 from 77. 2. The modest improvement in consumers assessment of the present situation was due to a slight improvement in current business conditions, with labor market conditions still stagnant.
One of the main determinants of the living standards is productivity. Rising productivity underlines rising living standards and most what I think of as economic progress. If the rise of productivity stops, so will the rise of living standards. The measurement of productivity growth poses many difficulties for the economic researcher. Should the investigator be concerned with the business sector only or with the entire economy including government? This question is significant because in the US national income and product accounts, government output is more than 10 percent of the total, is defined to have a zero productivity growth.
The increased education of the labor force has been an important source of growth in output since at least the early part of the century. Education attainment and earnings go hand in hand. I think a rise in education will cause a rise in labor input, on the other hand rise in education is a part of productivity growth. A more educated population not only strengthens the society but also makes it capable of producing and earning more. One prominent investigator, Edward Denison, has estimated that the rise in average educational attainment and the resulting increased earnings accounted for one-sixth of the rise in output for the last fifty years or 30 percent of the rise in output per employed person. The contribution an input makes to the growth of output depends on two things: first, how much the input has grown and; second, the importance or weight of the input.
Input weights are commonly based on shares in the national income (produced by private business) received by the inputs. Going back many years, say, since 1929 or 1948, capital has grown much more than labor. Because the weight of labor in the national income is so much greater than the weight of capital, however, the contribution of the labor increase the increase multiplied by the weight much greater than the contribution of capital from either of those earlier dates to the present. Policy for increasing output per person commonly focuses on increasing investment.
Saving finances investment. The saving that finance investment includes not only domestic private savings (the budget surplus) and foreign saving invested here (the capital inflow). Usually this proposition refers to private investment. If it refers to total investment, including government investment, the government surplus must be measured to exclude investment expenditures from total government expenditures.
There have been times when United States followed an isolationist policy, but in business matters the United States has been strongly internationalist. Ever since the 1790 s, when American entrepreneurs began shipping furs to China, American firms have sought markets in other countries. The American business presence abroad has been a source both of strength and of controversy for many decades. American political leaders have often encouraged American businesses to invest abroad as a way of strengthening the American diplomatic hand. On the other hand many people in other countries welcome investments by American firms as a means of raising their own standards of living. Foreign investments, whether by American firms or by companies from other nations, help to spread new technology and promote economic growth on a worldwide scale.
By investing abroad, American businesses have provided many new jobs and new products for people who lacked access to the benefits of modern industrial society. They have opened up new avenues for advancement and new outlets for the ideas and energies of millions of people. By injecting new capital into other countries America improves the local economy and sets in motion powerful forces economic forces that transcend the immediate goals of investors and policymakers. The increases in trade also resulted from large increases in real incomes, at least among the industrial countries.
As income rises, people become more willing and able to pay for variety in their consumption including travel, and they often found variety in foreign products and places. With lower obstacles to trade, countries could concentrate on producing the things in which they were relatively efficient and they and their customers gained the benefits of specialization and large-scale production. When Americans buy more from the rest of the world than they sell abroad and when the USA government or private Americans make payments to foreigners, the foreigners acquire dollars. They can keep the dollars in American banks, or they can invest them in other kinds of assets in this country, such as government securities, American stocks or bonds, American real estate, or American businesses. An individual foreigner can exchange his dollars for some other kind of asset that is not an investment in the United States. But if he does that, another foreigner is then holding the dollars.
If the dollars are not used to buy goods and services from United States, the rest of the world can do nothing with them except to invest them here. For example, Americans paid $ 704 billion to foreigners for imports. Americans, mainly the US government, gave $ 15 billion to foreign governments as gifts, and the US government paid $ 39 billion in interest to foreigners. Thus, foreigners received $ 758 billion from transactions with the United States. They spent $ 673 billion on imports from the United States. The remainder -- $ 85 billion they invested in the United States; that is the net capital inflow.
International trade is one of the movers of American economy. The index of leading economic indicators is intended to predict future economic activity. Typically, three consecutive monthly LEI changes in the same direction suggest a turning point in the economy. For example, consecutive negative readings would indicate a possible recession. Six of the ten indicators that make up the leading index increased in October of the current year. The positive contribution to the index include real money supply, average weekly initial claims for unemployment insurance, manufacturers new orders for consumer goods and materials.
The four negative contributions are made of index of consumer expectations, vendor performance, average weekly manufacturing hours, and stock prices. Some other indicators that compose the index are average workweek, building change in unfilled durable orders, sensitive material prices, and real M 2. Thirty percent of Americans rate the economy positively, down 16 points from a year ago and 50 points below its peak in January 2000. The development of the American economy is a non-stopping process composed with peaks and falls, but in this cycle we seem to adapt to changes and develop strategies, policies and new ideas that contribute to stabilization.
While America is facing many difficulties, it remains one of the most powerful and authoritative countries in the world. The American dollar is famous for its stability and ensures United States of America with more or less stabile future that depends on many factors that were described above. A variety of institutional factors have favored the success of American business. Mindful of the potential for abuse that lay in a powerful government, the founders of Americas political institutions sought to limit governmental powers while widening opportunities for individual initiative. The relative reluctance of American political leaders to intervene in economic activities gave great freedom to market forces. By channeling economic initiative into activities that promised the greatest return on investment, free-market institutions fostered dynamic growth and rapid change.
The result was a rapid accumulation of capital, which could then be used to produce further growth. Bibliography: 1. Slichter, S. H. , What is ahead for American Business? , 1978. New York 2. Slichter, S.
H. , The American Economy, 1982. New York 3. The Economist magazine, (09. 29. 0110. 05. 01) 4. Said, E. , Case, J. , The Making of Business in America, 1983.
New York 5. Campbell R. Mc. Connell, Economics: Principles, Problems, and Politics, 1990. McGraw-Hill Co.
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Research essay sample on Amount Of Money Goods And Services
