Since the sass, the financial services sector has played an Increasingly significant role in the English economy and he City of London is one of the world’s largest financial centers’. Banks. Insurance companies, commodity and futures exchanges are heavily concentrated in the City. The British pound sterling is the official currency of England and the central bank of the United Kingdom, the Bank of England, is located in London. United States The US has abundant natural resource, a well-developed infrastructure, and high productivity. It has the world’s sixth-highest per capita GAP (APP).
The U. S. Is the world’s third-largest producer of OLL and second- largest producer of natural gas. It Is he second-largest trading nation in the world behind China. It has been the world’s largest national economy (not including colonial empires) since at least the sass. China The Socialist market economy of People’s Republic of China (PRE) is the world’s second largest economy. It is the world’s fastest-growing major economy, with growth rates averaging 10% over the past 30 years. China Is also the largest exporter and second largest Importer of goods In the world.
It Is the world’s fastest- growing major economy, over the past 30 years. China is also the largest exporter and second arrest importer of goods in the world. Japan Japan Is the world’s 3rd largest automobile manufacturing country, has the largest electronics goods industry, and Is often ranked among the world’s most Innovative countries leading several measures of global patent filings. Facing Increasing competition from China and South Korea, manufacturing in Japan today now focuses primarily on high-tech and precision goods, such as optical equipment, hybrid cars, and robotics.
Beside Kant region, Kansas region is one the leading industrial clusters and the manufacturing center for the Japanese economy. Manufacturing in Japan today now focuses primarily on high-tech and precision goods, such as optical equipment, hybrid cars, and robotics. Fiscal and Monetary Policy Fiscal Policy is the instrument whereby a government can produce effects in the economy through decisions on taxing and spending. When spending outstrips revenue over a defined period, a budgetary deficit occurs.
When revenue exceeds spending the result is a budget surplus. Monetary Policy is the instrument whereby a government controls the supply of money and cost of borrowing money through Interest rate changes. Cutting Interest rates the cost of money Increases borrowing effects. Importantly, a change in the cost of money affects its exchange value, measured against other currencies. A change in the exchange value measured against the currencies of trading partners can stimulate or depress a country’s export market.
Difference between Monetary and Fiscal Policy * Monetary policy involves changing the interest rate and influencing the money supply. * Fiscal policy involves the government changing tax rates and levels of government spending to influence aggregate demand in the economy. * They are OTOH used to pursue policies of higher economic growth or controlling inflation. Effectiveness of the Fiscal Policy Attempting to stimulate the economy, through fiscal policy, requires an increase in government spending and the budget deficit.
The resulting increase in interest rates the cost of money, raises the cost of producing goods causing higher prices and then making goods harder to export. This has a depressing effect on exports however, where a common market of countries trading with each other agrees on a fixed exchange rate. Fiscal policy is much more effective at promoting economic growth Han monetary policy. This is because if using monetary policy to reduce the cost of money has no effect on the exchange rate, it does nothing to stimulate exports and discourages imports.
Effectiveness of the Monetary Policy Monetary policy is a more effective tool for economic stimulus than fiscal policy under a floating exchange rate system, in other words a system in which the currencies of trading countries can increase or decrease in value. For example attempts to stimulate economic growth by reducing the cost of money (cutting interest rates), the exulting effects on the exchange rate reducing it against other currencies will stimulate exports while making imports more expensive. This adds impetus to the intended economic stimulus.
Responsible Institutions A combination of fiscal and monetary policy is generally used to steer the economy in a desired direction. Although governments direct fiscal policy, many countries delegate responsibility for monetary policy to central banks. This strategy prevents governments from manipulating interest rates for short term political advantage and promotes stability in the money supply as well as in the price of goods. Mixed Economy A Mixed Economy, as the name implies is a mixture of a planned economy and a free enterprise economy.
What we call free enterprise economies are market mechanism which are called planned economies they are economies where most resources are allocated by the planning process. Mixed economies are economies where the balance between allocation by the market mechanism and allocation by the planning process is much more equal. To ensure that competition exists and that property goods like education and health care. These may be provided directly by the state or revision may be contracted out to private firms but still paid for out of tax revenues.
The state may also choose to own key sectors of the economy, such as railways, postal services and electricity industries. Many of these will be natural monopolies. Economic Growth Economic growth is important if businesses are to grow and prosper. It relates to growth in the output of the economy as a whole. Growth is measured as the change in the gross domestic product (GAP) of a country over one year. Over time real economic growth leads to major improvements in living standards, expanding existing markets and opening new ones.
The real economic growth of one country relative to another is an important indicator of business opportunity. Economic growth depends on productivity and investment using existing resources more efficiently and investing in new resources. Success in this process generates increased incomes which then fuel demand and encourage further economic growth. This cycle can, however, work in the reverse direction, as falling demands may lead to under-used resources and investment cutbacks. Incomes may fall further in a spiral effect. Impact on Inflation – Inflation is generally considered to be a problem.
The higher the rate of inflation the grater the economic cost there are a number of reasons why this is the case. If the prices are stable, consumers and firms come to have some kind knowledge of what is a fair price for a product and which suppliers are likely to charge less than others. At times of raising prices, consumers and firms will be less clear about what is a reasonable. This will lead to more shopping around, which in itself is a cost. Inflation erodes the value of cash, but since nominal interest tend to be higher than with stable prices, the opportunity cost of holding, cash tends o be larger, the higher the rate of inflation.
Government Spending – (or government expenditure) includes all government consumption and investment but excludes transfer payments made by a state. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending is classed as government investment gross fixed capital formation. Consumer Spending Consumer spending, also called consumer or expenditure, is the amount of money that households spend on goods and services in order to satisfy there needs. It is a ere important measure to check the health of the economy.
For example, when the consumer spending is declining it means that the economy is not performing very well. In times of recession governments try to boost consumer spending artificially by expanding tax cuts and money handouts. As a result, households are spending more thus stimulating production and employment. Aggregate Demand – (AD) is the total demand for final goods and services in the economy at a given time and price level. It is the amount of goods and services in the economy that will be purchased at all possible price levels. This is the demand for the gross domestic product of a country when inventory levels are static.
It is often effective demand, though at other times this term is distinguished. It is often cited that the aggregate demand curve is downward sloping because at lower price levels a greater quantity is demanded. Stimulate the national economy when standard monetary policy has become ineffective. A central bank implements quantitative easing by buying financial assets form commercial banks and other private institutions then increasing the monetary base. This is distinguished from the more usual policy of buying or selling overspent bonds in order to keep market interest rates at a specified target value.
Interest Rates – An interest rate is the rate at which interest is paid by borrowers for the use of money that they borrow from a lender. Specifically, the interest rate (mom) is a percent of principal (P) paid a certain amount of times (m) per period (usually quoted per annum). For example, a small company borrows capital from a bank to buy new assets for its business, and in return the lender receives interest at a predetermined interest rate for deferring the use of funds and instead lending it to he borrower. Interest rates are normally expressed as a percentage of the principal for a period of one year. L] Interest-rate targets are a vital tool of monetary policy and are taken into account when dealing with variables like investment, inflation, and unemployment. The central banks or reserve banks of countries generally tend to reduce interest rates when they wish to increase investment and consumption in the country’s economy. However, a low interest rate as a macro-economic policy can be risky and may lead to the creation of an economic bubble, in which large amounts of investments are poured into the real-estate market and stock market.
In the circular flow model the inter-dependent entitles of producers and consumer are referred to as firms and households respectively and provide each other with factors in order to facilitate the flow of income. Firms provide the consumers with goods and services in exchange for consumer expenditure and factors of production from households. More complete and realistic circular flow models are more complex. They would explicitly include the roles of government and financial markets along with imports and exports. In a pure subsistence economy, there is no trade between individuals.
People consume only the goods and services that they themselves produce. In a more sophisticated market economy, producers and consumers become separated. 1. In a simple circular flow model of the economy, households spend all their earnings on goods produced by firms which in turn pass back all earnings to households. There is no government and on foreign trade. 2. Income, output and expenditure are defined as being equal in the circular flow model. 3. If it is that households save as well as spends, whilst firms produce to only goods for consumption but also investment goods, then saving becomes a must equal actual withdrawals. . In the real world, it is the financial system which links investment and savings. 6. In an economy with government, public spending is an injection whilst revenues are a withdrawal from the circular flow. 7. In an open economy where there is foreign trade, exports are an injection whilst imports are a withdrawal. Impact on Inflation A raise in the rate of inflation is usually associated with total spending and in particular consumer * Spending rising faster than the rate at which firms in mineral can increase their output.
To produce more and take advantage of these very buoyant market conditions, firms would need more laborers’. Laborer shortage develops and firms will have to award large pay rises in order to retain and recruit workers. Increasingly, these pay rises will exceed improvements in productivity with the result that unit laborer cost rise, and the firm will be forced to raise prices to protect their profit margins. These price increases raise the rate of inflation further, and employees will demand even larger pay increases to compensate for the rise in the cost of living Government Spending