DEPARTMENT OF MANAGEMENT AND MARKETING
Macroeconomic Assignment
Topic: Inflation in the economy and selected measures against inflation
TABLE OF CONTENT
1. OVERVIEW OF ECONOMIC PERFORMANCE IN VIETNAM
Vietnam joined the World Trade Organization in January 2007 and transformed from a heavily indebted country to a low middle income one in 2010. After opening up the country’s economy to foreign investors, its GDP grew by 7.3% on average from 2001 to 2010. While Vietnam survived the global slowdown of 2008 quite well relative to its neighbors with GDP growing by 6.8% in 2010. In 2011, Vietnam has experienced persistently high inflation at 23%. The economic growth rate is no longer the
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Saving becomes more attractive: firms and households are more likely to keep saving money in the bank rather than spend.
Reduced disposable income: households with a variable mortgage will see a rise in monthly mortgage interest payments. Therefore, they will have less income to spend.
Overall, the money supply decreased. The decline in money supply causes an imbalance in the money market. At a given interest rate (i1) and the income (Y1) there is the excess demand for real money balances over supply. LM curve shifts to the left. Growth in interest rates causes a decrease of autonomous expenditures sensitive to interest rates. These autonomous expenditures sensitive to interest rate are investment and consumption. Equilibrium output of the economy falls to the level Y2 as described in the graph below.
On open market operations, interest rate rose from 7% to 12% per annual to restrict the supply of money to the economy. An increase in the interest rate reduces investment by making it more expensive for firms to borrow money to make investment purchases and also by increasing the opportunity cost for those who plan to finance investment projects using their own funds.
The rises in interest rates cause difficult for businesses, especially small and medium sized ones to access capital, forcing them to
Primarily, you must understand that lowering the rate of interest will make it cheaper for people to borrow as well as make it cheaper to pay back existing loans. As a result, firms may use this money that they have saved to spend on upgrading the
1. What is inflation? Inflation is an increase in prices for goods and services (What is Inflation?).
Higher interest rates are never a good idea for a growing economy because it can directly impact it. Higher interest rates can affect
Therefore, one of the expansionary activities conducted by the Federal Reserve is to set federal fund rate lower, which will affect credit availability, the money supply, interest rates, and security prices. That is to say, ceteris paribus, when the Federal Reserve buys securities in the open market, bank’s reserve accounts (deposit and assets) increases and when the discount rate is lowered it reduces the interest rate in the economy, thereby promoting borrowing, excessive spending by the economic agents, possibility that household, business and government will invest in fixed assets, increment in household purchasing durable goods (plant , state and local government and construction of new
To begin, the article explains the Federal Reserve’s plan to take a careful approach to enacting contractionary monetary policies, policies used to decrease money supply, in the future. Last December the Federal Reserve raised the interest rates after they had been near zero for years to ensure inflation was kept in check and to promote economic growth. It appeared the economy would be in for another increase in the interest rates sometime this year, but the Feds have rethought that strategy. If the Federal Reserve were to continue to raise interest rates it would have short-run and long-run effects on the Money Market, Goods and Services Market, Planned Investment, Phillip Curve, and Aggregated Supply and Demand. These effects are aspects that have to be considered because they express and explain the effects the increase in interest rates has on the economy and explain if the Federal Reserve is enacting the correct policy to achieve their goal.
Rates on mortgages and other types of loans have been fairly low, creating more access to capital for businesses and making big-ticket purchases more affordable for consumers. If the FED raises the interest rate it will have several effects on the consumer. It will reduce their purchasing power and consumers shopping habits will be influenced. The decrease in purchasing power leads to a decrease in
increased interest rates. Lastly, is the inability to start new businesses, which would benefit the
Ronald Reagan once said, “ In a world wracked by hatred, economic crisis, and political tension, America remains mankind's best hope.”America may be mankind’s best hope, but will it remain that way? America is the beacon for freedom and equality, but with the recent election, it may difficult for us to remain a country full of diversity and hope. In order for the United States economy to prosper, the government must control inflation rates, raise employment rates, and change the current income inequality ratio.
A: Investment spending depends on interest rates due to opportunity cost and risk. For example, when interest rates rise, the opportunity cost of your investment also increases. When interest rates are higher investors are willing to pay less for payment in the future. Which in turn leads to a lower rate of investment. The opposite can be said for falls in interest rates that are met will lower opportunity costs.
Inflation in America has been on the rise in the past decade. As the goods needed continue to increase, the cost goes higher. “I haven’t yet defined the word “inflation.” Now we’re ready: inflation is a rise in the general level of prices as measured by a price index like the CPI. Inflation is not a rise in the price of a particular good or service, such as gasoline. An increase in real gas prices is called an increase in the relative price of gas. And the rise in the nominal price of gasoline is meaningless since it doesn’t compare gas prices to any standard such as a price index or the price of another good.” (Luis D Johnson March 21st, 2012)
In the book To Kill a Mockingbird many people are judged based on what they look like. Mayella Ewell is not one of them. Mayella Ewell was a white girl from a town called Maycomb, Alabama during a very racist time period. She deliberately lied to the jury to put Tom Robinson in jail for a crime that he did not commit. In the story a black man named Tom Robinson is accused of raping Mayella Ewell. However Tom never did rape her. Mayella comes from a poor, prejudiced family that was not very respected by the town of Maycomb. When Mayella accused Tom Robinson of raping her, they would gain sympathy and respect from the town that they did not deserve. She ruined someone else's life because she felt bad for herself and could not make something of herself. Mayella is not a sympathetic character because she lied while under oath in the courtroom, she let her father make her decisions and she attempted to seduce a married man.
The economy is known as a new emerging economy especially after entering WTO in 2007. The Foreign Direct Investment (FDI) has increase considerably and the GDP is over 8% in the period of three years (2005-2007). Nonetheless, it is clear that the economic instability occurs after WTO accession of Vietnam 1 year. Consequently, the economy has suffered surging inflation as well as trade and fiscal deficit. (Figure 1)
Having joined the World Trade Organization (WTO) in November 17, 2006 opens to Vietnam lots of advantages regarding the economy. According to the major principles, joining WTO brings Vietnam to the expansion of market and increase in exports. Especially in agriculture and textiles, WTO has set out various measures to gradually eliminate
Lowering interest rates is an effective way to stimulate and improve the economy. When rates are lower, it is easier and more affordable to borrow money. This encourages spending and investment, both which help propel the economy forward.
I Poonam Pillai hereby declare that the term paper report titled study on Inflation in India that I have submitted is original. I was in regular contact with nominated guide and contacting him for discussing the project.