What is an international bank? How do international banks compete?
What is an international bank? How do international banks compete? The banking system became internationalised in the 1960s and since then it has been one of the most dramatic trends in the economy. The other two major trends in international and domestic banking are globalisation and securitisation. There are three definitions of an international bank according to Prof. Aliber. A bank may be said to be international if it uses branches or subsidiaries in foreign countries to conduct business. Secondly, a bank may be said to be international if it relates to the currency denomination of the loan or deposit independent of the location of the bank. And the last way of defining international banking is by the nationality of the customer and the bank. The definition for international banking includes location of parent banks and their banking facilities, residency of customers and currency denomination. The existence of international bank service activity is explained by the international trade theory. Banks engage in international banking activities because of the theory of comparative advantage. When a country produces a good or a service at its highest efficiency in that particular country it is said to have comparative advantage. The economic welfare of a country will therefore increases if that country will export its good or service in which it has comparative
Discuss the effectiveness of a fiscal policy in reducing unemployment
A fiscal policy is a type of government introduced macro-economic policy that aims to influence aggregate demand. The policy uses taxation and government expenditure in the form of a loose or tight fiscal policy. A loose fiscal policy would be used to tackle unemployment as this involves cutting taxation and increasing government taxation, an increase in indirect or direct taxes and increasing government expenditure. This is effective policy in the sense that a reduction in taxation, in theory would increase consumer expenditure as since taxation is low, individual discretionary income would increase and be spent on purchasing goods in the economy. There are however limitations to its effectiveness as it only potentially only deceases demand deficient unemployment but not any of the other three forms of unemployment: structural unemployment, frictional unemployment and real wage unemployment, which are mostly long term and will be better solved by the application of supply side policies. Fiscal policy would only be used as a short term solution to unemployment and is not sustainable. There are other factors external to the fiscal policy that can limit its effectiveness such as interest rates. Interest rates have substantial impact on the levels of spending by consumers. If interest rates are high a loose fiscal policy is introduced then the levels of consumer expenditure
Stimulating an economy in recession
Ranamae Zamora Economics Assignment: Stimulating an economy in recession March 27, 2007 . How might a government attempt to stimulate an economy which is in recession? Recession occurs when the economy experiences two consecutive quarters of falling Gross Domestic Product (GDP). GDP is the accounted money value of the goods and services produced in an economy. Recession shows how economic activity slows down and falls over a period in time. The decrease in GDP is shown in figure I where the real GDP trend goes below the potential real GDP. During this period there is rising unemployment, decreased output, decreased consumption and interest rates, and deflation (decrease in price level). A decrease in the components of aggregate demand (AD) such as consumption, investment and government spending as well as an increase in the components of aggregate supply (AS) such as the price of labor and price of inputs would be some of the causes of recession. So to stimulate an economy during this period the government can cause a change in the components of aggregate demand and aggregate supply. The government may use expansionary fiscal policies that influence the AD curve by decreased taxation and increased government spending. A decrease in tax would increase consumption because of an increase in disposable income and would therefore increase AD. This is shown in figure II as a
To what extent is inflation a serious economic problem.
To what extent is inflation a serious economic problem Inflation is defined as the general and sustained increase in prices of goods and services. It is caused by many factors, but in particular three factors have a major effect on the value of inflation. The first cause is too much demand within the economy. This occurs when an increase in demand cannot be countered by an increase in production in the short term due to fixed factors (e.g. land) and so producers will increase the prices to decrease demand for their products. Aggregate demand, the demand within the whole economy, suddenly rises for a product for two reasons in particular. The first is that inflation has been so low in the economy that tax revenue, for example has been falling, due to less spending and increased saving, so in order to 're-flate' prices. They provide subsidies and ask for a lowering of interest rate to boost spending and 're-flate' the economy. The second reason maybe that greater consumer confidence within the economy has lead to increased spending and thus Aggregate demand increasing. This will mean that prices for consumers have risen, due to producers 'pulling' up their prices. There could be a disadvantage to pulling the prices up. To begin with, by pulling prices up, in the future, demand will fall and we will see that profits fall for producers, as a result of less revenue. Thus
Discuss the extent to which a reduction in the rate of interest can be effective in increasing consumer expenditure and investment.
Interest rates are rates charged by the banks and financial institutions on borrowers and savers and depend hugely on the base rate set by the central bank. A cut in interest rates is mainly used in monetarist policies, and in this case a cut in interest rates will belong in a loose monetary policy. Interest rates are normally used to influence levels of aggregate demand. Lower interest rates would mean that saving becomes unattractive as the rate of return on savings is much less, it would mean that mortgage payments will also be lower as it is based on interest rates and also credit is easier to obtain. Consumers will therefore increase their spending on goods and services within the economy as their discretionary income would have increased dramatically. Increases in consumer expenditure will most likely increase aggregate demand as consumer expenditure is a component of aggregate demand. Increases in aggregate demand will promote further rounds of spending in the future as unemployment levels will be lower and economic growth will be higher hence giving consumers more confidence to spend more, therefore interest rates are effective in increasing consumer expenditure. Lower interest rates will also increase investment levels within the economy due to the same reasons mentioned above that will increase consumer expenditure. Lower interest rates would mean to businesses
Discuss the effectiveness of fiscal policy measures in reducing aggregate demand?
Discuss the effectiveness of fiscal policy measures in reducing aggregate demand. Fiscal policy is the use of taxation and government spending to influence the economy. In most cases, fiscal policy is used to manage the total spending on goods and services produced in the economy. Total spending is also known as aggregate demand, which contains consumption, a major part, investment, government spending, and export - import. Theoretically, any increase in all sorts of taxes could lower the total demand, which could also be achieved through a reduction in the government spending. But AD does not work solely in the economy, its interaction with AS could bring different changes in the economy as in different situations. That is because the resources in the whole economy are constant in the short run, which would only produce certain amount goods and services at a certain period of time. At the very beginning, resources are not being fully used, spare capacity enable an expansion in the production. This process would generate more income without raising too much inflation. In the second stage, part of resources are used up, any increase in demand won't bring any increase in the level of output, but on the other hand, inflation could occur because any increase in prices would discourage potential buyers which cut off the excess demand. Next, almost all the resources are being
Discuss the extent to which the use of trade barriers by developing economies is an appropriate policy for such economies.
Discuss the extent to which the use of trade barriers by developing economies is an appropriate policy for such economies. Protectionist measures are those such as tariffs, quotas, subsidies and regulation. Tariffs are taxes on imported goods which create revenue for the government and protect domestic industries from the high pressure of the world trade market. Quotas are limits on the amount of imports allowed in a country. Subsidies are given to the producers in order to reduce costs and encourage production in that sector. A developing economy may decide to enforce tariffs on its importers. The government may d o this to discourage imported goods from being bought and encourage the demand for domestic goods. This would lead to domestic business's increasing output and therefore there would be an increase in employment and the economy would see a growth in its GDP. The tax on imports would generate more revenue and allow the governments to spend in the economy, especially on education, health and infrastructure which is what many developing economies struggle with. This would therefore lead to an increase in aggregate demand. With the price of imported goods being higher than domestically produced ones, in the long run foreign suppliers are likely to decrease supply to those nations with tariffs, due to the lack of demand. Again this would stimulate growth in domestic
Economic and Social consequences of Unemployment
Economic and Social consequences of Unemployment Unemployment has both social and economic costs. According to ILO (International Labor organization), unemployment is defined as, '' people of working age who are without work, available for work and actively seeking employment.'' In other words, it is a state of an individual looking for a job but not having one. Unemployment is one of the factors crucial in determining the economic stability of a country. There are several factors which might lead to unemployment such as labor market conflicts (trade-unions) and downturns in economy. Seasonal unemployment occurs when a person is unemployed or their profession is not in demand during a certain season. On the other hand, cyclical unemployment is when there is less demand for goods and services in the marker so the supply needs to be reduced. There is myriad number of social and economic problems related with unemployment. The reason why government stresses much on reducing the unemployment levels is because it poses a great cost on an economy. In case of unemployed people themselves, they will receive less or no income based on whether or not they receive unemployment benefits from the government. Reduction in income means less spending and therefore lower standard of living. The cost of unemployment worsens the longer a person is unemployed because it affects as he becomes
Assess the importance of international trade to the UK economy
Assess the importance of international trade to the UK economy Introduction International trade is an essential feature of the UK economy, it is vital for the UK so that it can sustain its economics strengths and progress in an increasingly competitive global economy. In this essay I shall examine the significance of international trade. First I shall identify how the UK economy operates on an international level. Second, I shall consider the costs and benefits of international trade, and how the UK economy has been influenced by international trade and the consequences of an increasingly globalised economy. As we shall see, international trade has been vital for the UK economy to develop throughout the colonial period, and the post war period. The issue of globalisation has created clear economic uncertainty and the evident understanding that the UK economy is susceptible to effects that are clearly outside its realm of influence. Introduction to International Trade International Trade can be phrased as "the exchange of goods and services across international borders (Wikipeda.com). In most countries, it represents a significant share of GDP. The significance of international trade varies within each economy. Some nations export essentially to expand their domestic market or to aid economically depressed sectors within the home economy. Many other nations rely on
GDP, or Gross Domestic Product.
GDP, or Gross Domestic Product measures the total value of goods and services produced in the economy over a given time period. This time period is usually yearly, but Gross Domestic Product can also be measured quarterly. There are three methods of measuring national income, and all three of them can be applied to Gross Domestic Product. They are income, expenditure and output. In theory, all three methods should produce the same outcome, but in practice differences arise due to errors and difficulties in the compilation of the statistics. Gross domestic product can be shown as follows: GDP = C + I + G + X - M where C = Consumption I = Investment G = Government spending X = Exports M = Imports I is composed of two parts. GDFCF is gross domestic fixed capital formation and secondly, net change in stocks. In order to increase the accuracy of National Income (Yn) figures when using the expenditure measure, it is necessary to remove the distorting effect of expenditure taxes and subsidies. This process is known as the factor cost adjustment and involves the deduction of the value of expenditure taxes and the addition of the value of any subsidies. A further distortion to Yn figures is the rate of increase in prices (inflation), and a statistical adjustment is necessary to remove the impact of inflation. This statistical adjustment is known as the GDP deflator.
