What are the Problems and Possibilities of Economic Monetary Union?
What are the Problems and Possibilities of Economic Monetary Union? European Monetary Union (EMU) was first introduced in 1969 at a summit of the European Economic Community in The Hague, the members arranged to endeavour and reduce the fluctuations in their currencies in order to coordinate national policies. 1 (McCormick). Jacques Delores, in 1989 as the president of the Commission decided to introduce a 3 stage plan designed to increase the movement towards EMU, the plan attempts to fix exchange rates and introduce a single currency, the Euro. This plan was not completed until 2002 when the Euro coins and notes began circulating. In order for members of the European Union to join the Euro they were subject to convergence criteria, which confined the levels of government debt and national debt, inflation rates, exchange rates and interest rates the member country is allowed to have. Converging to these criteria and adopting the Euro has provided many different outcomes, some of which are negative and other which will benefit the economies of the member countries. This essay shall examine the problems and possibilities of European Monetary Union in order to determine whether EMU is beneficial to all that have taken part, and to discover where Economic Monetary Union is headed. In order to be part of the Economic Monetary Union, the member countries adopted the Euro
Factors Which Effect Interest Rate Developments Within The United Kingdom
ECN2005: Financial Economics Assignment 2 (replaces ECN2005PS) Anthony Silk (20079491) Factors Which Effect Interest Rates Developments Within The United Kingdom In the UK, Interest Rates are now set by the Bank of England since it was granted operational independence in May 1997, and represent the rate of interest paid on borrowed money or alternatively measure the rate of return on savings. In the following graph we can see how interest rates have fluctuated since 1997; [www.tutor2u.net/economics/topics/monetarypolicy] Such rates are determined by the MPC (Monetary Policy Committee), and have differed over the years due to many different factors, in particular the governments desire to maintain a stable economic system. The following report aims to discuss in detail the various factors that affect such Interest Rate developments. In a very simplistic sense, a key factor that affects changes in real interest rates can be viewed in the following diagram, showing the market for loanable funds. Here, we can see that the total supply of savings is at it highest when interest rates and the quantity of loanable funds are at their highest, and alternatively the demand for credit and loanable funds are at their highest when interest rates are low. By plotting these to curves, we can calculate the equilibrium rate of interest, and would be able to see it move in relation to
"It was a supply-side shock, not deflationary monetary and fiscal policies, which initiated depression in 1920 and contributed to the subsequent slump". Discuss.
"It was a supply-side shock, not deflationary monetary and fiscal policies, which initiated depression in 1920 and contributed to the subsequent slump". Discuss. Jaede Tan December 2004 During the immediate aftermath of the First World War, Britain experienced an economic boom, during which nominal wages, real G.D.P and industrial output all rose, whilst wholesale prices rocketed to three times their pre-war levels1. The boom effectively lasted just over a year, starting roughly six months after the war ended, and breaking in the second quarter of 1920. Howson estimates that by the end of 1919 both industrial output and real G.D.P had risen to their 1913 pre-war levels, whilst Pigou states that between April 1919 and April 1920, nominal income rose roughly 25-35%.2 Whilst the causes for the boom are generally and widely attributed to demand-side factors, such as increased consumer saving during the later years of WWI and hence a build up of effective consumer demand coming out of the war, the causes of the slump that quickly followed Britain's post-war boom have been more widely contested. Of the many schools of thought on the issue, the two that are most widely documented are the "supply-side shock" argument and the effects of monetary and fiscal policy. During the course of this essay I will examine the effects that both supply and demand side shocks had on the post-war
"Keynesian policies are incompatible with price stability" "Monetarist's policies are incompatible with full employment". Discuss the validity of these two statements.
"Keynesian policies are incompatible with price stability" "Monetarist's policies are incompatible with full employment". Discuss the validity of these two statements Every school of thought is like a man who has talked to himself for a hundred years and is delighted with his own mind, however stupid it may be. (J.W. Goethe, 1817, Principles of Natural Science) Keynesian policies are incompatible with price stability. How? * Markets need help to clear o The economy can be at equilibrium at many different times, not just at full employment * When inflation increases, tighter monetary policy may be used to cool it off, which will weaken AD? Is this contrary to Keynesian belief? * Keynesian economics is a theory of total spending [AD] in the economy and its effects on output and employment o AD is influenced by public & private economic decisions, which are determined by political outcomes/economic objectives or consumer/producer expectations o Some Keynesians believe in debt neutrality, which contrarily purports that consumers use rational expectations and will assume low taxes as a long-run liability and save accordingly. * Believe AD has its greatest impact in the short run on output and employment, not on prices o Phillips curve * Demand side policies alone cannot succeed completely * There will always be unwanted inflation and unemployment o Inflation
"A crucial element for the stability of the EMS is the perception on the part of the financial markets that the authorities are strongly committed to defending their exchange rates" Discuss.
"A crucial element for the stability of the EMS is the perception on the part of the financial markets that the authorities are strongly committed to defending their exchange rates". Discuss this statement with reference to the roles that speculators and German reunification had in the EMS crisis of 1992/93. How did the crisis influence the future path of monetary integration? A fixed exchange rate regime operated in Europe in the post war period until the early 1970s. The European Monetary System replaced Bretton Woods; it begun in 1979 and ended on 31 December 1998, with the launch of the Euro. The EMS was an example of an 'incomplete' monetary union, and it had two principal components - the Ecu, and the Exchange Rate Mechanism (ERM). The ERM was a predecessor to the Euro, but the first direction towards a common currency in Europe was the 1957 Treaty of Rome. Although its aim was a common market - not a monetary union - the Treaty did aspire towards the liberalisation of capital flows (which is a feature of a complete monetary union). But the defining event was the Werner Report of 1970, delivered by the Luxembourg Prime Minister. This Report was the first attempt to talk about monetary union, and concluded that it could be a reality by 1980. Although this date was missed by almost 20 years, the Report had no rigid timetable. The 3 stages set out were I) the voluntary
Explain the causes of inflation.
Explain the Causes of Inflation Inflation is defined as a sustained general rise in prices. The opposite of inflation - Deflation - is a term which can have two meanings. Strictly speaking it is defined as a fall in the price level. However it can also be used to describe a slowdown in the rate of growth in the economy. Inflation is measured using either The Retail Price Index (RPI), the Retail Price Index excluding interest payments and indirect taxes (RPIY) or the Retail Price Index excluding mortgages (RPIX). The causes of inflation are down to four main reasons; demand-pull, cost-push, wage-price spirals and money supply inflation. Keynesians have traditionally argued that inflation occurs because of changes in real variables in the economy. One important Keynesian theory is that inflation is caused by excess demand in the economy; known as demand-pull inflation. It occurs when total demand for goods and services exceeds total supply, or in other words when the money supply grows faster than the ability of the economy to supply goods and services. When demand exceeds supply, firms are liable to increase price (as all firms wish to maximise profit), this has no effect on the demand they actually sell as there are excess numbers of people who wish to buy the product. The inflation rate largely depends on the economies output and the closer the AD curve is to full
Using Blanchard's Aggregate Demand and Supply Analysis, explain the view that the biggest risk facing the world economy is deflation, and assess the effectiveness of monetary and fiscal policy to avoid it.
Using Blanchard's Aggregate Demand and Supply Analysis, explain the view that the biggest risk facing the world economy is deflation, and assess the effectiveness of monetary and fiscal policy to avoid it. Within this report, four of the worlds largest economies (US, UK, Japan & Germany), which combined, account for over 60% of world GDP will be referred to, when answering the question at hand. To begin with, the present state of these economies will be examined so as to judge the current macroeconomic status of the world economy. Secondly if the results show that the world economy is in a deflationary phase, the implications of it on the economy as a whole will be explored. Finally the strategies that could potentially be adopted by policymakers to tame deflation will be discussed. The textbook definition of deflation is: a reduction in the level of national income and output, usually accompanied by a fall in the general price level. Furthermore in Japan it means a simultaneous occurrence of a recession and a price decline. (Fig 1) Source: URL address http://www.bls.gov/home.htm (Fig 2) Consumer Prices (Japan): General Index and Percentage change over the Year Source: Statistics bureau (Fig 3) Retail sale volume/ %change over last year Producer prices/%change over last year Stock market/market indices % change on last year in $ terms UK +4.6 -0.2 -17.9
Slovak economic development, measured by GDP, inflation, and Unemployment
Slovak economic development, measured by GDP, inflation, and Unemployment Peter Matay Tomas Koribana Macroeconomics Research paper 20/4/03 Prior to the research, there is need to define, what GDP, Inflation, and Unemployment is. Gross Domestic Product is the value of all goods and services produced in a country during one year.(Macro economy, 11,) The second macroeconomic indicator as well as macroeconomic problem is Inflation. It's occurs when quantity of money within economy increases faster than production showing itself in growth of prices. Unemployment is a problem and macroeconomic indicator as well. When a certain percentage of people that are considered to be a part of labor force, are willing to work but there are not jobs available in the market and therefore they cannot find a job. These 3 macroeconomic indicators and problems (inflation and unemployment), do indicate the state of economy. Also, they influence may the economy in positive and negative way. An example of negative inflatory influence occurred in post war Germany, where the inflation rate was more than 50% and the money had practically no value. The prices of goods and services increased so rapidly, people lost their confidence within the economy. It was calmed just when thigh monetary and disinflatory policy was introduced. Fortunately, with government involvement and concrete disinflatory laws,
The Republic of Ireland's Economy Past, Present and Possible Future and Ryanair
The Republic of Ireland's Economy: Past, Present and Possible Future and Ryanair Having battled through harsh poverty during the early nineties, Republic of Ireland had recently been referred to as a "Celtic Tiger", an analogous term for the East Asian Tigers, the rapidly growing economies of Hong Kong, Taiwan, Singapore, and South Korea. Ryanair's website states that "Ryanair was Europe's original low fares airline and is still Europe's largest low fares carrier." In this text I will attempt to assess the past, current and future prospects of the Irish economy focusing on the key aggregates. In addition, I will assess the vulnerability of Ryanair and its degree of exposure to macroeconomic shocks. Furthermore, I seek to advise them on an appropriate strategy to manage uncontrollable external shocks. In the past, Ireland has been on the receiving end of a lot of economic devastation. Pre-independence, it was the recipient of two famines in the eighteenth and nineteenth century. "Between 1845 and 1850, the population fell by about 2 million, 1 million died and 1 million emigrated." (Munck, 1993, p.14) Furthermore, after the Irish War of Independence in 1921, Ireland gained independence from Britain and later formed the Republic of Ireland. However, it wasn't all good news for the new state. The economies of the Northern and Republic of Ireland were very weak.
The Federal Reserve System.
Introduction Before the Federal Reserve System we need to understand why it was necessary to change the system and create a new system .Their was just a banking system in which their was weaknesses that gave rise to the Federal Reserve System. It is important to know the history of the banking system, and why the Federal Reserve System is more efficient than the classical old banking system. In 1863 and 1864 National Banking Acts were passed to provide for the national banking system. With the acts passed the banks were allowed to receive national charters, capital and set reserve requirements on deposits. Banknotes were established, and can be issued against U.S government securities which are owned by the banks, but held at U.S treasury department. During this period state-chartered banks and un-chartered "Free Banks" took action; issuing their own notes. Demand Deposits were used to enhance commerce. The main problem with the national banking system was that it lacked the ability to carry out other bank activities that were essential to a functional operating financial system. There are three important requirements for a banking system to operate functionally and that includes first an efficient national system, second an "elastic" or "flexible" money supply such as fiat money which is backed by government, and third a lending and borrowing