Economics Assignment

‘1. When there is an economic equality, more people are stimulated to work harder. Since people work harder, they would generate more income. Income contributes to the growing GDP which is also a good sign of economic growth.

3. According to the U.S. Department of Health and Human services, under the Affordable Care Act, average savings for those enrolled in traditional Medicare will amount to more than $3,500 over the next 10 years.  Savings will be even higher – as much as $12,300 over the next 10 years – for seniors and people with disabilities who have high prescription drug costs. INDEED, The analysis, released by the Office of the Assistant Secretary for Planning and Evaluation (ASPE), shows that the Affordable Care Act helps lower costs for those on Medicare by slowing the growth of cost-sharing in Medicare.  Closing the Part D coverage gap known as the “donut hole” will produce the greatest cost savings

4. The CBO report said the Affordable Care Act reduces the budget deficit by $143 billion between 2010-2019. Many people were understandably skeptical that a $940 billion program that expands health care coverage also saves money. That’s because the ACA legislation has taxes and fees that more than offset the cost.

7.Increasing inequality strongly accounts for increasing aspirations of income, increased consumption, decreased savings, and increased debt.pursuing equality could reduce efficiency (the total output produced with given resources) by reducing incentives to work, save, and invest and through the “leaky bucket” of wasteful government efforts to redistribute (such as a progressive tax code and minimum wages). Some resources “will simply disappear in transit so the poor will not receive all the money that is taken from the rich”.[4] AThe person with a higher income and wealth displays a higher marginal propensity to save as compared to one with a low asset base. This saving is then turned into investment. Wealth begets more wealth but only for the lucky few. so that more inequality would lead to higher overall savings and thus capital accumulation and growth

8. Britain may be in the front line of the Euro crisis, but it is not the only country affected. The Eurozone is a massive market for businesses from the United States, China, India, Japan, Russia and the other major world economic powers. China has considered lending money to Europe, they are that concerned that the Euro may collapse. Meanwhile, the International Monetary Fund (IMF), which was set up to help countries in economic difficulty, set aside hundreds of billions of dollars for a bailout of some of the Eurozone countries. The wider world is so keen to see the Euro survive — even if that means it has fewer members — for the following reasons.

  • To preserve the Eurozone’s massive consumer market. A staggering 322 million Europeans use the Euro every day. It’s the currency of seventeen nations. Besides daily activities, these people use the Euro to buy goods and services from overseas — if there was a collapse in its value, then they would be less able to buy imports.
  • To prevent a global recession. A collapse of the Euro or a situation where some European governments would be unable to repay their debt would have a huge, negative impact on the world economy. It would resemble the financial crisis of 2007 and 2008 (in truth, it could be much worse than that). At the very least, businesses around the globe would think twice about investing and taking on new staff while others might start to trim their operations and cut jobs. A global economic recession would be highly likely.
  • To protect the world financial system. Banks around the globe have invested in the government debt of Eurozone countries. These banks also hold large amounts of Euros. If the current crisis gets much worse, then the government debt and currency that they hold will fall in value, which could undermine their own financial well being. It could be like the 2007 and 2008 financial crash all over again, with the global banking system under threat. This would be bad news for everyone.

It’s not just the 322 million people in the Eurozone which depend on their currency — there are 150 million people in African countries whose currencies are pegged to value the Euro. If the Eurozone fragments and the value of the Euro collapses, these African countries will see the value of currency collapse too.

The global economy is interrelated, so if major trading blocks like the Eurozone or countries like the US or China go into recession, it’s likely to affect economic growth around the world.

9. Mainstream economics since the Great Depression is Keynesian economics. The overwhelming majority of economists around the world believe it is appropriate for the government to take actions to promote economic growth and to maintain low unemployment and low inflation. The debate in the United States is not whether the government should try to achieve these goals. Instead, the discussion is about what the government should do. Essentially, Republicans argue that public policies should primarily benefit businesses and the wealthy because they are the job creators. Democrats respond that making the wealthy richer will not cause them to hire more workers unless there is a significant increase in the demand for goods and services. Democrats favor policies with broader benefits because they believe increasing the overall demand for products will increase employment. Very few people argue that the government should do nothing to reduce unemployment, maintain stable prices, and promote economic growth. Indeed, the mood of the country is “they have not fixed the economy, so throw the bums out.”

10. Determinants of firms productivity in a market driven economy

  •  technological change:
    • –  technological advances that are embodied in capital equipment are reflected in
      improvements in LP (through capital deepening);
    • –  disembodied technological change is reflected in MFP;
  •  human capital improvements;

3

– because improvements in human capital are not captured in the labor input, their contributions to productivity are captured in MFP1;

reductions in inefficiency;

– if firms are operating inefficiently, movements toward best practice will be reflected in LP through capital deepening (if it involves investment in new capital) and especially in MFP;

scale economies;
– even though the measurement method assumes constant returns to scale, any increasing returns to scale are picked up in MFP growth2, and composition effects;

– since the levels of productivity differ between industries (even if all firms are operating at their own maximums of efficiency), a shift of resources from low to high productivity (level) industries will raise average productivity and will, therefore, be reflected in aggregate LP and MFP growth.

ex: Forbes nominated Johnson&Johnson as the most productive drugs companies. It has found 13 new drugs of past 10 years, Employees: 127,600, Sales: $67.22 B

Debt $16.16 B

11. The company added the iPad Mini to its lineup, renovated its top-of-the-line smartphone with the 5S, expanded the iPhone line with the 5C, and released iOS 7, the most significant upgrade to its mobile operating system in years. And it managed all that while adding a low-carb “paleo” food station to its cafeteria.

It also reshuffled its executive ranks, showing talented-but-divisive iOS chief Scott Forstall the door and splitting his responsibilities between Jonathan Ive, Apple’s chief designer, and Craig Federighi, who heads software at the company.

12. Quantitative easing involves central bank buying short-term government bonds in order to lower short-term market interest rates. It can be used to help ensure that inflation does not fall below target.[8] Risks include the policy being more effective than intended in acting against deflation (leading to higher inflation in the longer term, due to increased money supply),[17] or not being effective enough if banks do not lend out the additional reserves.[18] According to the IMF and various other economists, quantitative easing has undertaken since the global financial crisis of 2007–08 has mitigated some of the adverse effects of the crisis. Due to the deflation, a country would have a comparative advantage. As the price to buy a particular currency falls so too does the real price of exports from the country. Imports become more expensive. So domestic industry, and thus employment, receives a boost in demand from both domestic and foreign markets.

13. Austerity means efforts to reduce the budget deficit. Austerity involves higher tax and cuts in government spending. In theory,  this should reduce the budget deficit. However, austerity policies also have an impact on economic growth.

  • Higher taxes reduce consumer spending
  • Government spending cuts also lead to lower aggregate demand, for example, public sector pay freezes reduce consumer spending.  Public sector job cuts lead to higher unemployment
  • Loss of confidence associated with ‘austerity policies’ – encourages higher saving and less spending.

The impact of austerity policies will be to reduce the rate of economic growth and possibly push the economy into recession. This will increase the cyclical part of the budget deficit. Lower economic growth reduces tax revenues, higher unemployment leads to higher benefit spending.

14. Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the economy when the current monetary policy has become ineffective. A central bank implements quantitative easing by buying specific amounts of long term financial assets from commercial banks and other private institutions, thus increasing the monetary base and lowering the yield on those financial assets

Indonesia as an emerging country economy has been highly impacted by the Fed’s quantitative easing program. A significant portion of the money flowed to lucrative assets in Indonesia’s emerging markets. However, when in May 2013 the Fed started to speculate about an ending of QE3, a shock went through global stock markets. US dollars were pulled out of emerging markets thus putting pressure on currencies and stock indices of emerging markets.

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