Essay on Monetary Policy

The conflicting and perplexing observation that water, which is more useful than diamonds, is priced lower than diamonds was proposed by economists in the 1800s as a means of understanding the role utility plays in the demand and price of a good by differentiating between total utility and marginal utility. Adam smith is considered to be the first presenter of this paradox. The diamond - water paradox states that even though water which is relatively more useful for human activity (it is…

. What is inflation risk? Inflation is the rise or fall of a price by a certain time. It could something right now then be raised tomorrow or fall tomorrow. This makes it difficult to buy items at a certain time because everyone wants to save money, so if they hear that its 900$ tonight and tomorrow it’s going to be 1200$ then you’re going to want to get the item tonight. Black Friday is a big example of inflation risk. 2. What are opportunity costs? Give an example of an opportunity cost. It…

Introduction Individual’s behaviors significantly affect the decision making when they participate in the financial market. This phenomenon gives a shock to rational assumptions related to the traditional economic theory. For figuring out the principles and motivations behind decision-making process, behavioral economics has been widely discussed more than ever. Endowment effect, as one of economic phenomenon, arises from economic activities affecting preference and value construction (Ariely…

The world consists of various economies with their different growth margins. These economies have been classified based on level of development, growth stages and emergence. These classifications are inspired by GROWTH THEORIES/MODELS. Growth theories are speculations used overtime to classify economies or determine development in an economy. Under Growth theories we have:  Endogenous Theory/ New Growth Theory  Exogenous Theory/Solow Growth Theory The above theories are used in illuminating…

Q1. The main function of money is to serve as a medium of exchange. It also serves as a unit of account and as a store of value. Explain the problems hyper-deflation causes for Bitcoin in its functions as money. Hyper-deflation occurs when the general price level of goods or services in an economy falls drastically in a short period of time, this causes people to horde their currency instead of spending it in the hope that they will get more for their money in the following days, weeks or years.…

The Money Multiplier is the mathematical expression that shows the relationship between the monetary base of an economy and the money supply. Usually, it describes the increase of money in circulation created by banks (Blanchard, 2006). On the other hand, the Income-Expenditure Multiplier is the ratio of change in aggregate production to an autonomous…

While microeconomics is the study of individuals and their business decisions, macroeconomics looks at larger decisions, I.E, Country and Government decisions. Microeconomics is normally the study of individualsand business decisions, macroeconomics looks at high up nation and government decisions . Macro economics and micro economics, and the wide spectrum of of the number of underlying concepts, has been the subject of a great deal of writings. The field of study is quite larget; and…

variables. The business cycle is also called a boom-bust cycle or an economic cycle. It is characterized by a boom in one period and a breakdown in the consequent period in the financial exercises of a business. These tremendous fluctuations in the monetary activities are actually called phases of the business cycle. A business cycle is normally categorized into five phases such as Expansion, Peak, Recession, Trough, and Recovery, which repeat themselves over the time. Let’s discuss the…

The articles, “Ten years on; International banking”, “When the music stopped; A brief history of the crisis” and “The millennial problem; Recruitment” by The Economist, were all very insightful into the 2007 financial crisis. It’s crazy to think that over a decade has passed and the country still has not fully recovered. Prior to reading these articles, I knew very little about the financial crisis and all its consequences. I was aware the financial crisis was due to banks lending out loans to…

The general sentiment of the stock market can be defined bullish or bearish and the market on the whole can be called bull market or a bear market. A bull market indicates positive sentiment with uptrend in the stock market. On the other hand a bear market indicates downtrend in the stock market with negative sentiment. Uptrend means that the stock price is showing appreciation while downtrend means that with time the stock price is having depreciation. Stocks too can be defined in terms of…