2008 Economic Crisis

Generally it is observed that when income increases, consumption also increases but by a less proportion than the increase in income. Suppose the total income of the community is 10 crore and the consumption expenditure is also Rs 10 crore. In that case, there is no saving and investment. Further the income increases to Rs.15 crore. Then, consumption also increases, but not to the extent of Rs15 crore. It may increase to Rs14 crore and Rs 1 crore constitutes the savings. This savings create a gap between Income and Consumption. This gap is in conformity with Keynes Psychological law of consumption, which states that, when aggregate income increases, consumption expenditure shall also increase but by a somewhat smaller amount". This law tells us that people fail to spend on consumption the full amount of increment in income. As income increases, the wants of the people get satisfied and as such when income increases they save more than what they spend. This law may be considered as a rough indication of the actual macro - behaviour of consumers in the short run. This is the fundamental principle upon which the Keynesian consumption function is based. It is based upon his observations and conclusion derived from the study of consumption function. This law is also called the fundamental law of consumption. It consists of three inter related propositions: # When the aggregate income increases, expenditure on consumption will also increase but by a smaller amount. 2. The increased income is distributed over both spending and saving. 3. As income increases, both consumption spending and saving will go up. These three prepositions form Keynes psychological law of consumption. As consumption expenditure progressively diminishes when income increases, a gap between income and expenditure arises. This tendency is so deep rooted in people's habits, customs, and the psychological set up that it is difficult to change in the short run. Hence, it is impossible to raise the propensity to consume of the people so as to increase the national output, income and employment. Increasing the volume of investment in an economy can only fill up the gap between income and Consumption.

You could consider the iShares Lehman Aggregate Bond Fund (AGG), an exchange traded fund (ETF) managed by Barclays that "seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the total United States investment grade bond market as defined by the Lehman Brothers U.S. Aggregate Index." At 0.20%, the fund expenses are low compared to a traditional mutual fund. You can find more information on ETFs using tools such as the Fidelity Fund Screener (see Related Links).

Probably a bit. As demand for Indian services might take a hit on Indian job market . Pay packages might shrink a bit and property bubble might bust.

India internal demand for infrastucture related industries might hold...but the cionsumer demand might be bit low

ANSWER

India has one of the broadest amount of industries which it relies on. Some of the major factors include the Tourism Industry, the Spice industry, the Music and Movies Industry and the demands for infrastructure as mentioned above. If the US markets fall (as they are falling) many of these factors will be affected, the world will be affected and like a chain reaction (the great depression as example) India is sure to be hit hard, although if most of the major countries in the world remain intack, then India will breeze through the crisis.

(the world is heading towards a reccession so this would be no surprice (it had been predicted by economists at the beggening of the financial year of 2008))

dahil sa ang mga bilihin ngayon ay mahal hindi sakto sa kinikita ng mga tao at lahat o karamihan sa ating mga bilihin ngayon ay iniaangkat pa sa ibang bansa na sa halip tangkilikin ang sariling atin.

the banks go bust, yea

The macro environmental factors that affected Target's performance during the period were related to the demographic, economic, natural, technological, political, and cultural. The shifting dynamic between Target and Wal-Mart was the change in economic conditions such as Unemployment, sliding GDP growth which created an environment where most of the customers had less income.

They should have followed their word "Pay Less" in their slogan. Target should have incorporated a feedback customer survey number online for consumers for feedback in case they needed to fix any external issues that buyers have had and why they choose to do business elsewhere.

congress is primarily responsible for the economic collapse of the economy in 2008. president obama placed the blame squarely on president george w. bush when he stated that, as he walked into the oval office of the white house, '...wrapped in a nice bow was a $1.3 trillion deficit sitting right there on my doorstep." however, obama raised it over $200 billion in 2009.

congress is in control of government revenue under its constitutional responsibilities. house speaker nancy pelosi and majority senate leader harry reid "inherited" a $160 billion deficit in january 2007, then quickly added $1.2 trillion to the deficit three years later. unfortunately, president bush signed these increases into law which were passed by the democratic congress. it is ironic that speaker pelosi stated that "Our new America will provide unlimited opportnity for future generations, not burden them with mountains of debt."

the 9/11 attacks on the united states weakened the economy and the actions of the democratic congress made matters so much worse. the pelosi/reid economic plan completely eliminated the CBO (congressional budget office) projections of a $370 billion surplus null and void. now the projected deficit for the period 2007-2016 is $7.1trillion.

what kind of track record is that for our "future generations" mrs. pelosi?

It occurs when an additional unit of labour employed brings a marginal product greater than the previous marginal product.

Shes pure talent. Just that she is underminde or under rated

mai tumse answer puch raha hu bekuf

This is because America is the world's largest economy. America has 33% of the world's wealth and is going through an economic crisis of their own. Due to the recent increase in global trade and the tying of currencies together (see the Euro), shifts in a huge producer like the US can easily spread to other countries that rely on the US for exports, imports, currency stabilization etc etc.

it would make it more severe, since strict balanced budget refers to increase in taxes and reduce spending by the governmnet...

Yes. Inflation causes businesses to have to cut costs, and labor is one of the easily cuttable costs. See the Phillips Curve.

VAT taxes everyone including those less well off, regardless of income and wealth.

The Financial Crisis is a situation where most of the financial institutions or assets lose large part of their value. The recent financial crisis has three main reasons 1.Real Estate Market Crisis 2. Large Economy moved into recession 3. Basic collapse of Financial Institution 1. Real Estate - Subprime lending (near-prime, non-prime, or second chance lending) is a financial term that was popularized by the media during the "credit crunch" of 2007 and involves financial institutions providing credit to borrowers who do not meet prime underwriting guidelines. Subprime borrowers have a heightened perceived risk of default, such as those who have a history of loan delinquency or default, those with a recorded bankruptcy, or those with limited debt experience. Subprime mortgages were actually intended to be temporary loans to borrowers who expected to sell the property early or increase their income soon after purchase. Many property investors, or flippers, also used subprime loans to finance their investment homes. Due to the rise of foreclosure associated with subprime mortgages, attention has been drawn to recent subprime lending practices. It has been suggested that some lenders engaged in predatory lending practices. More extreme allegations included lenders deliberately targeting borrowers who may not have fully understood the terms of their loan, or lending to people who were never likely to afford the interest payments in the long-run. Many of these loans included exorbitant fees and hidden terms and conditions, and they frequently led to default, seizure of collateral, and foreclosure. However, subprime loans are not necessarily predatory loans. A loan is only predatory if the borrower qualified for a better interest rate or loan product but was sold a higher-interest rate loan. A loan is not predatory simply because it has a high interest rate. The Wall Street Journal reported in 2006 that 61 percent of all borrowers receiving subprime loans had credit scores high enough to qualify for prime conventional loans. Subprime mortgages totalled $600 billion in 2006, accounting for about one-fifth of the U.S. home loan market. Generally, the credit profile keeping a borrower out of a prime loan may include one or more of the following: * Two or more loan payments paid past 30 days due in the last 12 months, or one or more loan payments paid past 90 days due the last 36 months; * Judgment, foreclosure, repossession, or non-payment of a loan in the past; * Bankruptcy in the last 5 years; * Relatively high default probability as evidenced by the credit score. * Accuracy of the credit line data obtained by the underwriter. Beginning in late 2006, the U.S. subprime mortgage industry entered what many observers have begun to refer to as a meltdown. A steep rise in the rate of subprime mortgage defaults and foreclosures has caused more than 100 subprime mortgage lenders to fail or file for bankruptcy, most prominently New Century Financial Corporation, previously the nation's second biggest subprime lender. The failure of these companies has caused prices in the $6.5 trillion mortgage backed securities market to collapse, threatening broader impacts on the U.S. housing market and economy as a whole. The crisis is ongoing and has received considerable attention from the U.S. media and from lawmakers during the first half of 2007. 2. Economy Crisis - the subprime mortgage crisis has had far-reaching consequences across the world. As the Tranches of sub-prime debts were repackaged by banks and trading houses into attractive-looking investment vehicles and securities that were snapped up by banks, traders and hedge funds on the US, European and Asian markets. Thus when the crisis hit the subprime mortgage industry, those who bought into the market suddenly found their investments near-valueless - or impossible to accurately value. Being unable to accurately assess the value of an asset leads to uncertainty, which is never healthy in an investment climate. With market paranoia setting in, banks reined in their lending to each other and to business, leading to rising interest rates and difficulty in maintaining credit lines. As a result, ordinary, run-of-the-mill and healthy businesses across the world with no direct connection whatsoever to US sub-prime suddenly started facing difficulties or even folding due to the banks' unwillingness to budge on credit lines. · Observers of the meltdown have cast blame widely. Some have highlighted the practices of subprime lenders and the lack of effective government oversight · Others have charged mortgage brokers with steering borrowers to unaffordable loans, appraisers with inflating housing values, and Wall Street investors with backing subprime mortgage securities without verifying the strength of the underlying loans. Borrowers have also been criticized for entering into loan agreements they could not meet. The crisis itself has a number of dimensions but three in particular are crucial. The first is the build-up of debt, both corporate and household debt, but especially household debt. Linked with this is the likelihood of a return to international monetary instability and of the refusal of the rest of the world to fund US (and UK) trade deficits. The third factor is the effect of the ecological crisis on the world economy, which brings with it the prospect of an end to two decades of low commodity prices. However, these should be seen as medium-term developments, determining the underlying tensions within which more immediate changes take place. The key development of the second half of 2008 has been a dramatic worsening of the first of the dimensions mentioned above; the financial crisis based on the accumulation of debt. The main cause of this has been growing recognition that the quantity of bad debt in the system was much larger than was previously thought. This in turn led to confusion amongst the US ruling class about the way to respond to the rising number of loan defaults. Unwillingly forced to nationalise the mortgage companies Fannie Mae and Freddie Mac (largely as a result of pressure from Chinese and Japanese investors in these companies) they then switched abruptly to allowing a leading investment bank, Lehman Brothers, to fold. The immediate effect of the recognition of the bad debt in the housing market is that a large amount of capital which was valued at a certain amount, on the basis that the housing loans would be repaid in full, is no longer worth what was originally envisaged. This capital falls into two categories. Firstly, there is the capital directly tied up in providing housing linked to sub-prime mortgages, both the loan capital used to provide the mortgages and capital employed in construction and housing development. Secondly, there is the capital in other industries which has been invested in the expectation of demand originating from a booming housing market; in particular that which depends on high levels of demand resulting from homeowners borrowing against the equity in their houses - something now unlikely to happen in the foreseeable future.
3. Financial Inst - The financial sector has been quite brazen about trying to shift the cost of the crisis onto labour - even to the extent of formulating plans to use taxpayers' money to maintain bonus payments. The mechanisms for ensuring this shift include the following: * Direct subsidies for the banks funded by the taxpayer * Rebuilding of the profit base by refusing to pass on interest rate cuts to borrowers. This may well be made easier by mergers like the Lloyds-HBOS merger, which will reduce competition and increase the dependence of households on a small number of large institutions * An attack on the job security, wages and conditions of bank staff in order to cut costs. Again, state-sponsored mergers may help this process by providing the means to close branches. * Reduction of the interest rate paid out to savers and depositors To the extent that the state has attempted to act as something other than an agent of capital and to enforce terms on the banks, the banks have responded by threatening to bring the system down if they don't get their way. This has led to some conflict between the government and the banks, particularly with regard to the enforcement of cuts in interest rates. However, the cuts which have been achieved here have come at the expense of even larger cuts in rates paid to savers which have serious implications for both current and future pensioners. In addition, the bail-out as a whole has resulted in a considerable ideological cost both in terms of the reputation of the financial sector within society as a whole (which is probably now at an all time low) and in terms of the increased legitimacy of regulation and even state ownership. It appears most likely at present that the injections of funds made so far have restored a measure of stability to the banking system.

Do you think the standard IMF policy prescriptions of tight monetary policy and reduced government spending are always appropriate for developing nations experiencing a currency crisis

Foreign Exchange being a commodity like any other commodities tends to fluctuate in price from time to time. There are various factors that cause the fluctuation in the rates of exchange; * Rising interest rates cause 'hot' money to flow into the economy, therefore the demand of the domestic currency increases, and thus the currency appreciates in value and demand. * Relative inflation rates, affect the economy's international competitiveness, so if the economy is experiencing higher inflation rate than its trading partners, its purchasing power is eroded and thus the demand for that particular currency. * Speculation normally affects the currency value when there is belief that a particular economy is 'over heating' and that soon there will be devaluation, then chances are high that, speculators will pull out their monies, causing there to be more supply than demand on the Forex for that particular currency, hence its depreciation. * International trade affects the value of a currency, particularly through how much export or imports a nation may have, countries selling so many goods and services to others, tend to appreciate their Forex standards and those importing highly normally have their currency fall in value since they are spending more to their trading partners than they gain from them. * Political and psychological factors are believed to have an influence on exchange rates. Many currencies have a tradition of behaving in a particular way for e.g. Swiss franc as a refuge currency. The US Dollar is also considered a safer haven currency whenever there is a political crisis anywhere in the world. * Governments sometimes participate in the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. This is known as Central Bank intervention. However, the size and volume of the Forex market makes it impossible for any one entity to "drive" the market for any length of time.

France is currently doing nothing.

The basic determinants of investment are the expected rate of return (net profit) that businesses hope to realize from investment spending, and the real rate of interest.

When the real interest rate rises, investment decreases; and when the real interest rate drops, investment increases—other things equal in both cases. The reason for this relationship is that it makes sense to borrow money at, say, 10 percent, if the expected rate of net profit is higher than 10 percent, for then one makes a profit on the borrowed money. But if the expected rate of net profit is less than 10 percent, borrowing the money would be expected to result in a negative rate of return on the borrowed money. Even if the firm has money of its own to invest, the principle still holds: The firm would not be maximizing profit if it used its own money to carry out an investment returning, say, 9 percent when it could lend the money at an interest rate of 10 percent.

Investment is unstable because, unlike most consumption, it can be put off. In good times, with demand strong and rising, businesses will bring in more machines and replace old ones. In times of economic downturn, no new machines will be ordered. A firm can continue for years with, say, a tenth of the investment it was carrying out in the boom. Very few families could cut their consumption so drastically.

New business ideas and the innovations that spring from them do not come at a constant rate. This is another reason for the irregularity of investment. Profits and the expectations of profits also vary. Since profits, in the absence of easy access to borrowed money, are essential for investment and since, moreover, the object of investment is to make a profit, investment, too, must vary.

As long as expected rates of return rise faster than real interest rates, investment spending may increase. This is most likely to occur during periods of economic expansion.

St.Lawrence river connects and drains the Great Lakes . It is the busiest inland waterway of the world It allows large ocean-going vessels from the Atlantic to reach the interior of America . The Mississippi River is navigable up to St.Louis and is also connected by canals to the Great Lakes. Thus opening up the interior of the vast American continent and establishing important river ports.

There are certain criticisms of the dependency theory by certain scholars. Just like any other theory, dependency theory has its share of strengths and weaknesses. To start with, dependency theory has the following strengths. Firstly, the theory analyses the inequality existing between the poor and the rich countries. Moreover, the theory breaks some political bonds and explains reasons why the wealthy nations are taking advantage of the poor countries (Doukhan, 2003). Also, dependency theory dismisses the neoclassical theory's claim that the existing global inequality is caused by the poor countries' laziness. In stead, it argues in favor of these underdeveloped countries and blames the imperialists.

On the contrary, certain scholars argue that the theory has some limitations. One of the weaknesses concerns the theorist, over-generalization and over simplification. Explicitly, frank should have investigated other parts of the world other than Latin American situation. In such a situation, it is essential different parts of the world, for example, the African countries and Asia (Martin, 2002). Therefore, his ideas are not realistic in that he used a few examples in his arguments.

Another weakness of the dependency theory is that does not explain other factors that lead to underdevelopment other than the role played by the wealthy nations. The terms 'core' and 'periphery' are different from the terms 'traditional' and 'modern.'

Additionally, dependency theory is weak in that in Frank failed in his attempt to provide solutions to the situation. His suggestions were very unrealistic and over-ambitious. Moreover, these solutions created certain dependencies among themselves. For example, it was impossible for Cuba to disentangle itself from the economic dominion with the USA (Willer, 1999).

Furthermore, Frank attempted to prove that the imperialism is the major cause of the economic difference. Instead, he bases arguments on unrealistic perceptions. In addition; the theory is weak in that Frank failed to consider all class relations in his ideas. He also misinterpreted the Marxist's concepts. Frank only addresses market relations.

Some critics also challenge the theory by maintaining that it will cause corruption; with the higher markets and the other markets. Corruption is quite intense in the government industries than in than in others. It also causes lack of competition in the industries of both wealthy and poor countries. The completion is as a result of the restriction of imports to the poor countries, and subsidization of inducements.

Finally, dependence theory encompasses certain scholars such as Karl Marx, Friedrich Engels, Vladimir Lenin, Fernand Braudel, Giovanni Arrigi, Samir Amin, Hans Singer, Frank Gunder and Raul Prebisch.

Good Question! People still have to eat, but want to do so for less money. So fewer trips to the restaurant, fewer calls to deliver pizza--- but purchases of frozen pizza and hamburger will increase. The surprise is the type of grocery store that will prosper. Food Lion and other "low cost" alternatives-- no way. Their shoppers already are cost conscious. Now those shoppers will go to Sam's Club or CostCo to "stock up" and buy less of the perishables, where stores make their money. Their shoppers already avoided excessive restaurants and whatnot. No, the surprise is that quality stores, particularly independents will prosper. The little-known independents will shine-- stores like the Village Grocery on the Outer Banks of NC. As their shoppers pull back, they'll pull into the parking lot more often. Why, after all, buy a $100.00 bottle of wine at a restaurant when you can buy the same at the Village Grocery for $35.00? Why not buy some angus beef for the grill, rather than spend four times the amount at a restaurant? And if you must cut back in other parts of your life, why not splurge fairly cheaply, for chocolates or a beer from Brussels?

Economics is the study of the mechanisms by which humans allocate resources. As such, it is a study of human behavior. Human behavior is not derived from physical laws (or, sometimes, even rational decisions), so it falls outside the realm of "hard" science.
Economics is a social science because it is the study of the distribution of wealth, consumptive patterns, and means of production. Social stratification determine all of these attributes of economics, and thus economics is a social science.