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Essay / Research Paper Abstract
This 7 page paper considers the way that one of the largest threats to the global economy may be that of deflation created by over capacity. The paper considers this threat, how it may occur and how effective monetary and fiscal policies may be in controlling and minimising the threat. The bibliography cites 2 sources.
Page Count:
7 pages (~225 words per page)
File: TS14_TEdeflat.rtf
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Unformatted sample text from the term paper:
with the increased capacity within the manufacturing industry and the access capacity that is creating an oversupply, that the biggest threat to the economy will be that of deflation.
If there is excess capacity within a market prices will fall to the level where there is little if any value created.
The need to compete, exit barrier and lack of other opportunities due to overall excess capacoity leads to a position where there is deflation. Prices drop in order to attract
the consumer to buy the product, The costs need to be cut so wages also feel a downward pressure. The way in which the economy will respond is often
seen as a complex model that is summarised with the cross elasticises and influences that impact on supply and demand. The different supplies and demands may then be combined to
get the aggregate supply and demand often referred to as AS/AD. An idea scenario would be where there is an equilibrium between aggregate supply and aggregate demand, However, in recent
years it has become apparent with the use of cheap labour , that in many markets the increased efficiency of new technology and production techniques has lead to more production
capacity that can be used to supply demand (Nellis and Parker, 1996). There are many influences on both the demand and the supply. The availability of income and disposable
income will impact on the demand levels. Investment and saving will play a role. Where there are high or interest rates are high there may be more incentive for
individuals and companies to save their capital. This means that there is more available for investment, but also that less is being spent. The relationship between savings and investments is
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