Finance Project Help
Our finance project help quality can be judged by going though the solution below which explains the impact of the global recession of 2008 on the US Economy with regards to the extent of departure from internal/external BOP (balance of payments). The efficacy of the applied model is also critically evaluated. For coming up with this finance project help, relevant data before and after the crisis was collected, analysed and suitable conclusions were drawn objectively. Publicly available data was taken from sources like U.S. Bureau of Economic Analysis and World Bank.
Q.What was the extent of departure of the US economy from complete internal/external balance as an after effect of crisis in 2008. How appropriate and useful was the Mundell-Fleming model in the identification of suitable policy response.
Before starting our analysis we have to be aware of some facts. Firstly we should note that the economies of the world were in 2008 more integrated than in any precedent historical moment. The economies were open to international trade and the flows of capital (financial, human or technical) were an essential part of their way of being. When the crisis started it triggered a terrible domino effect because the world of 2008 was even more connected than the world of 1973 (the oil crisis) or the one of 1929 (the start of the Great Crash).
We should note that the U.S. has already decades from when it’s using the depreciation of the dollar and the deficit of the balance of payments in its economic policy. This is the main reason for which the U.S. cannot use the Mundell-Fleming model finance project help to describe its economy in relation to the exterior. The U.S. economy is not in a Mundell-Fleming equilibrium from which we could start the analysis of the effects of the crisis. Of course, although the US are not in equilibrium the model can be used as a guide in establishing economic policies.For example, the US output crushed in 2008 to 0% and with -2,6% in 2009 and the world output has also known a negative growth (Li, Zhang and Willett, 2011, p. 2). This means help with finance project practically that the imports and exports of most of the world countries have known a significant decrease. Any government, even the one of the US, with policies guided after the Mundell-Fleming model would have been forced to analyze the degree in which the exports and imports of its country decreased (usually both of them decreased but in different proportions) and appreciate/depreciate its currency to establish a new (lower) point of equilibrium corresponding to the new values of the balance of payments, to the internal level of production and to the monetary mass.
Returning to the case of the US we can say that even if finance projects help we would assume that, at the beginning of the crisis, the economy of the U.S. was in a Mundell-Fleming state of equilibrium we have to agree that after that, the $ 900 billion stimulus (which finally was upgraded and reached the value of trillions) has flooded the international market with dollars, leading to the fast depreciation of the currency. The constant depreciation of the US dollar has determined some countries along which we should include China, which had the biggest reserves in dollars, to decrease their reserves of dollars and increase the ones of Euros, Yens and Gold. The reduction of the dollar reserves has accentuated even more its depreciation.
In our analysis we should also take into account the fact that the Mundell-Fleming is a short run model with limited use in the practical field. The model takes finance project assistance into account only a few variables, which are not enough to offer a complete and complex picture of the macroeconomic situation of any given country. More than that, the model is also assistance with finance project limited by the fact that it does not offer an image on the medium or long term. So we cannot use this model for a prediction on the long run. It is clear that the US government could not use it to elaborate the major strategies to combat the crisis effects. It is hard to believe that the Mundell-Fleming model had a decisive role in the establishment of the policy used in 2008.
We can state, however, that the Mundell-Fleming model offered the US an idea of the solution towards which the economy should evolve. Even if the US was not in a Mundell-Fleming equilibrium it had the possibility to extract from it the elements needed to finance project solution form the general frame for a correct strategy. The essential element which could have been extracted from it was the necessity to reduce the deficit.
We also have to acknowledge the fact that if a country finance project help enters into recession, the economies of the countries depending on this one will also be affected. When the US entered into recession a large part of the world followed it because the interconnections between them were multiple and varied. An element affected is without a doubt the movement of capital. Because of the multiple bankruptcies from the US the entrepreneurs (internal and external) were hesitant to invest money.
Because the investors didn’t need money for investments from the banks, the later ones were put in a situation of doubtable profits. The problems of the investors are not finance project writing help related to the level of the interest rate. In the crisis the levels of the interest rates can drop to levels inferior to the ones before the crisis without attracting borrowers. Because of that the banks are forced to reduce the interests’ rates for deposits. The effects spread in the world and the circulation of capital is strongly affected because the levels of the interest rates don’t stimulate its movement.
We can see in figure 6.1 that both imports and finance project help service exports have grown since 2009, and that the value of the deficit was stabilized at around $450 Billion. We can note that the grown of imports and exports was higher in 2009 and 2010, the first years after the culminant moment of the crisis, when the market strongly recovered than in 2011, 2012 and 2013 when the exports, imports and deficit stabilized the increases from year to year being only at an order of tens of Billions $.
In order to see the role of the Mundell-Fleming model in the US policy during and after the crisis of 2008 we had to analyze the situation finance project help in the US economy before the crisis. For that we have chosen to illustrate the situation at the beginning of the years 2000.
Figure 6.1 – U.S. International Trade in Goods and Services
Source: U.S. Census Bureau, U.S. Bureau of Economic Analysis, February 6 2014, http://www.bea.gov/newsreleases/international/trade/2014/pdf/trad1213.pdf.
If we want to relate the situation of the US and of its policies with the Mundell-Fleming we should analyze its three main components: the market help with finance project of goods and services (represented by the IS curve), the market of finance project help online money (represented by the LM curve) and the balance of payments (BoP).
- Firstly, we are interested to see what had happened with the level of production before the crisis, in the time of the crisis and after the implementation of the governmental program.
- Secondly, we need to see how did the level of net exports evolved during the same years.
Thirdly, we have to see what happed with the US finance project writing help currency on the domestic market and in the rest of the world.
Table 6.1 – Current account balance (BoP, current US$)
Some interesting fact can be observed regarding the current account balance for the United States.
Before the crisis. Firstly, we observe that before the crisis, during the crisis and after the crisis the current account balance was in deficit. More than that, the value finance project help service of the deficit was larger than the GDP of a medium size economy. Secondly, we can observe that until 2007 (when the first signals announcing the crisis were felt) the deficit was extremely high and continued growing (with almost $ 60 billion from 2005 to 2006).
- The year when the crisis begun. In 2007 the deficit reduced with almost $ 85 billion and not because the government has notified the imminence of the global crisis. The reduction of the deficit was caused because some firms, already in difficult situations, reduced their imports from outside the country.
- After 2007. In 2008 the deficit was high because the economy as a whole reacted with tardiness to the crisis. The situation changed significantly finance project help starting with 2009. In 2009 the crises was already global and the exports and imports of most countries around the world failed down. This fact was also valid for the US. Both exports and imports failed dramatically for the US, the deficit being in 2009 almost half compared to the one from 2008.
After 2009. Although the economy recovered and the exports and imports increased, the deficit was kept at a more stable value. The deficit rotated around the finance projects help value of $445 Billion, a value smaller with 50% than the ones from before the crisis.
Figure 6.2 – The Mundell-Fleming model for the US in the years before the crisis
Source: adapted after Bird, Graham (2006) An Introduction to International Macroeconomics: A Primer on Theory, Policy and Applications, Palgrave Macmillan; 3rd edition, p. 199.
Due to the specific conditions from the beginning of the year’s 2000s the economy of the United States has had a period of growth which cannot be explained finance project help through the classical assumptions of the Mundell-Fleming model. The country has known in that period the increase of the production levels, of the exports and imports and of the monetary mass without reaching new equilibrium points. In fact it was almost always in deficit. The constant deficit (represented in the graph at the intersection point E1) explains why the dollar depreciated at the beginning of the years 2000.
It seems that in the US the monetary policies have help with finance project failed to explain this deficit, and we cannot even blame them for the level of inflation and the loss of competitiveness. The relative high interest rates remained constant during the 1990s and in the early 2000s (Bird, 2006, p. 200). The high current account deficits were caused by the constant inflows of capital.
Bird (2006, p.200) observed that the depreciation finance project help online of the dollar failed to boost the balance of payments in the early 2000s. In principle the depreciation of a currency has as an effect a high rate of inflation and an increase of relative competitiveness, but this did not happened in the case of the US, which continued loosing competitiveness. Probably the other countries observed what the US tried to do and acted to keep the exchange rate between finance project writing help their currencies and the dollar at the same level. More than that, there is a possibility that most of the producers from outside the US have reduced their profit margins just to keep their presence on the US market.
The fact the United States could not use depreciation to boost their exports and levels of production (and to reduce the imports and deficit) force us to take into finance project help consideration all the specific characteristics of this economy. It is clear that its world leading role has some disadvantages. For example all the competing countries follow with a great deal of attention the evolutions and policies of the US.
We should take into consideration that after the finance project assistance beginning of the crisis the following effects were recorded: the monetary mass increased, the production reduced, and the value of the balance of payments decreased.
Figure 6.3 – The Mundell-Fleming model for the US after the crisis
Let’s assume that the economy of the United State was in equilibrium finance project assistance at the beginning of the crisis (although the reality is that the economy had for years a high deficit). The equilibrium point E is at the intersection of the curves IS, LM and BoP. For this equilibrium point we have as corresponding values an interest rate iW and a national income equal to YE. We can recall that until the crisis the real interest rates were relatively high in the US attracting help with finance project foreign capitals and contributing to the image of a booming economy.
When the crisis started and some of the US firms started the bankruptcy process the national output dropped down. The foreign investors began retracting their capitals, the crisis effects spread in other countries leading to a general decrease of the finance project help exports and imports in most of the countries.
The same was valid for the US: the crises determined a contraction of the economy and a reduction of the total output, which stopped growing in 2008 and decreased with 2,6% in 2009. The reduction of the output is shown in our graph by the shift to the left of the IS curve. The reduction of the production was followed by a reduction of the level of the balance of payments (which shifts to the left). On the other hand the $ 900 billion program (which in the end reached the finance project help service value of trillions) significantly increased the monetary supply, the curve shifting to the right LM1.
We can see in the graph that the new point of equilibrium is under the BoP curve meaning that after the start if the crisis the country entered into deficit.
We should not forget that the US were in deficit before the crisis and that this graph only highlights the fact that due to the reduction of the production level and the increase of the monetary mass (the depreciation of the US dollar) and the decrease of the level of the balance of payments the country would have encountered anyhow in a deficit.
In the same time the reduction of the interest rates was a solution to reduce the effects of the influx of money on the market. The healthy firms used the low interest rate to sell bonds to obtain money for their investments. These bonds are even more important in online finance project help the model than the ones emitted by the banks because the money obtained by the firms returned quickly to the economy through investments. Their ability to stimulate the growth of production and the shift of the IS curve is much higher than if the money would have been placed by the banks.
On the medium and long run the problem of the dollar finance project help depreciation cannot be addressed with a Mundell-Fleming model which only offers a perspective of the short run.
The disagreement regarding the policy adopted by the Obama cabinet, more exactly the stimulus offered to the firms which were considered „to big to fail” was substantial. A part of the American society agreed with this policy because it was afraid that the consequences of too many bankruptcies would severely affect the economies potential of development. Another part considered that it was not the best solution to save the firms which contributed to triggering the crisis on the expense of the healthy firms. They considered that these expenses (paid by the healthy firms and the rest of the society) could affect the development of the healthy part of the economy. Overall they considered that by using the money of the competitive firms to save non-competitive firms a general loss of competitiveness would be recorded by the country.
In the aftermath of the crisis there are still discussion regarding the facts that lead to the crisis, the attitude of the financial mammoths at the beginning of the crisis (when the officials of the groups assured everyone that the system is stable and everything is ok), the policies adopted to solve the problem and the fact that there were only a few convictions (although a lot of frauds and faked data amplified this crisis).
The policies used by the Obama cabinet to stop the spreading of the crisis effects where extremely costly and there was no assurance that the money will be able to save the firms or if the firms deserved to be saved. It was quite normal to here critical voices when the policy „to big to fail” involved saving some financial groups which highly contributed to the amplitude of the crisis. The perspective of losing public money with groups which already caused losses of Billions of dollars was one hard to accept.
Knowing the downside of the „to big to fail” plan we should also consider the fact that, if the United States would have not saved its financial groups there would have been high problems regarding the capital mobility. We can say now that the plan has restored the financial system from before the crisis with only a few changes made to avoid future crisis. We cannot ask ourselves if the effort to save them was just and if a financial system changed from its basis wouldn’t have been a better solution.