I hope at least once in everyone's lifetime, finding and sustaining a job has bothered us. We tend to loose controls in finding a construct solution to this destruct uncontrollable migraine.
And what if someone comes to you and ask you to shop in a juxtaposed circumstance like that. You feel like pebbling him till he gets moronism. But what if someone says he is right and if you shop you can actually get a job. And if you continue to shop, you contain your job. I know you may think that i am talking the other way round but pinch yourselves as many times you want as this is the truth. This is what economics tells us.
Lets see how??
Economics talks about two curves:
a) IS curve: which explains the equilibrium in the goods market. It says that income is inversely related to the interest rate and the total consumer+gov. spending equals total private investment at equilibrium.
LM curve: which explains the equilibrium in the money market. It says that interest rate is directly related to income and at equilibrium money supply is equal to the money demanded.
Now let us see how these equilibrium are disturbed. What happens when the government wants to increase the income of people? It spends more and more, so that the spending creates job in the economy and the income level increases in the nation. Now, when these citizen earn more, their disposable income increases, so they start spending more and saving some part too. Now, amount they will save and the amount they will spend depends on the interest rate. If interest rate is high, they will spend less and save more. But this has a flip side too. When the per capita income increases, the private players, in anticipation of high demand, take huge loans to enhance the supply to meet the increasing demand. But, people spend less and save more. As a consequence to this, these private companies starts suffering losses. They look for other profitable markets and not only move the offerings but also the jobs. Now, again people gets unemployed and income decreases. This make them withdrawing there savings from the bank for meeting their daily needs. Now, this raises the interest rate further. Till this, the phenomenon is explained by IS-curve.
Now, the bad man (LM-curve) comes into play. The increased interest rates, draws investor's attention in the economy. They spend more in the economy, increases the money supply in the market allowing the government to spend more and create more jobs, raise the income level, increase the demand, and increase it to an extent that supply cant meet it, creating inflation, which makes the central bank to intervene and further control the money supply, making the private players under perform due to expensive loans, thus, not getting back the expected return the investors estimated and exiting the economy one fine day. And mind it, this is hot money.
This is bubble bursting. Investors and companies suffer huge looses and people gets unemployed again. So, all of them turn to the government but it has already a deficit by this time. so, we face stupid things like recession.
All these because we didn't spend.
The 2001, dot com bubble or current economic slowdown, all of them were because the bad man were given the control. The money market creates short-term adrenalin rush in the economy but in long-term it cannot do anything. The money supply in long term is independent of interest rate, as it is a subject to policy decision by the central bank. In long-run the money supply curve is just a vertical line in a graph whose x-axis is Income and Y-axis is interest rate.
In 2005-06, the interest rate of US-federal reserve has risen to 5.5% from 1% in 2001-02, greenspan, the then chairman, didnt check the money supply in the economy, as a matter to which cheap credit was still available and the sub-prime crisis emerged. Its policy driven and not market driven. So, its waste to have faith in the money market driven growth.
The more fundamental is the goods market. Here the forces are market driven. They are more predictable and controllable.
So, the next time you buy yourself a tommy jeans, a rolex watch, a BMW, or, even treat your friends in Pizza hut, be proud of yourself and be fearless, b'coz you are just attempting to secure your job.
Its easy right. Just shop and shop and shop if you want a job...............
And what if someone comes to you and ask you to shop in a juxtaposed circumstance like that. You feel like pebbling him till he gets moronism. But what if someone says he is right and if you shop you can actually get a job. And if you continue to shop, you contain your job. I know you may think that i am talking the other way round but pinch yourselves as many times you want as this is the truth. This is what economics tells us.
Lets see how??
Economics talks about two curves:
a) IS curve: which explains the equilibrium in the goods market. It says that income is inversely related to the interest rate and the total consumer+gov. spending equals total private investment at equilibrium.
LM curve: which explains the equilibrium in the money market. It says that interest rate is directly related to income and at equilibrium money supply is equal to the money demanded.
Now let us see how these equilibrium are disturbed. What happens when the government wants to increase the income of people? It spends more and more, so that the spending creates job in the economy and the income level increases in the nation. Now, when these citizen earn more, their disposable income increases, so they start spending more and saving some part too. Now, amount they will save and the amount they will spend depends on the interest rate. If interest rate is high, they will spend less and save more. But this has a flip side too. When the per capita income increases, the private players, in anticipation of high demand, take huge loans to enhance the supply to meet the increasing demand. But, people spend less and save more. As a consequence to this, these private companies starts suffering losses. They look for other profitable markets and not only move the offerings but also the jobs. Now, again people gets unemployed and income decreases. This make them withdrawing there savings from the bank for meeting their daily needs. Now, this raises the interest rate further. Till this, the phenomenon is explained by IS-curve.
Now, the bad man (LM-curve) comes into play. The increased interest rates, draws investor's attention in the economy. They spend more in the economy, increases the money supply in the market allowing the government to spend more and create more jobs, raise the income level, increase the demand, and increase it to an extent that supply cant meet it, creating inflation, which makes the central bank to intervene and further control the money supply, making the private players under perform due to expensive loans, thus, not getting back the expected return the investors estimated and exiting the economy one fine day. And mind it, this is hot money.
This is bubble bursting. Investors and companies suffer huge looses and people gets unemployed again. So, all of them turn to the government but it has already a deficit by this time. so, we face stupid things like recession.
All these because we didn't spend.
The 2001, dot com bubble or current economic slowdown, all of them were because the bad man were given the control. The money market creates short-term adrenalin rush in the economy but in long-term it cannot do anything. The money supply in long term is independent of interest rate, as it is a subject to policy decision by the central bank. In long-run the money supply curve is just a vertical line in a graph whose x-axis is Income and Y-axis is interest rate.
In 2005-06, the interest rate of US-federal reserve has risen to 5.5% from 1% in 2001-02, greenspan, the then chairman, didnt check the money supply in the economy, as a matter to which cheap credit was still available and the sub-prime crisis emerged. Its policy driven and not market driven. So, its waste to have faith in the money market driven growth.
The more fundamental is the goods market. Here the forces are market driven. They are more predictable and controllable.
So, the next time you buy yourself a tommy jeans, a rolex watch, a BMW, or, even treat your friends in Pizza hut, be proud of yourself and be fearless, b'coz you are just attempting to secure your job.
Its easy right. Just shop and shop and shop if you want a job...............
