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Your assignment is to prepare and submit a paper on lr growth, economic fluctuations, us stabilization policy.
Your assignment is to prepare and submit a paper on lr growth, economic fluctuations, us stabilization policy. In addition, inadequate financial institutions, political instability, high level of risk, and dictatorship in governance like showcased by Zimbabwe inhibit economic development. The above discussed factors inhibit capital inflows into the developing countries. This offers an explanation why the developing world will never economically develop as compared to the developed economies. Lastly, the policies of these countries discourage domestic saving, thus lowering the rate of capital accumulation. The reduced domestic savings leads to low level of investment. thus reduced level of capital stock in the countries. An increase in the level of savings increases the total output in the short-run, but in the long run it increases the ratio of capital to labor thus leading to decrease in returns on capital. This in turn results to capital outflow instead of inflow. Economic Fluctuations The phrase business cycles refer to economic cycles or fluctuations that are experienced by economic activity of a certain state. There two main theories that have been propagated to explain how business cycles work. New Keynesian and the real business cycle theory, these two theories differ a lot as discussed below. New Keynesian models New Keynesian models view, business cycles as reflection of a possibility of the economy being in equilibrium in the short run where such points of equilibrium are above or below the full employment level. Therefore, when the economy is operating below the full employment level, then unemployment arises. New Keynesian economist believes business cycles results from fluctuations of effective demand.
