Source: http://business24-7.ae/articles/2009/4/pages/31032009/04012009_62c23946551f442db3c4d0beac4ea75c.aspx
Summary:
In the midst of recession, all parts of the world are facing financial problems. One of the financial problems is in the banking industry. This article explains that deposit insurance helps ease the flow of credit. In another words, many financial institutions has gotten deposit insurance to boost depositors’ confidence about the safety of their deposits. Many people who deposit their money to institutions are having second thoughts in depositing their money because some financial institutions closed down. Hence, depositors must be confident in depositing money to banks so they are able to lend out the deposits to people are in need to borrow money.
Connection:
The connection between this article and the textbook is deposit insurance. In the textbook, deposit insurance is defined as insurance on the deposit liabilities of chartered banks and other financial institutions. If a Canadian bank, trust company, and mortgage loan company becomes insolvent, the Canada Deposit Insurance Corporation would be able to return the principal with no interest back to the depositor. If a financial institution does not have deposit insurance, many depositors might not feel secure to deposit the money. Also, as banks invest or lend money that is deposited with them, a sudden withdrawals lead to high risk of bank runs. This would helped by deposit insurance.
Reflection
I believe this would help the banks in the current recession. If I was to deposit my lifetime money, I must be confident in the bank I deposit it into. Having deposit insurance would help infuse confidence. I believe it can help pervade investor’s confidence in this recession. This would help the banking and financial system. In a economic decline, people are more conscious about their money. They have to be assured that their money is safe to deposit the money. In addition I think it is a plus for banks to have deposit insurance since they can avoid bank runs.
Tuesday, March 31, 2009
Sunday, March 8, 2009
Chapter 6: Determination of National Income
Source: http://www.the-news.net/cgi-bin/google.pl?id=1000-1
Summary
The European Central Bank has announced a record low of 1.5 percent in interest rate. It was a half a percent drop. By this, The Bank of England hopes to stimulate the recessing economy. It has been the 5th cut in the last 6 months. By this summer, some analysts are predicting an interest rate cut to below one percent. Not only has the Bank of England announced a cut, the Bank of Canada has also declared a half percent cut too. These interest rates are both record low for the two major banks. The low interest rates are hope to encourage the public to spend money in the economy.
Connection
The connection between this article and Chapter 6 is disposable income and interest rate. With the record low interest rate cut to 1.5%, Bank of England hopes this would influence the consumers to borrow money. In order for companies to buy new equipment, many businesses are forced to borrow money. If the interest rates are low, it encourages borrowing; therefore, increases the level of investment spending. In addition, the cost of borrowing is less and the opportunity cost of not saving is also less. Home owners in Europe can have more disposable income from this cut after making their mortgage repayments. If you look at the current recession, people’s amount of savings is greater than the amount of investment. Hence, this would cause the GDP to decline and to not balance.
Reflection
In the current condition of the economy, many countries are thinking ways to stimulate it. European nations are trying to influence businesses and consumers to spend their money. Lowering the interest rates is one of the ways to help the nation’s economy. I believe there is an effect of expectation factor which is causing the level of consumption to decrease. Many people are having household savings instead of investments. This affects the circular flow of money, resulting in a recessing economy. Overall, I agree in lowering the interest rates to encourage the public to spend their money. With people spending their money, the economy will hopefully turn around.
Summary
The European Central Bank has announced a record low of 1.5 percent in interest rate. It was a half a percent drop. By this, The Bank of England hopes to stimulate the recessing economy. It has been the 5th cut in the last 6 months. By this summer, some analysts are predicting an interest rate cut to below one percent. Not only has the Bank of England announced a cut, the Bank of Canada has also declared a half percent cut too. These interest rates are both record low for the two major banks. The low interest rates are hope to encourage the public to spend money in the economy.
Connection
The connection between this article and Chapter 6 is disposable income and interest rate. With the record low interest rate cut to 1.5%, Bank of England hopes this would influence the consumers to borrow money. In order for companies to buy new equipment, many businesses are forced to borrow money. If the interest rates are low, it encourages borrowing; therefore, increases the level of investment spending. In addition, the cost of borrowing is less and the opportunity cost of not saving is also less. Home owners in Europe can have more disposable income from this cut after making their mortgage repayments. If you look at the current recession, people’s amount of savings is greater than the amount of investment. Hence, this would cause the GDP to decline and to not balance.
Reflection
In the current condition of the economy, many countries are thinking ways to stimulate it. European nations are trying to influence businesses and consumers to spend their money. Lowering the interest rates is one of the ways to help the nation’s economy. I believe there is an effect of expectation factor which is causing the level of consumption to decrease. Many people are having household savings instead of investments. This affects the circular flow of money, resulting in a recessing economy. Overall, I agree in lowering the interest rates to encourage the public to spend their money. With people spending their money, the economy will hopefully turn around.
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