Final project Essay Example | Topics and Well Written Essays - 1250 words - 5

Final project - Essay Example Aggregated demand curve represents the overall quantity of goods that are demanded at different price level. Second model that has been employed is IS-LM Model, and the third model is Keynesian model The concept of aggregate demand is that increase in total demand of products cause to increase the output that lead to the increased demand of labor. If the aggregate demand is lower it will cause to decrease the output and lead to decreased demand of labor (Anderton, 590). As in the case of United Kingdom economy is facing decrease in aggregate demand due to the financial crisis because this crisis made a significant impact over the purchasing power of people. People who have money are saving rather spending their money. This decrease in demand is leading country towards decrease output, therefore, towards unemployment; because firms working in the economy do not require workers to produce output. It has been observed that uncertainty shocks cause to slow down the demands. Therefore, economies have to face higher inflation rates. Such as in United Kingdom, the financial crisis showed huge uncertainty in the financial market that slow down the demand of goods market and result occur red in lower economic growth and increased unemployment rate. For example, the 2008 financial shock reduced the purchasing power of households. By using the right of postponing the purchases, households forced the firms to reduce the manufacturing and in result made delays in new hiring and increased firings of employees that contributed in high unemployment rate. The uncertainty increased the unemployment from the year of 2009 to 2013 in United Kingdom and now the effects are slowing down (Leduc & Liu, 1-30). Increase in the lowering demand of labor is high this time as compared to prior shocks of 1981. This is because this time â€Å" the zero lower bound† restrained the monetary policy on the nominal interest rate. As it has been observed that uncertainty shocks reduced the

Detroit Bankruptcy Essay Example | Topics and Well Written Essays - 1250 words

Detroit Bankruptcy - Essay Example The announcement of bankruptcy by Detroit is a prophesied case. The liquidation of a municipal’s assets cannot happen as a result of the request of a creditor. A municipality is under the state’s jurisdiction as it is defined by the state. The 10th Amendment of the4 American constitution reserves any power not defined by the constitution for the state. Declaration of bankruptcy rulings ate made in U.S. Bankruptcy courts under federal jurisdiction Many factors have indicated reduced financial activity in the city. The population of the city dropped from a 1.5 million figure in the city’s peak in the fifties to a current size of around 700,000 leaving the city a shadow of itself with tens of thousands of abandoned buildings ("How Detroit went broke - Economics - AEI"). This coupled with the deindustrialization of the city have largely affected the collection of the revenues in the city. However, the major contributor of the state of the city is the accounting of th e funds of the municipality. Legacy costs These are the bills of the municipality in the form of public employee pensions, healthcare, and other post employment benefits. The Government Accounting Standards Board (GASB) in 2006 required all local governments to report publicly OPEB liabilities but did not require the funding of the shortfalls of the OPEB liabilities (John Macomber). The city of Detroit uses 43% of the entire annual city revenue in making payments of this kind. This leaves only, 57% to run the city and cover the wage bill. In the last few decades, the percentage of the city’s revenue used in the settling of these bills has been on the rise with an estimation claiming the percentage will reach 65% in four years. These unfunded liabilities of the Detroit city funds have acted as a weight pulling down the city finances (How Detroit went broke). Half of the $18 billion debt is accounted in public employee retirement benefits, which are not funded. In 2012, the cit y spent $145 million on retiree health care benefits, which is greater by more than half of the $99 million used in 2000 ("How Detroit went broke - Economics - AEI"). The accounting methods relied in the evaluation of the finances of pensions of public employees allows rates of return that are overly optimistic on the supposed riskless pension to be assumed (How Detroit went broke). These also make it possible for the employer in the form of the city of Detroit, to contribute annual contributions that fall short of the required amount. These transform the guaranteed benefits such as pensions, into risky ones. The cause effect of these is a pension liability at a $3.5 billion level when appropriate accounting methods are used which is over 5 times the liability under the city’s accounting methods (John Macomber). This is not helped by the ratio of employees to retirees receiving pension, which stands at 2:1. Increased taxes After the post-war manufacturing and expansion, the c ity started losing revenue because of the high population decrease rates. In response, the city changed its accounting policies and imposed a 1% income tax on all corporations, residents, and non-residents. This aimed to cover the loss in revenues and maintain the city budget (How Detroit went broke). Over the years, the tax rate has been on the rise with the resident income tax doubling only six years after its establishment. A new utility tax came into being in 1971 aiming to maintain the services offered by the city as well as