Economics – Page 3 – Best Essay Writers

Transportation Facilities Improvement

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Transportation Facilities

Increasing demand for effective travel has prompted transportation projects focused on the improvement of transportation facilities (Cooper, 2012). The response of the federal government to this demand has been through an enhancement of an ambitious transport program (Bell, 2013). This is because transport usually involves the movement of people and goods from one location to the other, using a variety of modes including road, air, water, rail, air, and pipeline (Alstadt, 2010).

The transportation theory according to its articulation by Cooley (1894) provides an explaination of the contribution of traffic to geographical and mechanical concepts, the relationship between land and/or waterways and physical situations, as well as the general observations that links transportation to natural conditions. Transportation contribution is also focused on political organization, society organization, economic organization, military organization, the location of cities and town, as well as markets (Tilahun & Levinson, 2010).

The industry of transportation consists of the modes of transportation, physical infrastructure and operations, and plays a crucial role in the facilitation of economic development, particularly through intertrade promotion between regions and persons (Levinson & Huang, 2012).

Transportation infrastructure improvement enhances socio-economic outcomes, especially by increasing earnings arising from opened up consumer goods’ markets and labor markets (Tilahun & Levinson, 2010). Improved transportation infrastructure is associated to socio-economic benefits including increased accessibility of spatial locations and mobility among residents (McDermott, 2010). As a result, transportation is attributed to enhanced quality of life, which ensures there is a link between individuals to occupation, teaching, healthiness, refreshment among other socio-economic activities (Bell, 2013).

Transportation presents market accessibility by connecting manufactures and consumers to enable transactions. Without any elaboration, as mentioned in the theory of transportation by Cooley (1894), economic expansion cannot progress in the absence of transport facilities. In addition, the socio-economic effects are differentially experienced according to demographic parameters such as income level, job level, marital status, and level of education (Gomben et al., 2012).

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Specifically, with regards to the state of California, the transportation program that exists is not adequate to equate with the predicted economic expansion (Kernohan & Rognlien, 2011; Saunders & Dalziel, 2014). This is because in the State of California the rate of economic expansion has not matched that of transport expansion, necessitating an evaluation of the specific status of the situation which has been affecting commuters (Cooper, 2012).

As such, the literature indicates the need for a more ambitious approach that would involve a far-reaching strategy to develop and improve transport facilities for enhancement of the socio-economic status of California residents (Kernohan & Rognlien, 2011; Levinson & Huang, 2012; Saunders & Dalziel, 2014). The findings of studies by Gonzalez-Guillen (2012) and Bell (2013) showed that transportation influences socio-economic status of a population in various ways including increased connectivity, which enables residents to easily commute from one point to another.

Purpose of the Study

The purpose of this quantitative, correlational study is to examine the relationship between transportation investment and socio-economic well-being of residents in the State of California. The target population for this study is the members of the communities of California and the sample will be archival data on transportation investment measures retrieved from the California State Transportation Agency website and survey data on measures of the population’s socio-economic status satisfaction.

According to Cohen (1992) and Faul et al. (2009) G*Power is the most appropriate method to determine the sample size for a study. The sample size will include 150 participants randomly drawn within the communities in California with an assumption of a response rate of about 70 per cent (Babbie, 2010). The sample size was determined using 0.95 as the power of test and 0.05 as the alpha, while the study was one-sided. Considering that California is the place of study, the primary data will be gathered using rating scale analysis survey questionnaires as data collection instrument administered on the randomly selected sample size (Wright & Masters, 1982).

The survey questionnaires will rate responses of research participants in a five-point Likert scale that range from strongly disagree (1) to strongly agree (5). On basis on the above analysis, it is undoubtedly evident that the field of service quality has be extensively researched (Parasuraman, et. al., 1985, 1988, 1991), and this has led to the development of SERVQUAL, used as a measurement of service, which states that the assessment of service quality in overall by customers is determined by the direction and degree of the gap between their perceptions and expectations of actual performance levels.

As a result, they identified five key variables that are associated to service quality including reliability, tangibles, responsiveness, empathy and assurance. They proposed that the service quality perception could be approximated through calculation of the difference between perceptions and expectations of actual performance of service. Hence, this research instrument can be used to examine the relationship between transport investments and socio-economic status perceptions in California.

The sample will be randomly picked from the target population, particularly within communities across California to ensure each of them is appropriately covered in the data collection and analysis process (Coleman 2010; Williamson, Philbin & Sanderson, 2012). The collected primary data will be cleaned subsequent to processing and coding followed by data analysis using SPSS to enable the hypothesis testing. The analytic plan will include regression and correlation analysis for the determination of the direction and strength of variables’ relationships using Pearson r correlation, Kendall rank correlation and Spearman rank correlation statistics.

Research Questions

In this study, specific quantitative research questions will be asked to gather primary information essential for hypotheses testing. The questions must be in tandem with research variables/constructs as far as transport infrastructure investment is concerned and how it relates to on socio-economic status of residents. The research questions will ensure the problem statement is addressed to establish whether there is significant relationship between public transportation investment and socio-economic status satisfaction levels among the residents California State.

References

Litman, T. (2014). Land use impacts on transport. Considering the impacts, benefits and costs of different land use development patterns. Retrieved from Victoria Transport Policy Institute, Canada, website: http://www.vtpi.org/landuse.pdf

MacKinnon, D., Pine, G. & Gather, M. (2008). Transport and Economic Development. In R. Knowles, J. Shaw and I. Docherty (eds.) Transport Geographies: Mobilities, Flows and Spaces. Oxford: Blackwell, pp. 10-28.

McDermott, P. (2010). Transport, connectivity, and regional development. Logistics & Transport New Zealand, 9, p. 8. http://www.cityscopeconsultants.com/uploads/75122/files/Transport_Connectivity_and_Regional_Development_-_Final.pdf

Saunders, C., &Dalziel, P. (2014) Economic development: A review of key themes in the international literature. Retrieved from Ministry of Transport website: http://www.transport.govt.nz/ourwork/keystrategiesandplans/strategic-policyprogramme/economic-development/

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Making Economic Decisions about Retirement Plans

Assessing How the Market affects Economic Decisions about Retirement Plans

A number of aspects have emerged in the last ten years regarding the behaviors of employee in making retirement decisions. This dissertation investigates various insights from previous studies about how employees make investment, saving and manage their retirement plans. The purpose of this study understands the behavior adopted by the individuals while making economic decisions and the reaction of the market towards these decisions.

This study aims at assessing behavior adopted by the individuals while making economic decisions and the reaction of the market towards these decisions. Quantitative analysis was used to assess the correlation between dependent as well as independent variables (Christensen, Diebold and Rudebusch, 2011). Understanding behavior adopted by the individuals while making economic decisions is vital when it comes to addressing the research questions of this study.

This study uses empirical approach to report on the findings of different simulation tests performed on the Model Plan in the Model Economy (Diebold, Rudebusch & Aruoba 2006). The Model economy and Model plan are considerably streamlined; nevertheless, they demonstrate the actual behavior adopted by the individuals while making economic decisions. To assess behavior adopted by the individuals while making economic decisions simple model of pension plans is created (Diebold, Rudebusch & Aruoba, 2006).

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The purpose of this study is to assess individual behaviors while making economic decisions and the reaction of the market towards these decisions. The study also highlights on the how workers make decisions to save, manage the retirement investments and how they address their assets in retirement. The study used quantitative technique to assess the gathered information (Perlin, 2007).

Different behavior adopted by the individuals while making economic decisions can be estimated by data. Information associated with behavior adopted by the individuals while making economic decisions can provide a detailed understanding regarding how DC plans are implemented by various nations; decisions workers make about their retirement plans; and if employees are well placed and informed about the plans offered by the employers or the governments

Much as plan-level information is an effective technique to assess the behavior adopted by the individuals while making economic decisions, a number of them are ineffective when it comes to analyzing the effect of how the workers make decisions to save, manage the retirement investments and how they address their assets in retirement (Gai and Vause, 2004). As such, survey data can address these challenges, such that it involves defined contribution plans with or without investment decisions.

This study embraces first wave from HRS, which is a household survey that was initiated in 1992. Moreover, detailed demographic information of the participants, supplementary issues, the spouse’s pension eligibility and benefits from present or previous employer or other sources of pension integrated in the questionnaire. Owing to the fact that survey technique is of elderly population, the sample does not represent pen-age group, particularly, the sample of elderly group and hence assessing this data cannot adequately depict behavior adopted by the individuals while making economic decisions.

Data values with handful plan features will be suitable for empirical research in terms of contribution rates. Again, the study presents econometric effects of investment decisions, however it fails to assess the way in which decision feature will be integrated in the employee budget. Optimization model containing budget set design will be appropriate to investigate the impacts of pension to the next level.

In short the central debate in the paper was the behavior adopted by the individuals while making economic decisions and the reaction of the market towards these decisions, were divergent extensions would emerge. Individuals with DC plans cannot adequately control the exact amount of contribution from their salaries. Lastly, the study offers econometric impact of investment decision, however, it does not examine the decision variable will be a constraint on the budget of the individuals.

References

Ito, Takatoshi, 2002. Is Foreign Exchange Intervention Effective?: The Japanese Experiences in the 1990s. NBER Working Paper No. w8914. Available at SSRN: http://ssrn.com/abstract=309603

Jefferson, R. 2011. Rethinking the Risk of Defined Contribution Plans.

Kaminsky, L. R. 1997.”Leading Indicators of Currency Crises,” IMF Working Papers 97/79, International Monetary Fund.

Kolivakis, L. 2015. Advantages and Disadvantages of Defined Contribution Pensions. Bond economics. Retrieved on April 2, 2016 form http://www.bondeconomics.com/2015/12/advantages-and-disadvantages-of-defined.html

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The Impact of Brexit on the UK and the EU’s financial regulation

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The Impact of Brexit on the UK and the EU’s financial regulation

Introduction

The 1999 EU regulatory initiatives were meant to ensure that there were maximum financial markets activities among member countries. The regulations were also meant to contribute to the removal of existing legal barriers in the financial sector among EU members. The cross-border financial market initiative benefitted the UK and contributed to an increase in trade in the sector. However, Brexit’s move on 23rd June 2016 might have resulted in an end to the many of the financial conveniences that the UK enjoyed (Grant Thorton, 2016).

According to Wellink (2009: 13), and World Bank (2013: 15), regulatory arbitrage is one of the greatest disadvantages that can emerge from an exit of a country from a Union with existing guidelines and policies. According to Wen (2016), there is a possibility of businesses undercutting each other if the current financial market is deregulated. Brexit might contribute to deregulation of the UK’s financial sector, therefore contributing to undercutting of some firms through unscrupulous dealers. Some of the firms that have their headquarters in the region might initiate planning on moving to other regions that they consider favourable; especially those within the European Union coverage.

Institutions in the global financial market will be affected to great lengths as a result of Brexit. Institutions that are directly related to the UK or the European Union might have to “revise” the location of their headquarters or location of their subsidiaries. The adjustments are necessary for the firms to survive in the market. Brexit has a major impact on financial firms because the sector is strictly regulated, and might contribute to challenges especially for UK firms.

Impact and challenge of Brexit on the UK’s financial sector regulation

According to Claessens and Kodres (2014: 78), regulation of the financial sector contributes to securing of firms so that the shareholders’ wealth is maximized. The UK financial institutions will have to meet the requirements of strict regulations which emanate from Brussels. Before Brexit, the UK might have had an upper hand in negotiating for strict financial regulations such as their refusal on the imposition of tax bonuses. However, the EU might want to use them (UK) as an example of the disadvantages that countries are bound to face when they exist the EU.

The regulatory arbitrage for the UK might have complex consequences since some of the financial sector regulations for the UK and EU are different. The UK might have more strict rules in comparison to those that are issued by the EU. The EU might have less stringent rules based on the need to accommodate many different members who have different backgrounds.

The UK has been part of the EU for over forty years, and most of its financial sector laws are based on policies in the EU regulations. Therefore, Brexit could contribute to instability of the UK banking system since most of the financial regulations that have been in use, have not been enshrined in the UK law for the forty years that the country has been a member of the EU. The effects from pass porting will determine the future of the financial sector for the UK. It is not all gloom for the UK’s financial sector after Brexit since the country will attain independence to make its own decisions in the sector.

Any loopholes that might be used by firms for arbitrage purposes should be identified and sealed so as to minimize any chances of illegal activities. Banker bonus cap has been raised as one of the areas that the bank of England and the European Parliament discussed as possibly contributing to financial regulation arbitrage. 

There will be immediate need of business continuous amidst the new and old regulations, or lack of clarity in the regulations that should be applied. Existing international financial firms that are located in the UK will have to make decisions on the viability of their current location. If the firms decide on a new location within the EU, they will have to make assessments on the suitability of a location that will contribute to a high level of business.

The short duration of confusion might lead to loss of business for some international firms. Financial firms in the UK will also have to ensure that they follow the MIFD II rules that will be established in 2018. The UK’s economy will be negatively impacted by a move of the financial firms that will want to relocate especially from London. Most of the international firms owned by EU member countries might want to relocate to other capital cities within the EU in order to make maximum gains.

The UK owned financial firms that have been conducting business in the EU will face higher costs and double rules if they will continue trading within the EU (Ashurst, 2016: 4). The low costs and EU financial regulation rules will no longer be accessible to those firms. Companies in the UK will also face stringent measures as required by the European Commission and the UK in the acquisition of partners from the EU.

The regulatory authorities in the UK are likely to increase the sector’s interest rates so as to make up on the deficit from being charged high rates through trade involving the EU. Clients will consider financial firms in the UK as being less stable as compared to those in the EU. Therefore, the clients might ask for higher returns on their investment based on the higher level of risk.

Financial firms will in turn have to invest in projects that have a high return, but take a long duration to give the expected profit on the investment made. The regulation of the financial sector institutions and supervision is largely national, even if the country is a member of a larger body (Omarova, 2010: 665: International Monetary Fund, 2009).

Evaluation of UK and EU’s financial regulation

The EU is quite strict on “bailing out” of companies since it results in the depression of the economy. Funds that could have been injected into projects contributing to the development of the economy, or boosting the economy are put into several companies that might not have a major positive impact on the economy (Heath, 2013: 32). Bailing out of companies by the government might contribute to lowering of ethical standards in companies.

The companies would know that the government would bail them out in the event that they collapsed. UK based financial companies are bound to face strict regulation especially since clients are likely to demand higher returns based on the higher level of risk. The EU is viewed as contributing to stability among its member states, and therefore making transactions that they engage in safer and more likely to give the planned return.

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The consequence arbitrage that has resulted from Brexit is highly influenced by non-financial effects of the initiative. The UK is no longer being considered as a major stakeholder in the making of foreign policies that might be required in times of conflict. Therefore, the UK has less bargaining power if it requires making deals with other countries. It is critical for a country to have a high bargaining power so as to negotiate trade and profitable financial agreements for its institutions (Weil, Fung, Graham, and Fagotta, 2006: 68).

The consequence arbitrage is the exit of major international financial institutions from London to other European Union capital centres. International financial organizations such as banks have already operated in the European Union and in the EU for decades. The move will contribute to the undoing of many years work, since the UK government has made numerous deals to bring the firms into the country (Ashurst, 2016: 4). Governments usually have to spend reasonable resources and adjust their regulations so as to be attractive to investors from foreign organizations.

Many other countries usually compete for the foreign firms. Therefore, countries have to ensure that their package offers are as friendly as possible. Furthermore, a financial Maginot line is necessary to deal with any eventualities that might arise such as collapsing of hedge funds. A hedge fund with a large volume of deposits could collapse and contribute to the collapse of banks in the region. The collapse or discovery of missing funds in a hedge fund could be triggered by sudden national financial moves such as the one triggered by Brexit.

Clearing houses might also contribute to negative consequences in the financial sector. According to Wen (2016: 9), clearing houses deals defaulting by a few traders can contribute to the system’s collapse. The collapse would result from the system’s insolvency. The central banks in different nations oversee the financial systems of those countries. However, there is no institution to oversee the central banks of different countries.

In the event of a collapse of the central banks of the countries involved in Brexit, there would be a collapse of all other financial institutions in involved nations. Financial regulatory organizations are focused on maintaining the regulations in place, especially because of the hefty fines that have been put in place. Therefore, in the event that the central bank was collapsing, it might take time for signs to be recognized by the financial firms that are the major focus of regulation.

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4.0 Conclusion

If it would not make the UK appear inconsistent, I would recommend a return to the European Union. However, since the decision and necessary steps have already been taken, the UK has to make do with its current situation. The UK has to establish clear guidelines in its financial sector since it has mostly used those in the European Union for about forty years. The opportunity should be utilized in coming up with financial sector regulations that will promote growth and have a competitive edge over countries in the European Union.

The regulatory authorities in the UK are likely to increase the sector’s interest rates so as to make up on the deficit from being charged high rates through trade involving the EU. However, the UK will have to come up with clear financial policies so as to mitigate the occurrence of a crisis. In the past, there has been severe and a high level of frequency of financial crisis that have occurred across the globe. The regulation and supervising of firms in the financial sector of a country is largely a national responsibility.

Both regulation and consequence arbitrage results are likely to be experienced by countries in the UK due to its exit from the European Union. There are international banks that have been situated in the UK for a long duration. These firms might have to relocate to other geographical locations in the EU so that they can continue enjoying the same regulations that they are used, especially if their parent firms are located in Europe (Ashurst, 2016: 6).

The geographical move would result in loss of revenue and employment for many UK nationals. Financial firms in the UK would be motivated to move because they would be expected to comply with a double regulation of the financial sector in EU, and that of the UK. Clearing houses could also contribute to a major collapse of the financial sector as a consequence of a failure of payment by a few dealers especially if they trade in high volumes. The solution to the possible loopholes that might occur is strict regulation of the financial sector for both the UK and EU.

Bibliography

Ashurst, 2016, Brexit: potential impact on the UK’s banking industry. Ashurst.

Claessens, S. and Kodres, L. 2014, The Regulatory Responses to the Global Financial Crisis: Some Uncomfortable Questions, IMF Working paper.

Grant Thorton, 2016, The impact of ‘Brexit’ on the financial services sector, http://www.grantthornton.co.uk/globalassets/1.-member-firms/united-kingdom/pdf/Brexit-impact-financial-services.pdf

Hopkin P, 2013, Risk management. London: Kogan Page.

Heath, R., 2013, “Why Are the G-20 Data Gaps Initiative and the SDDS Plus Relevant for Financial Stability Analysis?” IMF Working Paper 13/6 (Washington: International Monetary Fund).

International Monetary Fund, 2009, “Restarting Securitization Markets: Policy Proposals and Pitfalls,” Chapter 2 in the Global Financial Stability Report (Washington: International Monetary Fund).

Omarova, Saule T., 2010, “Rethinking the Future of Self-Regulation in the Financial Industry,” Brooklyn Journal of International Law, 35, (3): 665.

Weil, D., Fung, A., Graham, M., and Fagotta, E. 2006, “The Effectiveness of Regulatory Disclosure Policies,” Journal of Policy Analysis and Management, Vol. 25, No. 1, pp. 155-81.

Wellink, A.H.E.M, 2009, “The Future of Supervision,” Speech given at a FSI High Level Seminar, Cape Town, South Africa, January 29, at http://www.dnb.nl/en/news/newsand-archive/speeches-2009/dnb212415.jsp

Wen, J. 2016, some gaps in the financial Regulatory system. Class Notes.

World Bank, 2013, Global Financial Development Report, Rethinking the Role of the State in Finance, (Washington: World Bank).

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Depreciation Essay Paper

Depreciation

Depreciation is the allowance given on the wear and tear of property; an income tax is usually set aside for most assets to cater for the cost of assets (Aizenman, Hutchison and Jinjarak, 2013, p.38). The computation is done annually and for depreciation to be done a taxpayer must own the property and make sure that the property is used for business purposes and the property must have a useful life of more than one year.

This is done on tangible assets that lose value such as buildings, machines, vehicles, and equipment. It is also done on intangible property such as copyrights, patents and also computer software. Depreciating starts when the property is put to use for production of income, and it ends when the property fully recovers its cost or can no longer be used to do business (Bhandari, 2014, p. 42).

Property depreciating depends on the method, the property life, the basis of the ownership reduction and also the fact that the taxpayer has listed the property for repayment. Others factors determining depreciating are the first year of depreciation in that some properties don’t qualify for a discount for the first year.

Since dep is a cost, it has to be included in the calculation of the national income. GDP is perceived as the measure of the market good (Bhandari, 2014, p. 42). As such when calculating national income capital depreciation is deducted from GDP. This because it gives us the market value of the property. On the other hand, depreciating is added to national income when computing GDP. In this case, Depreciation is added to the net domestic product as capital consumption allowance to get the gross domestic product. This because depreciation reduces the stock of capital and therefore it must be accounted.

Reference List

Aizenman, J., Hutchison, M. and Jinjarak, Y., 2013. What is the risk of European sovereign debt defaults? Fiscal space, CDS spreads and market pricing of risk. Journal of International Money and Finance, 34, pp.37-59.

Bhandari, R., 2014. An analytical study on depreciation of rupee against dollar & fundamental analysis on impact of macroeconomic factors on exchange rate of rupee. International Research Journal of Business and Management, 2(2), pp.36-43.

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Comparative Advantage and Absolute Advantage

Measures of Economic Growth

According to economists, there are different ways of measuring the growth of an economy. According to Baldwin and Borrelli (2008), Gross Domestic Product is the commonly used measurement tool used to measure the economic growth of a given country. Nevertheless, certain economists believe that GDP is not a fully reliable method of measuring the growth of an economy.

In certain countries and institutions, improvement of the living standards can also be used as a tool for measuring the economic growth (David, 2005). GDP and other metrics such as unemployment rates, living standards, and inflation rates can help in determining the actual economic growth. Additionally, factors such as spending versus productivity can also help in quantifying the level of economic growth.

Comparative advantage and Absolute Advantage

According to David (2005), absolute advantage is the difference in the productivity of various countries while the comparative advantage denotes the differences that are there in the opportunity cost. Ideally, using smaller inputs to produce a large quantity of produce is known as an absolute advantage while the ability to produce at lower opportunity cost is a comparative advantage.

Therefore, certain countries such as China and the US have the absolute and comparative advantage at some point (Baldwin & Borrelli, 2008). For instance, the US use fewer resources to produce a given product compared to other countries. However, countries like China have a comparative advantage when they produce specific products at relatively lower margins.

Both absolute and comparative advantage are two main important factors for the international trade. These factors elaborate how different nations use the little resources that they have to produce given quantities of produce (Hansen, 2012). However, the advantage and the disadvantage of a country also depends on its choice of goods to produce.

For other countries, devoting resources and manpower to other countries limits competition. For example, the US would devote resources to the vehicle-producing Japan rather than compete with it. In which case, Japan would have the absolute advantage while the US has a comparative advantage.

China

Studies have revealed that China is one of the countries that continue to enjoy the advantage of its resources and human resources (Seretis & Tsaliki, 2016). China has overtaken countries like Japan to become the second-largest manufacturer after the US. Ideally, the country enjoys low labor costs while producing most of its products (David, 2005).

For China, the human resource is still an absolute advantage over many nations. The vast labor supply attracts larger investments and companies in the region. Compared to places such as the US where the human resource is declining, China enjoys a bigger absolute advantage (McConnell, 1999).

GDP Growth Rate in China

The Chinese economy has grown to 6.7% in 2016, which is by the expectations. The GDP growth in China has been successful hitting a high rate at 15.4% in 1993.

USA

Unlike China whose production is labour-intensive, the US enjoys a comparative advantage by using its specialized labor resource. In as much as the labor resource in the US is abundant, the country’s main advantage is that its human resource is skilled. As such, the US can produce high-quality products using its rich and skilled human resource.

GDP Growth in the US

The GDP in the US increased to 2.9% in the third quarter of 2016 1.4% higher than the last quarter. However, the increase is attributable to personal expenditure increases, the increase in exports, inventory investments as well as the increased federal government spending.

Saudi Arabia

Unlike other countries such as China and the US, Saudi Arabia is a country that relies on a single vast natural resource. According to Hansen (2012), this country would be poor without the large oil reserve. However, the nation enjoys a natural comparative advantage over other countries. With its large oil reserve, the country can engage in a profitable international trade with other major countries. As such, Saudi Arabia continues to enjoy a wealth of natural resource that gives it the extreme comparative advantage.

GDP growth Saudi Arabia

Saudi Arabia GDP grows at a rate of 0.5%. The Trading Economics analysts, the rate will remain 0.5% at the end of this quarter. However, the long-term growth rate is projected to increase to 3.5%.

Democratic Republic of Congo (DRC)

Likewise, DRC is another country that enjoys the vast amount of natural resources. This country has large scale diamonds and copper compared to other countries. With its large scale natural resources, this country enjoys an absolute advantage when it comes to trade. The GDP of DRC increased from $241.87 to $306.1 between 2009 and 2016. This, therefore, makes 2% of the global GDP.

Annual GDP Growth Rate

Unlike the increased GDP growth rates in most countries with absolute and comparative advantages, DRC remains one of the countries whose GDP is sluggish. The outraging political conflicts in DRC makes it hard for them to enjoy a stable economy. The growth rate in 2016 remains at 4.6%, which is low by 0.2% from the last rate.

Variance in Economies

The GDP growth varies across countries of various continents. However, Ural (2007) maintains that there are four main factors that determine the variations. The main factors that lead to variations in the GDP growth across countries include differences in the workforce, physical capital, human capital and technology differences (Shelburne, 2016).

Workforce Differences across Countries

The differences in workforce across countries affects the rate of GDP growth and the growth of the entire economy. Ideally, the differences depict the amount of labor that a given country has towards its production (Rnskov & Foss 2016). Countries like China have vast workforce I term of human resource. This helps them during production because they can get abundant labor as compared to other countries such as Saudi Arabia.

On the other side, the level of the workforce can also help a country in ensuring a large scale production. The abundant labor force is advantageous in production. As such, nations such as the US, China and India tend to have higher economic growth than the other countries.

Difference in Physical Capital across Countries

Physical capital is a determinant of economic growth. The larger the physical capital of a country, the stronger the economy of that country. For example, the US has a capital stock of $30 trillion compared to smaller countries such as DRC and Saudi Arabia. Although China’s physical capital is also high, analysts believe that the US enjoys more efficiency in production due to a larger physical capital that the nation has (Hansen, 2012). Physical capital helps a country to fund its production efficiently without outsourcing for credits. This makes various nations different from one another.

Human Capital Differences

Human capital refers to the value of the human resource that a country has. In most cases, developed countries have more valuable human resource than less developed countries. Grandke et al. (2015) reiterated that the value of human capital is measured by determining the level of education and level of skills that individuals of a given country possess. According to McConnell (1999), the level of education is correlated to the GDP growth.

Therefore, the differences in literacy levels in various countries lead to variations in the economic growth of different countries. For example, the US has high literacy levels than DRC and Saudi Arabia. Conversely, this affects the levels of expertise and skills that the human resource has in such countries. This difference explains why China and the US produce larger amounts of products that DRC and Saudi Arabia (Ural, 2007).

Technology Differences

Technology is fundamental in the production and growth of an economy. Rnskov and Foss (2016) opine that despite capital, human resource and workforce levels, the availability of technology also helps in determining the rate of production and consequently the economy. Through Research and Development, large firms can acquire knowledge and skills of producing various products (Shelburne, 2016).

To produce efficiently, individual countries must use the right technology. Nonetheless, the cost of employing the right technology in production can only be met by specific countries that have stronger and stable economies. For example, countries such as China and the US have the capacity to acquire the right technology for production. On the other hand, countries such as DRC lack the adequate capital to acquire the right technologies in production (Seretis & Tsaliki, 2016).

In most cases, countries such as Saudi Arabia and DRC will import technology from other countries such as China and the US. Technology increases efficiency. Thus, it determines the levels of output. The nature of the technology used by a particular company helps in achieving a high level of production (Rnskov & Foss, 2016).

Trade and the Strength of Economy

Trade is one of the drivers of economic growth. International trade is attributable to economic development by reducing the levels of poverty while increasing the commercial opportunities for countries. Through trade, countries like China and Saudi Arabia have expanded their production rates. Additionally, trade increases the value of investments in various countries as they go up into the global value chain.

The international trade facilitates diversification of exports thus, helping countries to access fresh markets internationally. On the other side, trade ignites innovation through the exchange of technologies and expertise (Grandke et al. 2015). It is through trade that countries such as China and the US have the ability to create employment opportunities to their populations. Moreover, trade helps in stabilizing the relationships between various nations thus, creating peace and harmonious environments that facilitate development (Shelburne, 2016).

Lifecycle of Trade

Trade life cycle comprises of the stages that the trade goes through. With the predicted outcomes and objectives at hand, trade life cycle is supposed to represent the forecasted events. Grandke et al. (2015), acknowledge that stages of a trade determine the progression of the trade from its inception throughout its progression. Different countries go through different stages of trade life cycle.

To execute a trade, various processes and procedures must be followed. Ideally, the stages determine the success or failure of the trade. In most cases, the processes start with the execution of trade after the agreements have been made. In cases of international trade, Rnskov and Foss (2016) note that the stages of trade are determined by the progress made in previous stages (Shelburne, 2016). For instance, countries such as China and the US have established trade lifecycles compared to developing countries such as DRC. Based on a country’s resources, trade lifecycle can be efficient.

References

Baldwin, N., & Borrelli, S. A. (2008). Education and economic growth in the United States: Cross-national applications for an intra-national path analysis.Policy Sciences, 41(3), 183-204. doi:http://dx.doi.org/10.1007/s11077-008-9062-2

David, H. L. (2005). So many measures of trade openness and policy: Do any explain economic growth? (Order No. 3179497). Available from ABI/INFORM Collection. (305006923). Retrieved from http://search.proquest.com/docview/305006923?accountid=45049

Grandke, F., Singh, P., Heuven, H. M., De Haan, J. R., & Metzler, D. (2016). Advantages of Continuous Genotype Values over Genotype Classes for Gwas in Higher Polyploids: A Comparative Study in Hexaploid Chrysanthemum. Bmc Genomics, 171-9.

Hansen, T. J. (2012). The use of business tax incentives: An analysis of the economic performance of minnesota’s JOBZ (job opportunity building zones) program (Order No. 3503148). Available from ABI/INFORM Collection. (1009056994). Retrieved from http://search.proquest.com/docview/1009056994?accountid=45049

Mazurek, J. (2015). A Comparison of GDP Growth of European Countries during 2008-2012 from the Regional and Other Perspectives. Comparative Economic Research, 18(3), 5-18.

McConnell, I. E. (1999). Trade and the environment: Defining a role for the world trade organization (Order No. NQ41085). Available from ABI/INFORM Collection. (304561048). Retrieved from http://search.proquest.com/docview/304561048?accountid=45049

Ørnskov, C., & Foss, N. J. (2016). Institutions, Entrepreneurship, And Economic Growth: What Do We Know And What Do We Still Need To Know? Academy Of Management Perspectives, 30(3), 292-315.

Rnskov, C., & Foss, N. J. (2016). Institutions, Entrepreneurship, And Economic Growth: What Do We Know And What Do We Still Need To Know? Academy Of Management Perspectives, 30(3), 292-315. Doi:10.5465/Amp.2015.0135

Seretis, S. A., & Tsaliki, P. V. (2016). Absolute Advantage and International Trade. Review of Radical Political Economics, 48(3), 438-451

Shelburne, C. R. (2016). Long-Run Economic Growth: Stagnations, Explosions and the Middle Income Trap. Global Economy Journal, 16(3), 433-458.

Ural, B. P. (2007). Essays in international trade and development (Order No. 3281742). Available from ABI/INFORM Collection. (304767664). Retrieved from http://search.proquest.com/docview/304767664?accountid=45049

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An Amortization Schedule

An amortization schedule refers to a tabular presentation of the mortgage loan payment schedule, indicating the interest and principal amount paid until the loan is repaid fully (Brechner & Bergeman, 2014). An amortization calculator is used in developing the schedule, based on the amount, interest rate and repayment period. The amortization schedule is generally utilized for identifying the amount paid, to both interest and principal, and the outstanding balance.

An amortization schedule helps in the generation of identical payment over the repayment period, such that the entire amount is paid by the end of the period (Biafore, 2013).

The schedule is used in determining the percentage of interest to be paid during each period in comparison to the principal amount to be repaid. In essence, it separates the portion of payment that covers the interest expense from the portion the premium paid to the principal in each period. Biafore (2013) notes that even though a similar amount of premium is paid towards the mortgage each period, the amount allocated to the principal and interest varies each time.

This variation can be observed from the amortization table. The amortization schedule ensures that the borrower and lender are on the same page with regards to the amount repaid and amount owed. This means that in case of any dispute, the schedule acts as reference on the history of payment and pending balances.

The amortization table is useful to the borrowers in that it is a basis for organizing their finances. The borrower is able to track payments made, interest paid and money owed at any given time; such that they can determine their home equity at any given time. Lenders on the other hand can track what is owed by borrowers.

Response 3

In amortizing the mortgage, a significant amount of the payments paid during the initial months mostly comprises of interest, while the remaining amount is paid to the principal (Biafore, 2013). The payments to interest then start declining as the mortgage is repaid, such that the interest paid in the later years is minimal or none.

Accordingly, the tax deducted based on home mortgage interest is likely to be higher during the initial years when a larger amount of interest is being paid, compared to later years when the interest being paid has reduced significantly. In this regard, it is logical to state that interest paid in earlier years plays a more helpful role in in tax reduction than interest paid in forthcoming years.

Response 4

An ordinary annuity differs from annuity due, mainly based on the timing. While the amount due in ordinary annuity is paid at each period end, an annuity due consists of cash flow series that occurs at each period’s beginning. The second difference is related with payment. In ordinary annuity, the payment done is associated with the period that precedes its date (Ehrhardt & Brigham, 2016).

Examples include mortgage payment, loans and coupon bearing bonds. Payment in an annuity due on the other hand, is associated with the period that follows its date. Examples include insurance premiums and rental lease payments.

Problems

If interest rates are 8 percent, what is the future value of a $400 annuity payment over six years? Unless otherwise directed, assume annual compounding periods.

Future Value (FV) = P x [((1 + r)ⁿ– 1) / r]

Where P = Annual payments

r = Interest rate

n = Number of years

FV = 400 x [((1 + 0.08)⁶-1)/ 0.08]

= $2,934.37

Recalculate the future value at 6 percent interest and 9 percent interest.

6% Interest

FV = 400 x [((1 + 0.06)⁶-1)/ 0.06]

= $2,790.13

9% interest

FV = 400 x [((1 + 0.09)⁶-1)/ 0.09]

= $3,009.33

If interest rates are 5 percent, what is the present value of a $900 annuity payment over three years? Unless otherwise directed, assume annual compounding periods.

Present Value (PV) = P [(1 – (1 / (1 + r)ⁿ)) / r]

Where P = Annual payments

r = Interest rate

n = Number of years

PV = $900 [(1 – (1/(1+0.05)³))/0.05]

= $2,450.92

Recalculate the present value at 10 percent interest and 13 percent interest.

10 Percent

PV = $900 [(1 – (1/(1+0.1)³))/0.1]

= $2,238.17

13 Percent

PV = $900 [(1 – (1/(1+0.13)³))/0.13]

= $2,125.04

What is the present value of a series of $1150 payments made every year for 14 years when the discount rate is 9 percent?

Present Value (PV) = P [(1 – (1 / (1 + r)ⁿ)) / r]

Where P = Annual payments

r = Interest rate

n = Number of years

PV = $1150 [(1 – (1/(1+0.09)¹⁴))/0.09]

= $ 8,954.07

Recalculate the present value using discount rate of 11 percent and 12 percent.

11 Percent

PV = $1150 [(1 – (1/(1+0.11)¹⁴))/ 0.11]

= $8029.15

12 Percent

PV = $1150 [(1 – (1/(1+0.12)¹⁴))/ 0.12]

= $7,622.39

References

Biafore, B. (2013). QuickBooks 2014: The Missing Manual: The Official Intuit Guide to QuickBooks 2014. Sebastopol, CA: O’Reilly Media, Inc.

Brechner, R. & Bergeman, G. (2014). Contemporary Mathematics for Business and Consumers, Brief Edition. Boston, MA: Cengage Learning.

Ehrhardt, M. C. & Brigham, E. F. (2016). Corporate Finance: A Focused Approach. Boston, MA: Cengage Learning.

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Microeconomics of Health care Costs

Health care is a necessity for everyone and the expenses are inevitable. Everyone deserves the health care they need from the right provider at the right time (Quincy, 2016). Another difference is the cost of drugs compared to other nations and a lot of people consider it to be unreasonable. In majority of the countries, there is negotiation done by the government to control drug prices with the manufacturers, but the existence of Medicare Part D denies Medicare to negotiate prices. This is why a branded drug costs higher when bought in the U.S.A. compared to other countries. However, this is beneficial to the doctors because of the higher earning they get if they do this compared to other countries. Additionally, a lot of drug suppliers charge more in the U.S. for medical equipment.
The top drivers of health care are chosen lifestyle, utilization, price inflation and mandated benefits. The society today is a culture that favors diagnosis and treatment rather than living healthily and preventing disease. It is still a necessity for consumers to have a healthy mindset and practice a better lifestyle for disease prevention. Due to the increase in utilization, there has been a rise in health care costs and the forms are not all the same (Smart Business, 2009). There is a total of 70% health care costs that come from employee behavior linked to cancers, diabetes, cardiovascular disease, and obesity. Moreover, advertising deceives consumers and make them think prescriptions and procedures could cure their conditions. This is why consumers end up getting unnecessary treatment and the rise of new technology is also a factor why health care costs increase.
Supply and demand seems to be an automatic reason why health care costs more in the USA. There are two answers for this because there can be an increase in prices due to demand and the other reason is because of limited supply, prices are higher (Theory and Applications of Microeconomics, 2012). However, price is not the only thing that matters in supply and demand in health care because it is a fundamental commodity that is relevant to a person’s well-being. A lot of people want health improvement and this is why they demand for health care. Although, the health’s relationship to health care is not direct because even if health care impacts health, a lot of other things can be a factor. Health is considered as a good, but other goods are more tangible compared to it due to its characteristics. People cannot pass on or trade their health with others, except for certain diseases.
Quality health care had always been a main focus and the medical professionals attempted to improve their practice and give the best care in the world, but the results are not equal. The number of medical practitioners in an area is linked with the type of health care they can provide. Therefore, if there is a shortage in workforce, the quality of health care in the area with fewer medical practitioners are going to suffer. There is a health care reimbursement model to pay-for-performance that provides incentives or penalties from patient outcomes and frequency of readmission (Anderson DNP, RN, CNE 2014). If the workforce is weak, pay-for-performance will suffer in some areas. This will lead to a higher demand for services, but limits the access of patients to health care.
Technology and computers could increase health costs of today since majority of medical equipment needs digital platforms to function properly that makes medical facilities dependent on software. This increases health care costs so it becomes inaccessible to those who cannot afford it. Furthermore, there are a lot of elements that cause an increase in health care costs. And to an average patient, technology gives them helplessness and vulnerability.

One example is echocardiography which has the immense capability to detect ailments and it is safe for everyone. In order to interpret the images, an expert is called to do this. Unfortunately, not all companies have this machine and there is no way to make it inexpensive so any patient can have access to its services (Kumar, 2011). Therefore, technology and computers improve the quality of healthcare, but it contributes to the increase in costs.

Since resources are scarce, organizations have disease management. Those suffering from chronic illnesses need more healthcare attention like hospitalization, physician visits, and prescription drugs. The objective of disease management is to improve the condition of those with chronic illnesses and lessen the use and cost of health care services that are linked to preventing complications (Georgetown University, 2017).
Before the organization implements disease management, they first have to know the population and how patients will enroll. They use demographics to find out which patients are going to need disease management program the most. The chronic diseases such as diabetes, asthma, and hypertension are included.

Furthermore, this increases public awareness which has a significant impact in the way decisions are made on the medical care received by the patient.

References

Amy Anderson DNP, R. C. (2014, March 18). Heritage. Retrieved from Heritage Web site: http://www.heritage.org/research/reports/2014/03/the-impact-of-the-affordable-care-act-on-the-health-care-workforce

Georgetown University. (2017). Georgetown University. Retrieved from Georgetown University Web site: https://studenthealth.georgetown.edu/insurance/requirements/full-time/premierplan

Kumar, R. K. (2011). Technology and Healthcare Costs. NCBI, 84-86.

Quincy, L. (2016, April 10). The Wall Street Journal. Retrieved from The Wall Street Journal Web site: https://www.wsj.com/articles/are-out-of-pocket-medical-costs-too-high-1460340176

Smart Business. (2009, October 27). Smart Business. Retrieved from Smart Business Web site: http://www.sbnonline.com/article/drivers-of-health-care-costs-how-to-identify-the-top-drivers-of-health-care-costs-151-and-what-to-do-about-them/

Theory and Applications of Microeconomics. (2012, December 14).

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Stocks Valuation

1) Rights and advantages belonging to shareholders

Shareholders of a company enjoy following rights and advantages

Ownership right: Shareholders being owners of the company enjoy the right to share residual profits left after paying preference dividend. Their rate of dividend is not fixed. It depends upon the amount of profits. Sometimes they get high dividend in case of high profits.
- Control over management: Shareholders can exercise their control over management through the election of their representatives in the board of directors.
  - The voting right: Shareholders have the right to attend annual general meetings of the company and cast their vote in person or through proxy on various resolutions passed in such meetings. This enables them to participate in corporate and managerial affairs without having to regularly manage affairs directly.
  - Pre-emptive right: At the time of further issue of shares, an offer is made to shareholders first. If shares are left, they are offered to outsiders. It enables them to maintain their proportionate shareholding intact in the company ( H.Sherman, 2011).
  - Transfer of the ownership: Shareholders enjoy the right to transfer the ownership of their securities to others by trading their stock on the stock exchange.

2) (a)Differences between the S&P 500 Index and the Dow Jones Industrial Average

Both Dow Jones Industrial Average (DJIA) and the S&P 500 are the best known index of American stocks but differentiate from each other in the following manner.

Criterion	Dow Jones Industrial Average	S&P 500
Introduction	It is an oldest stock market index which was introduced in 1896 by Charles Dow (Johnson, 2015).	S&P 500 was introduced by S&P Global in 1923 and in its current form, it was published in 1957 ( S&P Dow Jones Indices LLC, 2016).
Index Constituents	DJIA is composed of thirty publicly traded American companies listed in NYSE and NASDAQ. These stocks are picked by an editor of The Wall Street Journal. It covers a large range of industries in the US except transport and utilities ( S&P Dow Jones Indices LLC, 2016).	It is based on market capitalization of 500 large companies listed in NYSE and NASDAQ. It covers a wide range of industries.
Weighting Method	It is a price-weighted index which is calculated by taking the aggregate of prices of stocks in an index and divided by a common divisor (Johnson, 2015). The stocks having high prices have more weightage in this index.	It is a free float capitalization weighted index where in components are weighted on the basis of their market capitalization ( S&P Dow Jones Indices LLC, 2016). The stocks with higher market capitalization have more weightage in this index.

(b)Better measure of stock market performance

The S&P 500 is considered to be the better measure of stock market performance than DJIA because it covers approximately 80% of the stock market capitalization and is considered as a true representative of happenings in the US stock market ( S&P Dow Jones Indices LLC, 2016). DJIA covers 30 securities only and its popularity is because of being an oldest index.

3) Differences between common stock and preferred stock

The main two types of stock issued by companies are common stock and preferred stock which have some similarities as well as dissimilarities. The main dissimilarities between both are given as below:

Criterion	Preferred Stock	Common Stock
Meaning	Preferred stock is a hybrid security which combines features of common stocks as well as debt securities (H.Sherman, 2011). The preference dividend is paid at a fixed rate just like payment of interest at fixed rate, but it is paid out of post-tax profits. It is not termed as ownership security.	Common stock is termed as ownership security. Its rate of dividend is not fixed. It depends upon the amount of profits. The amount of dividend may be high in case of high profits and it may be low or even nil in case of low or no profits.
Preferences	Preferred stock carries two preferences over common stock which are (i) Preferred stockholders are paid dividend first before the dividend is declared for common stockholders. (ii) At the time of liquidation of company, preferred stock is redeemed first before any amount is paid to common stockholders (Weaver & Weston, 2001).	Common stock holders are paid their periodic dividend as well as redemption value after satisfying claims of preferred stockholders
Rights	Preferred stocks do not carry any voting right. But holders get entitled to vote when (i) The dividend has remained unpaid for a specified number of years (H.Sherman, 2011). (ii) The resolution to be passed at the meeting has any impact on their interest.	Common stock provides many rights to stock holders which includes voting rights on corporate and managerial issues and preemptive right. Pre-emptive right is the right given to stockholders to maintain their proportionate ownership in the company at the time of further issue of share (Broadridge Advisor Solutions, 2017).

References

Broadridge Advisor Solutions. (2017). Financial Services of America. Retrieved from http://www.fsa1.com: http://www.fsa1.com/Common-Stock-vs–Preferred-Stock.c1019.htm

H.Sherman, E. (2011). The Equity in the Business. In E. H.Sherman, Finance and accounting for nonfinancial managers (pp. 204-205). New York: NY: American Management Association.

Johnson, M. (2015). What’s the difference between DJAI and S&P 500. Retrieved from http://www.nasdaq.com: http://www.nasdaq.com/article/whats-the-difference-between-the-dow-jones-and-the-sp-5001-cm548598

S&P Dow Jones Indices LLC. (2016). S&P Dow Jones Indices. Retrieved from us.spindices.com: http://us.spindices.com/indices/equity/sp-500

Weaver, S., & Weston, J. F. (2001). Financial Statements and Cash flows. In S. Weaver, & J. F. Weston, Finance and Accounting for Non-financial Managers (pp. 26-28). New York: NY: Mc Graw Hill.

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Valuation of Bonds

Valuation of bonds

Ques1. Explain what a call provision enables bond issuers to do? Why would bond issuers exercise a call provision?

Answer: A call provision is a clause, mentioned in the bond certificate, which enables the bond issuer to repay or redeem bonds before its maturity date at a specified value (Sherman, 2011). Conditions related to time of redemption or buy back of bonds like amount to be repaid and manner in which payment is to be made are mentioned in advance. This call provision is exercised by the bond issuer at the time when the interest rates have fallen and debts are available at cheaper rate in the market. The issuer redeems the bond carrying high rate of interest and issues new bonds with low rate of interest.

Ques.2 Define a discount bond and premium bond. Provide example of each.

The bond issued by the company for the first time is a standard bond. It becomes discount bond or premium bond depending upon the price at which it is being traded in the market.

Discount bond: If the bond is being traded in the market at a price which is less than the face value, it will be termed as discount bond (Weaver & Weston, 2001). A bond becomes discount bond when it gives interest at a rate which is less than the market rate of interest. The investor will be ready to invest in bonds with lower interest rate if the purchase price of such bond is fixed in such a manner that it compensates the investor for less payment of interest in future. For example: A 5% bond is being issued at $1000. The market interest rate is 4%. The investor will be ready to invest in such bonds if the issue price is less than $1000.

Premium bond: If the bond is being traded in the market at a price which is higher than the face value, it will be termed as premium bond. A bond becomes premium bond, it its coupon rate of interest is more than the prevailing interest rate in the market. The issuer will be ready to issue such bonds if the price is fixed in such a manner that it compensates the issuer for higher payment of interest in future. For example: A 5% bond is being issued at $1000. The market interest rate is 6%. The issuer will be ready to issue such bonds if the price is more than $1000.

Ques3. What is the relationship between interest rates and bond prices?

Answer: The fundamental principle of investment in bond market is that there is inverse relationship between interest rates prevailing in the market and bond prices (SEC, 2013).

In market interest rate in bond price

If the market interest rate goes up, the investor will be ready to buy bonds with low coupon rate if they are being offered at discount or low price. The investor want compensation for low interest payments to be received in future so he will be ready to buy such debentures if they are being offered at low prices. Similarly if the market interest rate goes down, the investor will be ready to buy the bonds with high coupon rate even at high prices. Thus prices of bond increase.

Ques 4: Describe the difference between coupon bond and zero coupon bond

Answer: The coupon bond is a bond which has coupon rate at which the interest is paid to the bondholder throughout the life of bonds (Sherman, 2011). The bonds are issued with interest coupons and interest is paid to the person who has the possession of coupon. The payment of interest is made at coupon rate and it may be paid quarterly, semi-annually or annually.

Zero coupon bond is a bond which does not carry any coupon of interest as no interest is payable on such bonds. These bonds are issued at deep discount and redeemed at face value on the maturity period. The difference between the issue price and the redemption value is the appreciation value and return for the investor (Weaver & Weston, 2001).

The return for the coupon bondholders is regular in nature whereas the return in case of zero coupon bonds is in the nature of capital appreciation.

References

SEC. (2013). Interest rate risk —When Interest rates Go up, Prices of Fixed-rate Bonds Fall. Retrieved February 2017, from https://www.sec.gov: https://www.sec.gov/investor/alerts/ib_interestraterisk.pdf

Sherman, E. H. (2011). Finance and accounting for nonfinancial managers (3rd ed.). New York: NY: American Management Association.

Weaver, S., & Weston, J. F. (2001). Finance and accounting for non financial managers (3rd ed.). New York: NY: Mc Graw Hill.

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