Global economics - Research Paper Example

Question Economic globalization supports the process of outsourcing on the global market and makes it more beneficial for the company who outsource in the developing world. Primarily, the company earns cost advantage in both raw material and labor. Moving operations in the developing countries such as China and India, will provide their specialized pool of the work force at cost effective prices, and contribute in enhancing the productivity of the company. Also, the efficient use of time zone differences makes the company earn greater profits.

Outsourcing also facilitates the quick deliveries of the work and save precious time. Company obtains specialized services at low cost, which gives a competitive edge, and sufficient time to focus on the core business. Question # 2:Inflation is a constant increase in prices over time. The major mechanisms, which cause the inflation, are:When aggregate demand is greater than firms’ capacity of production, result in low supply, and thus, this shortage will cause prices to increase. This is known as Demand pull inflation.

The surplus government expenditure during recession results in excessive increase in demand and cause the persistent increase in prices.If the money supply is greater than money demand, interest rate will decline and cause the increase in borrowing and spending by corporate and consumers. In this case demand will rise above the GDP rate and cause inflation. When cost of production increases, firm produces fewer products; hence, supply of products fall, resulting in the rise in inflation. This mechanism is known as cost push inflation.

Similarly, when cost of import increases, it leads to lower the supply and increase in the price level. This is also known as imported inflation. Question # 3:The following are the key economic effects of exchange rate depreciation:The lower exchange rate causes to increase the prices of imported goods. This results in cost-push inflation.Depreciation of currency makes goods of that country cheaper in terms of foreign currency. Hence, demand for exports will increase. Due to the increase cost of imports, demand for imports will decline.

As the exchange rate declines, the balance of payments becomes worse. As of higher inflation, real incomes will shrink, causing the wage demand to rise. However, high unemployment cannot meet the increasing demands of wages. Increase in exports and decline in imports will result in boosting the value of GDP. Low value of currency together with lower interest rates will enhance consumer spending and thus lead to economic growth (Jacob, 2013). Question # 4:The depreciation of yen relative to the US currency has led to make the goods more affordable for US.

With the low value of yen, Japan has produced goods and services at cost effective prices. Low prices have grasped the attention of most of the buyers in US, which results in increased production, in Japan. As a result, Japan has increased its exports and thus employment opportunities in the country. For instance, a low valued yen drives to decline the prices for Nissan car, hence attracting more American buyers than GM cars. Consequently, more Nissan cars are being produced, thus increasing the employment level in Japan and lowering employment in US (Ito, 1996).

Question # 5:Valuation of the currency leads to lower the prices of import goods resulting in boosting the imports of the country. However, the products manufactured in US will become costly for foreign buyers, hence the exports will decrease. This trade deficit will cause to decrease the net exports of the country and contract the GDP (McConnell et al., 2010). The strong valuation of the currency will result in increasing the interest rates, and hence domestic as well as international investors will be more willing to investment in businesses.

Businesses in the country will tend to grow more, leading to additional production activities and; therefore, increase income levels. Due to rise in incomes, consumption of goods and services will increase. With better currency valuation, government will be able to spend on final goods and services; hence spending will increase. These factors will make the value of GDP grow. References:Ito, T. (Ed.). (1996). Exchange rate movements and their impact on trade and investment in the APEC region (Vol. 145). International monetary fund. Jacob, A. (2013).

A monetary approach to the exchange rate: doctrinal aspects and empirical evidence. The economics of exchange rates, 8, 1.McConnell, C. R., Brue, S. L., Flynn, S. M., & Barbiero, T. P. (2010). Macroeconomics. McGraw-Hill Ryerson.