The paper "Expectations and Exchange Rate Dynamics" is a great example of an assignment on macro and microeconomics. Darling is true when he made his claim that Britain and the rest of the world are facing the worst of economic times in 60 years. Bernanke (1983) suggests this has been predisposed by the credit crunch that is sweeping across the globe that has decreased loan lending by financial institutions. Schwert (1999) indicates that the credit crunch has led to unsustainable high-interest rates and stimulated lower investment. Bloom et al.
(2007) argue that credit crash has led to unsustainable stock market volatility. Bernanke (1983) shows that companies have reacted to the credit crunch by withdrawing from making investments. This, according to Bernanke (1983) is a catalyst for decreased economic activity. Bloom et al. (2007) indicate that companies have withheld investment waiting for the economy to recover. Bernanke (1983) argues that creative destruction has prevailed across the globe and production companies are likely to grow at the expense of the unproductive firms. Bloom et al. (2007) suggest in countries where the credit crunch began earlier, productive companies and unproductive companies’ have totally withdrawn from making investment and this has frozen interference of the creative destruction principle.
Bernanke (1983) proposes that such a scenario has to lead to zero productive growth for productive companies while unproductive companies have failed to shrink their market share. According to Schwert (1999), credit crunch has led to a decrease in sales of secondary consumer wants like cars, fridges, and television sets. The financial reporting of many manufacturing companies indicates an increase in debts and this has triggered many companies to lay off many of their workforce in order to remain in business.
In this restructuring process, many companies are decreasing their wages and salaries. This implies, the credit crunch has catalyzed an increase in unemployment rates and stimulated an environment for inflation to sweep across developing countries. In one way, an increase in fuel costs has increased costs of production that has in turn decreased net profits that manufacturing companies posted in the first quarter, second, and third quarter of the 2008 financial year. The effects of the credit crunch have witnessed an increase in standards of living at the expense of an increase in unemployment rates.
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