The outflow of dollar
from the outer economies would increase local money supply and inflation and
depreciation and expectations... The dollar would become stronger also b'coz of
tighter borrowing cost in the US... In developing countries price would
increase and the nominal exchange rate too due to inflation and in the US they
would fall due to higher borrowing cost... making the US competitive in real
terms and the developing countries in nominal terms... Economist use both
techniques to increase competitiveness reduce real wages by inflation, and
increase value of money in the inflation adjusted terms, lower inflation would
increase savings and demand... The former is called external devaluation or
depreciation and the latter, the internal devaluation... depreciation means
cheaper products in the relative terms... In the internal devaluation domestic
prices fall due to lower borrowing cost relative to the nominal money or exchange
to increase demand for labour and productivity upto full employment and in
external devaluation nominal money increases relative to prices due to higher
money supply and inflation and expectations... But, in external devaluation or
depreciation domestic savings and demand go down, but demand for exports
increase due to higher nominal exchange rate... But, both would depend on the
excess capacity or excess labour supply because if demand would increase and
supply not it increases prices and price expectations and lose market
share.... At full employment the central bank might commit to leave the
interest rate unchanged which could help stabilize the demand and supply and
growth and expectations, if the economy is close to the inflation target and the
exchange rate, too.... which would also help stabilize real wages and interest
rate and expectations leading to a stable domestic demand and external demand
and growth and expectations...
Higher interest rate
and rate expectations when the economy is highly leveraged makes the situation
more risky... in this condition a stable interest rate and rate expectations
might contain the risk of default and recession or slowdown...
The Fed itself is
creating trade cycles, but if it chooses only the forward way to increase
demand then prices then supply and lower prices and again increase demand and
the growth.... it may target lower borrowing cost and lower prices which could
increase demand investment employment supply and would contain price and the
growth for further demand... and growth....
If Corporate tax cuts
are just passed on to lower prices of the Corporations products instead of
increase in wages it would help increase demand... This had increased real
wages by lowering the general price level... it would also lower interest rate
and expectations... it would increase domestic depreciation, the real exchange
rate would go up... and increase exports... all due to lower price level... in
this situation there is an oppourtunity to increase the market share and
profits... .
INDIA…
For farmers costs,
including the living cost and wage cost have increased, but profit margins have
been low due to government intervention and chain of the middle man who have a
better capacity to hold... Storage and brokerage have further increased
agri-costs... Credit, too... Marginal farmers might be provided basic income...
Irrigation is absent and again costly...The middle man chain has also increased
the cost to the market... Higher prices for farm products would not increase
inflation much if volatility is curbed through proper supply side management,
through imports and price stabilization fund, too... It would generate demand in
the rural economy for the industries.... It is important to connect farmers
directly to the food and food processing industry or market...
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