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Inflation Rate Of Euroarea Essay

1154 words - 5 pages

(Jean-Pierre Durante, 1 May 2013, http://perspectives.pictet.com/2013/05/01/euro-area-deflation-is-looming/ last viewed 25 May 2014)
The above diagram shows the inflation rate of Euroarea. During recession, the inflation rate of Euroarea did not fell a lot. This shows that ECB policy was successful to kept the inflation rate around the normal rate that is 2%.
people and business to spend and invest more money. Since the interest rate is low, firms and people will tend to spend rather than put it into bank. This is because they think it is not worth to put their money in the bank when the interest rate is so low. Besides, low interest rate also encourage firms to get a loan from the bank with ...view middle of the document...

Besides, the US government did cut taxes. This was successful as it increased the net income of people. American can have more money in their pocket to spend. Moreover, the Federal Reserve decreased the interest rate to help United States to get out of the recession. Reduced in interest rate help the economy by encouraging
2009, the unemployment rate decreased gradually. This statistic shows that the policies of United States are very successful.

The above graph shows the unemployment rate of Euroarea and United States of America. During the recession, the unemployment rate extremely increased. In late
will increase. Since employment increase, more people will have a job and a stable income. When income increased, people will consume more. More consumption helps the firm and also the economy. Consumption increase means aggregate demand increase. As aggregate demand increase, the GDP of America increase and thus income of America increase.
An economic crash or economic crisis is when economy of a country falls for up to 2 consecutive quarter or 6 months. Economic crash can cause falling in GDP, high unemployment, and inflation or deflation.

There are several reasons why economic recession happened in 2007. It was due to bank over-lending and credit crunch. In 2000-2006, the global economic was in boom. Bank started to lend large amount of money to everyone to buy houses they cannot afford. As a result, people cannot afford to payback loans from bank. Since many people unable to payback their loans, banks started to make losses. Bank who lends money to another bank that is making loses started to make losses too. As banks is making losses, banks started to reduced loans and mortgages. Some banks loss so much money that they had to borrow money from government to rescue themselves. These cause people to loss confidence to the economy.

As people are less confident to the economy, they reduced their consumption and investment. Thus the aggregate demand falls and causes the GDP falls. This causes the national income of a country decrease and government has less money to spend.
Besides, since businesses are very hard to get a loan from bank, they will try to cut expenses by cutting amount of employees. Consequently, many people loss their job and thus people had no money to spent.

The graph above shows the unemployment rate in, Euroarea and United States of America. According to...

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