1) The current recession is the longest since the Great Depression in the 1930’s. We are still far from a recovery with unemployment at about 9.7% and weekly new jobless claims at 442,000+. In your view, are we about to grow out of the recession or will it continue? In addition to the unemployment data, support your positions with such economic indicators as: new housing starts, used home sales, GDP growth, etc.
The current recession or financial crises began in United States of America and created a domino effect of creating instability in the financial markets the world over; the spark of this recession ignited fire around December 2007. Our current financial crisis is also known as sub-prime mortgage crisis and it occurred because of reckless practices of giving out loans, without backing them with security or collateral. Obviously this credit bubble that had been blown by investment and commercial banks primarily popped when loans started going bad and risky borrowings got exposed. The fall of Lehman Brothers was a major blow as it created a situation of panic. This was also accompanied by a fall in house and share prices.
If we look at the latest statistics regarding the overall condition of the economy, there are evident indications of recovery. According to an economic report published in Market Watch (www.marketwatch.com), the US economy has grown at the rate of 5.6% during the last 3 months of 2009. According to the report, during the past year US real GDP had grown by 0.1%. It is said that the increase in this GDP figure should be associated with changes in inventories and not by final sales; in addition, on average the before tax profits have risen by 8% and a modest rise in consumer spending. A rise in business profit also indicates a probable rise in investments and increase in employment in future.
Martin Feldstein, the former president and founder of the National Bureau of Economic Research, has predicted that the recession will end in the year 2010. Now coming to some facts, we all know that a rise in spending shows an increase in aggregate demand in an economy signified by a high GDP, this marks the end of recession. The following graph shows the year to year change in new car registration in UK. The graph clearly shows the fall in the % change in registrations in 2008 of around 25% to 35%, especially towards its end. However the month of November 2009 marks a sharp rise in this figure of 57%. And there has been a positive change in the percentage in 2010 so far.

Source: The Society of Motor Manufacturers and Traders. (Mearns, 2010)
Question: What is meant by financial value? Compare and contrast three evaluation methods relative to the decision-making process to create financial value. Compare these methods by examining the methods themselves, the application of the methods, and their validity and reliability.
The financial value of a firm refers to the worth a business has constructed over its lifetime and through its operations. A firm’s profitability is the main determinant of the result of its policies and decisions. There are a number of evaluation methods that assess the effectiveness of a firm’s operations. Three methods of evaluating the value of a firm are profit margin on sales, return on total assets and return on equity.
Profit margin on sales is calculated by dividing the net income of a company through its sales.
Profit Margin on sales = Net income available to common stockholders/ Sales
A firm can compare its figure by the industry average to assess its performance. If a company finds its ratio to be low, it can judge that most probably its costs are very high and so it needs to increase its efficiency and operations.
Return on total assets (ROA) is the ratio of net income to total assets of a firm. If a firm finds its ROA to be low, it means that the firm is not utilizing its resources properly and is not investing in the right direction. (Return on assets) . It can be calculated as
Return on total assets = Net income / Total Assets
Return on Common Equity (ROE) is the ratio of a firm’s net income to its equity. It shows the return that a firm is getting over each dollar of its equity. It tells the investors if they are investing at the right place. It can be calculated as
ROE = Net income / Common Equity
Question: What is meant by the term econometric techniques? Provide at least two examples of its use in financial studies.
Econometrics is a quantitative analysis of economic theories through the use of inferential statistics and mathematics. (wordnetweb.princeton.edu/perl/webwn)
It has a lot of use in economics, for instance econometrics has been used to find the positive relationship between consumption and income to come up with the Keynesian consumption function, whose slope is MPC or marginal propensity to consume.
Another example of it is to find the relationship between labor force participation and the level of GDP in the economy. Statistical methods can be applies, keeping in mind the presence of other factors such as the level of technological advancement.
Question: How can the analysis of financial statements are used in dissertation research?
The financial statements of a firm are its accounts which include its statements of cash flows, balance sheet etc. the analysis of financial statements can be used to describe the relationship between 2 phenomena such as the effect on household income due to the introduction of a few new developmental projects by the governments. Based on the relationship, a firm or individual can used to create a thesis or dissertation. Through this government can know the effects of a rise in its developmental investments. The resulting information can also be valuable for various sections of the market, to analyze how government can use the rise in GDP as an indicator of future spending.

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My research of Classical Economics and Keynesian Economics has given me the opportunity to form an opinion on this greatly debated topic in economics. After researching this topic in great lengths, I have determined the Keynesian Economics far exceeds greatness for America compared to that of Classical Economics. I will begin my paper by first addressing my understanding of both economic theories, I will then compare and contrast both theories, and end my paper with my opinions on why I believe Keynesian Economics is what is best for America.
Classical Economics is a theory that suggests by leaving the free market alone without human intervention; equilibrium will be obtained. This theory was the first school of thought for economists and one of the major theorists and founders of Classical Economics was Adam Smith. Smith stated, “By pursuing his own interest, he (man) frequently promotes that (good) of the society more effectually than when he really intends to promote it. I (Adam Smith) have never known much good done by those who affected to trade for the public good.”(Patil) Classical Economic theory assumes three basic ideas: Flexible Prices, Shay’s Law, and Savings-Investment equality. Flexible prices in Classical theory suggests prices will rise and fall as needed but is not always true, due to, the interference of government agencies including unions and laws. Smith stated in the Wealth of the Nation (1776), “Civil government, so far it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.” (Patil) Shay’s Law implies supply creates its own demand and demand is not based on production or supply.
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The last assumption is that savings will equal the investment which will lead to equilibrium; however, Classical theorist are realist and know this will not always happen, thus, they believe the flexible interest rates will help with the equilibrium.
Keynesian Economics was developed and founding by John Maynard Keynes. He believed and wrote in his book “The General Theory of Employment, Interest and Money” that it is essential for the Government to play a vital role in economic stability. Keynesian theorist believe Government spending, tax hikes or tax breaks are vital in economic success. Keynesian assumptions include: Rigid or Inflexible Prices, Effective Demand, and Savings-Investment Determinants. Rigid or Inflexible Prices suggest that wages increases are easier to take while wage decreases hits resistance; likewise, a producer will increase prices yet when needed will be reluctant to decrease prices. Effective Demand implies that only a portion of the household income will be used for consumption, leading the Keynesians theorist to believe that the effective demand can only be derived from the actual disposable income. Lastly, the Keynesian theorists believe savings and investments are based on one’s desire to save for the future and the expected profitability of the endeavor.
As stated above one can see there are great differences in Classical and Keynesian Economics. Classical Economic theorists believe the Government should have no role in the free market while Keynesians believe the Government is vital in maintaining equilibrium in the free market. Classical Economic theorists believe supply creates its own demand while Keynesians believe demand can only be derived from the actual disposable income. Another contrast between these two theories include: Classical Economic theorist believe flexible interest rates will help with the equilibrium of savings and investments, while, Keynesians believe equilibrium
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of savings and investments can only be obtained with the will of the savor and the expected profitability of the endeavor. In “Economics in Crisis: Severe and Logical Contradictions of Classical, Keynesian, and Popular Trade Models” written by Ravi Batra it is reported that Classical Economics almost died until inflation became intolerable and the Keynesian Economics made an error causing the Classical Economics to easily be brought into the economy. (p.623-624)
This research has brought new light for me in how economics/politics is played in America. Looking at recent events with the American Government, I now have a better understanding of how and why economics is so important. Hearing the word deregulation throughout the 2008 Presidential election, I never quite understood what it meant; I now am gaining a better understanding. I believed in the Keynesian theory before I even knew it existed and now I can say I feel stronger about the Keynesian Economics and I recognize the importance of this kind of economics for America. In “The Relevance of Keynes”, Robert Skidelsky states, “the classical
theory of the self-regulating market rested on the epistemological claim that market participants have perfect information about future events. Grant this and the full employment assumption follows, deny it and it collapses. Keynes’ economy, on the other hand, is one in which our knowledge of the future is usually very slight and often negligible and expectations are frequently subject to disappointment.” (p. 3) I agree with this because even in my short life I have seen many natural things change the economy such as September 11th or the Tsunami in Japan. No one can predict the future and everyone must be prepared for the worse. The websites and articles I found were intriguing in that they mainly disagreed with the Keynesian Economic theory. McCoach even went as far as to use scare tactics including a quote from Adolf Hitler,
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“Gold is not necessary. I have no interest in gold. We will build a solid state, without an ounce of gold behind it. Anyone who sells above the set prices, let him be marched off to a concentration camp. That’s the bastion of money” and later comparing Keynes and Hitler as having the same economics in the same sentence. (McCoach)
In “The Transition from the Classical to the Keynesian Perspective” written by Hukukane Nikaido, I found many different graphs which I have came to conclude is very important in an economic study. I found it hard to really understand the graphs but what I did gain from this article is that Keynesian Economics will continue because the graphs showed a great gain in Economic growth. I have further gained a greater appreciation for Keynesian theory for in this article Nikaido reports, “Keynes’s philosophy of the economic world should not be thought to be
confined to a depression economics. Moreover, it should be deeply impressed on our mind that this discordance applies in the short-run, but also in the long-run, contrariwise to the prevailing view of almost all economists. For a long-run analysis to ignore short-run aspects would be very fictional to the real economic world.” (542-543) My hope is America never has another economic catastrophe as we did in 1930’s and nearly again in 2000’s.

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