Understand economics from scratch

Chapter 23 How Much Do You Know about the Economic Situation and Government Behavior——Macroeconomics You Must Know (3)
Managers naturally hope that every decision can achieve a multiplier effect, that is, one measure produces multiple effects, but the multiplier effect is not once and for all. The multiplier effect includes a series of measures, and only these corresponding supporting measures play a role. Efficacy, multiplier effect can produce effect.The so-called supporting measures are supporting measures to further exert the effect of the original measures, such as incentive measures in management. It is impossible for simple incentives to continue to play a role without incentives, and corresponding supporting measures (such as corporate culture, etc.), only by taking these corresponding measures well can the effect be brought into play.

The multiplier effect is still evolving and developing. The application of the multiplier effect must not only be limited to macroeconomics and management. So, have you found that the magical power of the multiplier effect is also hidden in our daily life?

Bad demand: the economy cannot do without macro-control
There is such a fable about monkeys fishing for the moon: all the monkeys on the tree pulled the tail of the previous one to form a chain, and sent the last one to the surface of the water so that it could fish for the moon in the water.Everyone thought it was funny. Now it seems that the spirit of exploration of these monkeys is still very good. Through practice, they will understand that the moon in the water is just the shadow of the moon in the sky, not an entity, so as to increase their knowledge.We humans, on the other hand, tend to regard projections as entities and leave entities behind.For example, Neo-Confucianism created by Zhu Xi, an agent scholar in the Song Dynasty, advocated "preserving the principles of nature and eliminating human desires", but he did not know that the greed of people at that time was a reflection of the development of the commodity economy and a projection of social injustice.This is tantamount to trying to erase the moon from the water, and how much better than a monkey fishing for the moon?

The monkeys thought that the moon was in the water, but when they actually went to salvage it, the moon was broken and shattered.The moon in the water is always just a beautiful image.In economics, we can understand that today's bubble economy is like the moon in the water. It is generated by speculation, which causes false prosperity of the social economy. In the end, the bubble must burst, leading to social unrest and even economic collapse.

The so-called bubble economy refers to the figurative statement that the economy is overheated, falsely inflated, and finally burst like a soap bubble.Its main manifestations are that the market prices of real estate and stocks have risen unexpectedly and sharply, and the prices have seriously deviated from the value, destroying the normal supply and demand relationship in the market, credit chaos, assets suddenly shrinking, and the economy is in crisis.

The "bubble" burst, and the aftermath of the economy appeared. The main features are: stock prices and land prices have fallen sharply, the real estate industry has been depressed, the stock market has been depressed for a long time, and the income of securities companies has dropped sharply; Investment enthusiasm for industries with high price risks has declined, and funds have turned to short-term investments and bonds; falling stock prices have hurt general small and medium-sized enterprises and household consumption, and the demand for funds is not strong, forcing the central bank to lower the discount rate.In a nutshell, the consequences of the "bubble" economy: First, the social distribution is unfair.Some landowners' personal assets suddenly appreciated, while others who bought stocks and real estate at high prices suffered heavy losses, widening the gap between the rich and the poor.The second is the financial credit crisis.Real estate mortgages depreciated and defaulted bankruptcy cases increased.

In addition, after the "bubble" burst, the economic recovery was sluggish, and economic adjustment became more difficult. When the "bubble" climaxed, corporate borrowing increased. After the "bubble" burst, corporate earnings deteriorated and debts increased.Therefore, each country will actively prevent the occurrence of "bubble" economy.Frenzied demand for assets can lead to "bubble" economies, and the collapse of "bubbles" can lead to depressions, but bad demand can do more harm.

If there is a demand in the market, and this demand can bring profits to businesses, there must be this kind of supply, even if this kind of demand is not necessarily civilized, and this kind of supply may not be legal.For example, the supply of drugs caused by the demand for drugs is a more extreme example.Even if a civilized society has exhausted all means, drug suppliers will produce and sell drugs even at the risk of being hanged because the supply of drug demand can lead to huge profits.Punishment only raises the production and sales costs of drugs, but producers and traffickers in turn pass this risk cost on to drug consumers by raising prices.This is the power of need!

People's desire is the source of various needs, and desire has the characteristics of infinity, that is, people's desire will never be completely satisfied.When one desire is satisfied, a new desire arises. "The heart is not enough to swallow the elephant" reveals this truth.Traditional Chinese morality regards human desires as the source of evil, and advocates "preserving the principles of nature and destroying human desires."In fact, it is the infinity of human desires that drives the continuous progress of society.Human desires must be satisfied with various material products or services, and material products or services must be produced with various resources.However, the resources that nature bestows on people are limited.No matter how many resources a society has, it is always a limited amount.Compared with people's desires, the amount of resources is always insufficient, and so are the material products or services.The infinity of human desires creates the scarcity of resources.

Scarcity is an eternal problem faced by human beings, and it coexists and dies with human society.From the perspective of human available energy, there seems to be no limit.But from another point of view, the price humans pay for this is already big enough.The use of whale oil and its subsequent scarcity did not bother humans, but the whales were almost wiped out; the use of coal and its scarcity did not bother humans, but they dug a good earth full of holes, and the deformation of the geological structure caused a disaster. Endless geological disasters; the use of oil and the possible scarcity of oil may not be a problem for human beings, but in addition to geological disasters, human beings will be more greedy for the next possible substitute...

At the same time, we must also note that the so-called unlimited growth currently only occurs in a few central countries in the world.Underpinning the illusion of unlimited growth in these countries is the fact that a large number of other countries are increasingly facing virtually depleted resources.

Forests are a typical example. From 1990 to 2000, the world's forest area decreased by an average of 940 million hectares per year.Some people even calculated such an account: the United States, which accounts for 1/20 of the world's population, consumes 1/3 of the world's resources.Even if all possible resources in the world are utilized and resources are redistributed, people all over the world cannot live in the American way.

It seems that the power of demand is a great force, constantly creating supply; but it is also a destructive force, which makes human beings face a big collapse caused by the ultimate lack of resources while progressing on the surface.People's unhealthy and excessive needs require the government to strengthen management.

Stimulus policy: Confidence is more important than gold

A daughter complains to her father about her life, complains that everything is always so difficult, she doesn't know how to deal with life, and wants to give up on herself.She was tired of fighting and struggling, as if one problem was solved and a new one appeared.

Her father was a cook, and the cook took his daughter into the kitchen, where the father first poured some water into each of three pots and put them on a high fire.Soon the water in the pots was boiling, and he put some carrots in the first pot, eggs in the second pot, and ground coffee beans in the third pot.He boiled them in boiling water without saying a word.

The daughter smacked her lips and waited impatiently, wondering what her father was doing.After about 20 minutes, my father turned off the fire, scooped out the carrots and put them in a bowl, scooped out the eggs and put them in another bowl, and ladled the coffee into a cup.After doing this, he turned to his daughter and asked, "Honey, what do you see?" "Carrots, eggs, coffee," she replied.

He brought his daughter closer and touched the carrot with his hand.She touched them and noticed that they had softened.The father asked his daughter to take another egg and break it. When the shell was peeled off, all she saw was a hard-boiled egg.Finally, the father let her have a sip of coffee, tasted the fragrant coffee, and the daughter smiled.She asked timidly, "Dad, what does this mean?"

Father explained that these three things faced the same adversity—boiling water—but responded differently: Before the carrot was in the pot, it was strong, firm, and unrelenting, but after it was in the boiling water, it softened, weakened.The egg was originally fragile, its thin shell protecting its liquid interior, but after being boiled, its interior hardened.Ground coffee beans are unique in that when they enter boiling water, they actually change the water.

Father asks daughter: "Which are you? How do you react when adversity strikes your door? Are you the carrot? The egg? The coffee?"

Do you cringe when faced with a financial crisis?Become limp like a carrot that has lost its strength?Or is it a plastic egg inside?Or are you like coffee beans?The beans change the boiling water that is giving it pain, and let it smell best when it reaches a high temperature of 212 degrees, and when the water is hottest, it tastes even better.

When the financial crisis strikes, it is difficult and stressful to get out of the shadow of the financial crisis.This lies in our choice, but also in our confidence to overcome difficulties.

On the afternoon of September 2008, 9, at the Waldorf Astoria Hotel in New York, Premier Wen Jiabao of the State Council of China, facing well-known figures in the American economic and financial circles, said in a decisive voice: "In the face of economic difficulties, confidence is more important than gold and currency."Premier Wen Jiabao, who was in New York to attend the United Nations meeting, specially arranged a symposium with prominent figures in the American economic and financial circles during his short 24-hour trip.The participants were all top figures in the American economic, financial and academic circles: Geithner, President of the Federal Reserve Bank of New York, Rubin, Chairman of Citigroup, former US Treasury Secretary, Chairman of the US-China Business Council, and Chairman of Dow Chemical Company Liveris, Nobel Laureate in Economics, Columbia University Professor Stiglitz, Chairman of the Council on Foreign Relations Haas.

Premier Wen said that the US subprime mortgage crisis has triggered violent turbulence in the international financial market, and the global economic outlook is not optimistic.At the same time, it should be noted that the current situation is not the same as it was in the 20s.The fundamentals of the U.S. real economy, including the high-tech economy, are good.Over the past few decades, the world economy has gone through ups and downs, and has finally overcome the crisis and achieved new development.Today, the international community is increasingly capable of resisting financial risks and has more experience.In the face of a crisis, the key is to muster courage and confidence, which is more important than gold and currency.Premier Wen said that we have noticed that the US government and financial circles have taken a series of important measures to stabilize the domestic financial market, and hope that this will play a positive role in alleviating the current difficulties.

The US participants expressed their expectations for China.Geithner said that under the current situation of world economic downturn, people pay more attention to the message sent by China.China is a source of global economic and financial stability and confidence.Liveris said that while the U.S. economy is weakening, maintaining a stable and strong Chinese economy is good news for the world.Stiglitz said the global financial regulatory system had ignored the voices of developing countries in the past.In the future, China's voice should be listened to more.Stiglitz also suggested to Premier Wen: Adopt a proactive fiscal and monetary policy, expand domestic demand, and maintain stable economic growth; draw lessons from the US financial crisis, strengthen financial supervision, and pay attention to the safety of financial derivatives and financial innovation; in addition, The social security system should also be improved.

It is precisely under the choice that confidence is more important than gold, Premier Wen Jiabao called on the whole world to boost confidence and work together to overcome the crisis.It also proposed to achieve the goal of GDP growth of about 8%, and the central government quickly issued ten measures to expand domestic demand and promote economic growth.

Economic Stimulus Combo: Fiscal and Monetary Policies
On February 2009, 2, US President Barack Obama signed an economic stimulus plan totaling US$17 billion in Denver, a western city in the United States, marking the formal implementation of Obama's "New Deal".Obama said that the economic stimulus plan will be a starting point to revive the US economy and will "lay the foundation for the US economy to achieve lasting development and prosperity".

The economic stimulus plan covers almost all areas of the US economy, and about 35% of the total funds will be used for tax cuts and about 65% for investment.In the tax reduction project, each American worker can get a tax rebate of up to US$400, and each American family can get a tax rebate of up to US$800; in terms of investment projects, infrastructure construction and new energy will be the two major investment priorities.The plan will preserve and create about 350 million jobs in the United States.

In order to ensure the transparent use of these funds, the White House opened a related website on the same day to announce the details of the use of all funds in the economic stimulus plan.Officials said that the public can check the specific flow of each fund through the website.

The $7870 billion economic stimulus plan is the largest spending plan of the U.S. government since World War II. Public opinion generally believes that the approval of this plan in less than one month after taking office is a major victory for Obama.

Whenever the social economy faces a recession, the government will always stand up and throw out a package of economic stimulus plans. This is because in a market economy, consumption and investment are determined by countless individual households and businesses, which are impossible during recessions. Adding overhead for no reason.At this time, the government should be a big buyer, and the government should invest in it.Stimulated by this huge "new customer", the market will end its recession and turn to prosperity.

Central banks deal with inflation through so-called monetary policy.How does the central bank operate?It takes back the excess money in your hands and tells you not to spend it.The money in the hands of every ordinary person is a potential demand, and everyone uses this money to buy what they want to buy.For example, if everyone buys pork, the price of pork will rise; if everyone buys mineral water, the price of mineral water will rise, so what should we do?The best way is not to spend this money.If you don't spend money, prices won't go up.But to keep the people from spending money, the government needs to use monetary policy to regulate.

Monetary policy is a very broad concept, which includes the following items:

The first is the deposit reserve policy.Deposit reserve refers to the funds prepared by financial institutions to guarantee customers' deposit withdrawal and fund liquidation needs. The ratio of the deposit reserve paid by financial institutions to the central bank in accordance with the regulations to its total deposits is the deposit reserve ratio.The deposit reserve system was established under the central bank system. The United States was the first country in the world to legally require commercial banks to deposit deposit reserves with the central bank.The initial role of the deposit reserve system is to guarantee the payment and liquidation of deposits, and then gradually evolved into a monetary policy tool. The central bank adjusts the deposit reserve ratio to affect the credit supply capacity of financial institutions, thereby indirectly regulating the money supply.

If the bank has a deposit of 100 yuan, the bank will lend it to others to earn interest and make money.How do banks make money?Make money from spreads.For example, the bank earns 2% interest through the spread.Banks cannot lend 100%.If ordinary people save 100 yuan, the bank lends all of it, but when people withdraw money, what should the bank do if they have no money to give?This creates a financial crisis.Therefore, the central bank requires each bank to keep a certain deposit reserve, so as to prevent the situation that there is no money when others come to withdraw money.The central bank always requires a certain deposit reserve, that is, the bank will use part of depositors' deposits for lending, and the rest cannot be released, which will cause trouble.When ordinary people go to withdraw money, the bank has no money, which is very troublesome.So if the deposit reserve ratio is 20%, that means 20% of the deposit remains in the bank for the withdrawer to withdraw cash.In other words, if the bank has a deposit of 100 yuan, it can only lend 80 yuan, so the enterprise only has 80 yuan to purchase raw materials for the product.In this way, the pressure of inflation in the society is much smaller, because there is only 80 yuan to buy products.Therefore, the purpose of increasing the deposit reserve is to recover the excess money.

The second is interest rate policy.This is an important part of my country's monetary policy and one of the main means of monetary policy implementation.According to the needs of monetary policy implementation, the People's Bank of China uses interest rate tools in a timely manner to adjust the level and structure of interest rates, thereby affecting the supply and demand of social funds and achieving the established goals of monetary policy.

In recent years, the People's Bank of China has strengthened the use of interest rate tools.Interest rate adjustments are frequent year by year, interest rate control methods are more flexible, and the control mechanism is becoming more and more perfect.With the gradual advancement of interest rate marketization reform, the interest rate policy, one of the main means of monetary policy, will gradually transform from direct regulation of interest rates to indirect regulation.As an important economic lever, interest rate will play a more important role in the national macro-control system.

(End of this chapter)