Impact of Domestic Production on Trade Balance

The assignment provided discusses the importance of domestic production in improving a nation's trade balance and economic development. It highlights the need for countries to rely on their internal resources rather than external ones. The text references various studies and research papers that support this idea, including works by Aaronson, Bai, Barth, Buyl, Carvalho, Delis, Irani, Laux, Ruhl, Travis, Harris, and Larson. It also mentions the impact of global financial crises on trade balances and the role of monetary policy in shaping economic outcomes.

MONEY AND BANKING

TABLE OF CONTENTS
ESSAY.............................................................................................................................................1
REFERENCES..............................................................................................................................13

ESSAY
To ascertain the banking and monetary system in various nations there has been main
influence of banking authorities to bring the recession and financial crisis. Moreover, in the
present study there will be discussion based on Federal bank in US and the banking policies
implied by them. Moreover, there has been adequate analysis through various operation such as
GDP rates, Inflation etc. Thus, in order to improve the financial conditions there are various filed
which are needed to be improved by the government (Travis, Harris and Larson, 2017). There
has been various impacts of such as huge level of monetary circulation in the market. Consumers
were having interest in investing the money over long term investment plans as the loans and
interest rates were comparatively lower. The banks allowed lower rates as they wanted to meet
the challenges and competition in the market. The impacts as well as influences of financial
crisis were direct and indirect over such economies.
As per analysing the GDP rates during the period 2000 to 2017 there has been huge
variations. Thus, during the crisis there has been downfall of economy which are impacted over
the rise in the prices of commodities (Aaronson and et.al., 2018). Moreover, the main reason
behind the crisis was excessive sub-prime mortgage has been facilitated in the market with lower
returns. Thus, it has negatively impacted over the governmental reserves (Ruhl and Willis,
2017). Banks become bankrupt as there were no money left. It also affecting the increment of
rises of commodities which has bound the consumers in not making expenses which results in
demolish of huge numbers of small businesses (Bernanke, banking crashes and recessions,
2013). Therefore, to analyse the GDP and inflation impacts over the rate of return of banking
sector the below listed table will be helpful in analysing the impacts of financial crisis.
Moreover, in relation with analysing the impacts of Global financial crisis there has been huge
negative fall of the GDP rate of the country. Thus, due to such impacts over economy as it
affects the small scale businesses. Thus, it has effected over reduction in the economic growth
and the circulation of money in the market. There has been reduction in the consumer confidence
index numbers which emphasis over the negative trade practices (Delis, Hasan and Mylonidis,
2017). The governmental policies to overcome with the impacts of GFC in the nation there can
be reduction in the operational activities. Thus, at the time of great depression there has been
increment in the mortgage level. Moreover, people started taking loan and making investments
into the real estate and properties which were having the negative impacts over the increment in
1

the level of loans and mortgaged were grant to the consumers. There has been various impacts of
such as huge level of monetary circulation in the market. Consumers were having interest in
investing the money over long term investment plans as the loans and interest rates were
comparatively lower. The banks allowed lower rates as they wanted to meet the challenges and
competition in the market, Thus, due to lower interest rates there will be less collection of money
and at the time of global financial crisis impacts over the national economy, there is no money
left with the banks (Buyl, Boone and Wade, 2017). There has been huge reduction in the
governmental reserves and funds which has eventually lowers down the revenue of citizens.
There has been negative impacts over the growth of economy. Thus, the per capita GDP has the
negative outcomes which indicates that during such period the small or medium size
organisations has negative impacts of the global financial crisis (Laux and Rauter, 2017). This in
turn reduces the economic level as well as living standard of the people.
It has been observed here that the speculative boom was extended due to derivatives in
the global financial crisis which was not in at the time of great depression. The impacts of great
depression was originated from United state there has been major fall in the stock value of
various industries. Therefore, During such a phase there has been reduction in the prices of the
share values of the firm which indicates the downfall of the economy (Bai, Krishnamurthy and
Weymuller, 2018). There are various entities which were bankrupt and have no capital amount to
operate their business activities. Moreover, it has affected the banks with not money to grant
them from better operations in the time. Similarly, the global financial crisis has impacted over
the nation as per the poor banking policies of the government. To meet the competition the
private and public sector of financial authorities has facilitated the loans in the market at lower
returns which indicates economic crisis (Irani and Meisenzahl, 2017). During such period there
are various issues arises such as inflation, fall of GDP rates, unemployment, fall in national
income as well as economic rates. The liquidity and current ability of nations has been
challenged through such variations in the economy.
The banks in United States has started making the excessive Sub prime loans to the
consumers at very lower rate of return. Thus, the motive of these financial institution is to have
better efficiency as to meet the challenges in the market. It has impacted over various economies
such as developing and developed (Aaronson and et.al., 2018). The impacts as well as influences
of financial crisis were direct and indirect. Moreover, due to such regards many of the small
2

business has demolished as there are no money left wit the bank which will be helpful to them as
per growth and operations. Thus, such impacts in bringing the unemployment in the national
environment (Ruhl and Willis, 2017). Additionally, there are various other nations which were
affected by the impacts of Global Financial crisis.
Illustration 1: Federal rate of return in various nations during GFC
(Source: The U.S. Economy after the Global Financial Crisis, 2018)
On the basis of impacts of global financial crisis the records of federal rate of return
which has impacted over interest rate of various nations such as China, USA, Australia, Europe
and Japan. Thus, it has negatively impacted the exchange rates, monetary transactions as well as
currency rate of the economies. The level of longer terms as well as short term debts were
increased (Travis, Harris and Larson, 2017). The inflation took place on which various necessary
commodities has risen in their prices such as Petroleum products and food articles. In relation
with the behaviour of Federal banks it can be said that there has been huge impacts over the
monetary market of economics moreover, there are negative fall of GDP during the financial
crisis which were comparatively less than -4% in many of the nations (Delis, Hasan and
Mylonidis, 2017). It was a drastic changes and the unfavourable outcomes as the per capita
income and living standard of the people has been reduced here. The domestic economy were at
3

their challenging phase which ascertains that there has been reduction in the operational
activities.
Illustration 2: GDP and recession impacts
(Source: Buyl, Boone and Wade, 2017)
During the period of crisis there has been reduction in the GDP rate of various
developing as well as developed nations (Laux and Rauter, 2017). Therefore, in 2008 it was -
0.3% while in 2009 it was -3.1%. Thus, due to such impacts there are various obstacles incurred
in the operations which in turn affecting the business of local and domestic industries (Bai,
Krishnamurthy and Weymuller, 2018). The negative fall of the GDP rates which were indicative
for the government to make improvement in the banking, Monetary as well as economic policies.
4

The level of imports were higher than compared to the exports. It has incurred due to no micro
level of economic policies were effective to build the economic standard of the citizens (Irani
and Meisenzahl, 2017). Later on it took time in again stabilised at GDP for the period of 2010 to
13 which was 1.95%. Thus, the rate was not that adequate appropriate as there is need to have
appropriate changes in the governmental policies to improve the financial environment of nations
(Aaronson and et.al., 2018). The impacts of global financial crisis has made reduction in the
economic viability as well as improper management of the financial activities in the economy.
The invitation of the inflation has incurred the big monetary losses to the government as well as
to the small scale enterprises (Travis, Harris and Larson, 2017). Due to impacts of the global
financial crisis there has been negative impacts over the consumer confidence level. Thus, it
impacts over their buying behaviour as the rise in the prices took place due to inflation which
impacts consumers to save their money.
Therefore, this has impacted over the reduction in the money circulations as well as
reduction in the demands for the particular goods. Similarly, it has influenced the sales or
operational aspects of the businesses and that lead them to higher losses. Therefore, in the year
2008 Federal debts has leads the debts held by public more than twice which is $5.8 trillion to
$12.2 trillion in 2013. These outcomes have been derived from as per the past impact and the
historical lower rates (Buyl, Boone and Wade, 2017). Therefore, it took year to a nation or
economy in overcoming with the financial losses and crisis. The impact of such economic crisis
was very huge as it has threatened the national economy (Bai, Krishnamurthy and Weymuller,
2018). Moreover, the impacts of such crisis can be seen as per the GDP rate, Potential GDP, FFR
and inflationary gap during the period has been analysed such as:
Frequency:
Quarterly
observation_
date
PCECT
PI_PC1
GD
PC1
GDP
POT π* r*
Output gap
(% of
potential)
Inflati
on gap
Actual Federal
Fund Rate (FFR)
Taylor rule
predicted
FFR
2000-01-01 3.3
-
62.5 60.0
2.0
0%
2.0
0%
-
2.0416666667 0.1 -1 -2.0
2000-04-01 3.3 136. 390. 2.0 2.0 -0.650349641 0.1 -0.0951115834 -0.4
5

4 0 0% 0%
2000-07-01 3.5
-
90.2 25.0
2.0
0%
2.0
0% -4.6078432 0.1 -0.0378323108 -2.3
2000-10-01 3.4
-
67.6
115.
0
2.0
0%
2.0
0%
-
1.5878750435 0.1 0.0072090628 -0.7
2001-01-01 3.4
-
191.
7 -55.0
2.0
0%
2.0
0% 2.4848485455 0.1 0.1573301549 1.5
2001-04-01 3.3
-
73.1
105.
0
2.0
0%
2.0
0%
-
1.6959706667 0.1 0.2927580894 -0.5
2001-07-01 2.7
-
360.
0 -65.0
2.0
0%
2.0
0% 4.5384615385 0.1 0.2373689228 2.6
2001-10-01 1.9
-
52.2 55.0
2.0
0%
2.0
0%
-
1.9486165455 0.0 0.6390625 -0.3
2002-01-01 1.2
-
436.
4
185.
0
2.0
0%
2.0
0%
-
3.3587223784 0.0 0.2307692308 -1.4
2002-04-01 1.3 4.8
110.
0
2.0
0%
2.0
0% -0.95671 0.0 -0.0095238095 -0.5
2002-07-01 1.6
-
253.
8
100.
0
2.0
0%
2.0
0% -3.5384615 0.0 0.0057471264 -1.7
2002-10-01 2.3
-
72.7 15.0
2.0
0%
2.0
0%
-
5.8484846667 0.0 0.2055427252 -2.7
2003-01-01 3.0
-
43.2
105.
0
2.0
0%
2.0
0% -1.411840381 0.1 0.1546666667 -0.5
2003-04-01 2.0 72.7
190.
0
2.0
0%
2.0
0%
-
0.6172248947 0.0 0.0026737968 -0.3
2003-07-01 2.2
245.
0
345.
0
2.0
0%
2.0
0%
-
0.2898550725 0.0 0.2262295082 0.1
6

2003-10-01 2.0
150
0.0
240.
0
2.0
0%
2.0
0% 5.25 0.0 0.0200668896 2.7
2004-01-01 1.8 9.5
115.
0
2.0
0%
2.0
0%
-
0.9171842609 0.0 -0.0066445183 -0.4
2004-04-01 2.8
-
21.1
150.
0
2.0
0%
2.0
0%
-
1.1403508667 0.1 -0.0066006601 -0.5
2004-07-01 2.7
-
46.4
185.
0
2.0
0%
2.0
0%
-
1.2506854595 0.1 -0.2953488372 -0.9
2004-10-01 3.4
-
27.1
175.
0
2.0
0%
2.0
0%
-
1.1547618857 0.1 -0.264957265 -0.8
2005-01-01 3.0 87.0
215.
0
2.0
0%
2.0
0%
-
0.5955510698 0.1 -0.2105263158 -0.5
2005-04-01 2.9
-
30.0
105.
0
2.0
0%
2.0
0%
-
1.2857142857 0.1 -0.160815402 -0.8
2005-07-01 3.8 -8.1
170.
0
2.0
0%
2.0
0%
-
1.0476947647 0.1 -0.1493256262 -0.6
2005-10-01 3.7
-
34.3
115.
0
2.0
0%
2.0
0%
-
1.2981366087 0.1 -0.1306532663 -0.7
2006-01-01 3.7 14.0
245.
0
2.0
0%
2.0
0%
-
0.9430469796 0.1 -0.1069558714 -0.5
2006-04-01 3.9
-
42.9 60.0
2.0
0%
2.0
0%
-
1.7142856667 0.1 -0.0917119565 -0.9
2006-07-01 3.3
-
88.2 20.0
2.0
0%
2.0
0% -5.4117645 0.1 -0.0648030496 -2.7
2006-10-01 2.0 39.1
160.
0
2.0
0%
2.0
0%
-
0.7554348125 0.0 0 -0.3
2007-01-01 2.4
-
95.9 10.0
2.0
0%
2.0
0% -10.591837 0.0 -0.0019023462 -5.3
2007-04-01 2.7
158.
3
155.
0
2.0
0%
2.0
0% 0.0215053548 0.1 0.0012698413 0.1
2007-07-01 2.3 575. 135. 2.0 2.0 3.2592592593 0.0 0.0348226018 1.7
7

0 0 0% 0%
2007-10-01 4.0
-
56.3 70.0
2.0
0%
2.0
0%
-
1.8035714286 0.1 0.1282431431 -0.7
2008-01-01 4.1
-
145
0.0
-
135.
0
2.0
0%
2.0
0% 9.7407407407 0.1 0.4155299056 5.3
2008-04-01 4.3
-
35.5
100.
0
2.0
0%
2.0
0% -1.3548387 0.1 0.5223642173 -0.1
2008-07-01 5.3
-
170.
4 -95.0
2.0
0%
2.0
0% 0.7933723158 0.1 0.0756013746 0.5
2008-10-01 1.6
-
685.
7
-
410.
0
2.0
0%
2.0
0% 0.672473878 0.0 2.8289473684 3.2
2009-01-01 -0.2
100.
0
-
270.
0
2.0
0%
2.0
0%
-
1.3703703704 0.0 1.7636363636 1.1
2009-04-01 -0.9
-
125.
0 -25.0
2.0
0%
2.0
0% 4 0.0 0.0185185185 2.0
2009-07-01 -1.6
-
168.
4 65.0
2.0
0%
2.0
0%
-
3.5910930769 0.0 0.1489361702 -1.6
2009-10-01 1.5
-
147.
6
195.
0
2.0
0%
2.0
0%
-
1.7567229744 0.0 0.3055555556 -0.5
2010-01-01 2.4
-
131.
5 85.0
2.0
0%
2.0
0%
-
2.5468409412 0.0 -0.1 -1.3
2010-04-01 1.8 -
880.
195.
0
2.0
0%
2.0
0%
-
5.5128205128
0.0 -0.3103448276 -3.0
8

0
2010-07-01 1.2
107.
7
135.
0
2.0
0%
2.0
0%
-
0.2022791852 0.0 0.0357142857 0.0
2010-10-01 1.2
-
35.9
125.
0
2.0
0%
2.0
0% -1.28717952 0.0 0 -0.6
2011-01-01 2.1
-
188.
2 -75.0
2.0
0%
2.0
0% 1.5098038667 0.0 0.1914893617 1.0
2011-04-01 3.3
-
25.6
145.
0
2.0
0%
2.0
0%
-
1.1768346897 0.1 0.6785714286 0.1
2011-07-01 3.7
-
70.4 40.0
2.0
0%
2.0
0% -2.75925925 0.1 0.12 -1.2
2011-10-01 3.3 84.0
230.
0
2.0
0%
2.0
0%
-
0.6347826087 0.1 0.1363636364 -0.1
2012-01-01 2.8
-
280.
0
135.
0
2.0
0%
2.0
0%
-
3.0740740741 0.1 -0.2903225806 -1.8
2012-04-01 1.9
-
34.5 95.0
2.0
0%
2.0
0%
-
1.3629764211 0.0 -0.3260869565 -1.0
2012-07-01 1.7
-
37.5 25.0
2.0
0%
2.0
0% -2.5 0.0 0.0697674419 -1.1
2012-10-01 1.9
-
97.8 5.0
2.0
0%
2.0
0% -20.565218 0.0 -0.1041666667 -10.3
2013-01-01 1.7 3.7
140.
0
2.0
0%
2.0
0% -0.973545 0.0 0.1162790698 -0.3
2013-04-01 1.4
-
57.9 40.0
2.0
0%
2.0
0% -2.4473685 0.0 0.2285714286 -1.0
2013-07-01 1.5
520.
0
155.
0
2.0
0%
2.0
0% 2.3548387097 0.0 0.4 1.6
2013-10-01 1.2
390
0.0
200.
0
2.0
0%
2.0
0% 18.5 0.0 -0.0384615385 9.2
9

2014-01-01 1.4
-
132.
1 -45.0
2.0
0%
2.0
0% 1.936508 0.0 0.1818181818 1.2
2014-04-01 2.1
475.
0
230.
0
2.0
0%
2.0
0% 1.0652173913 0.0 -0.2142857143 0.4
2014-07-01 1.8 67.7
260.
0
2.0
0%
2.0
0%
-
0.7394540769 0.0 0.037037037 -0.3
2014-10-01 1.2
-
50.0
100.
0
2.0
0%
2.0
0% -1.5 0.0 -0.1 -0.8
2015-01-01 -0.1
-
455.
6
160.
0
2.0
0%
2.0
0% -3.84722225 0.0 -0.0909090909 -2.0
2015-04-01 0.0
-
41.3
135.
0
2.0
0%
2.0
0%
-
1.3059581481 0.0 -0.1081081081 -0.7
2015-07-01 0.2
-
69.2 80.0
2.0
0%
2.0
0% -1.865384625 0.0 -0.0975609756 -1.0
2015-10-01 0.4
-
75.0 25.0
2.0
0%
2.0
0% -4 0.0 -0.1458333333 -2.1
2016-01-01 1.1
-
81.3 30.0
2.0
0%
2.0
0%
-
3.7083333333 0.0 -0.5555555556 -2.4
2016-04-01 1.1
-
18.5
110.
0
2.0
0%
2.0
0%
-
1.1683501818 0.0 -0.0357142857 -0.6
2016-07-01 1.1 75.0
140.
0
2.0
0%
2.0
0%
-
0.4642857143 0.0 -0.0588235294 -0.3
10

-4
-2
0
2
4
6
8
Taylor rule predicted FFR
Actual Federal Fund Rate (FFR)
(%)
On the basis of above mentioned findings as well as analysis of various economic terms
such as GDP rates, Inflation rates it can be said that there are various requirements which were
result into having the most accurate information about the governmental loopholes (Travis,
Harris and Larson, 2017). There has been negative fall of the economy during the period of
Global financial crisis. The government at that time has played the compensatory role in
designing the plans and policies to overcome with such financial drawbacks. Therefore, they
have plans for improving the private sector such as agriculture, small scale enterprises etc. to
improve the economic growth of the nation (Delis, Hasan and Mylonidis, 2017). Therefore, as
per the above analysis it can be said that there has been increment in the federal rate of return
after the period of global financial crisis.
However, in relation with making the adequate changes into economy there are various
operations which will be helpful more improving the economic level. There are need to have
increment in the planning capacity of government in various economies such as improving the
plans for the short terms as well as long term debts. There are various operation which will be
11

helpful for the government in meeting the economic targets as if they make increment in the
domestic production (Irani and Meisenzahl, 2017). It emphasis over improving the imports in the
organisation which will be helpful in meeting the governmental targets. There is need to make
balance between the current crisis of the nation. The rates over the central bank charges money
to the state banks must be appropriate as it will again generate the governmental reserves (Bai,
Krishnamurthy and Weymuller, 2018). It will eventually impact over the consumers to build up
confidence level as to have adequate increment in the growth of economy.
There has been increment in the level of employment facilities in the economy as the
labour market has reduced the rates due to improper jobs and recruiters were available to them.
Moreover, the government was focused over presenting the appropriate job opportunities in the
market so the living standard of people will be improved (Aaronson and et.al., 2018). The efforts
have reflected the positive outcomes. The cause created by the Global financial crisis has
impacted over the reduction in the prices of labour market. Thus, there are large numbers of
graduates were in the market looking for the adequate jobs but the improper number of
organisation has challenges the unemployment in the environment (Buyl, Boone and Wade,
2017). It has been assumed that there will be increment in the rate of GDP per year for 3% of rise
in the rates. Therefore, due to such wants and requirements of the government there is need to
have adequate increment in the plans and policies for private firm.
However, after analysing the pre and post impacts of global financial crisis as well as
planning of the federal banks in the economy has been analysed. Therefore, there can be
adequate increment in the demand and supply of the commodities which will be helpful in
balancing the inflating gap (Irani and Meisenzahl, 2017). Moreover, the governmental plans and
policies will have positive outcomes ads per stabilising the exchange rate of the economy. On the
other side, there are need to have plans for increment of domestic production in country which
will be helpful in rising the balance of trade and balance of payments (Travis, Harris and Larson,
2017). Thus, It impacts over reducing the level of exports made in the nation in comparison with
managing the appropriate exports. The citizens will have to depend over the domestic resources
instead of external resources. Therefore, here the development will play the main role in
improving the economic conditions.
12

REFERENCES
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banking sector. The Journal of Finance. 73(1). pp.51-93.
Barth, M. E. and et.al., 2017. Bank earnings and regulatory capital management using available
for sale securities. Review of Accounting Studies. 22(4). pp.1761-1792.
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empirical analysis in US commercial banks. Journal of Management,
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Carvalho, C., Ferrero, A. and Nechio, F., 2017. Demographic Transition and Low US Interest
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in the US: Evidence from Corporate Loan Data. Journal of Money, Credit and Banking.
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Irani, R. M. and Meisenzahl, R. R., 2017. Loan sales and bank liquidity management: Evidence
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recessions/>.
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The U.S. Economy after the Global Financial Crisis. 2018. [Online]. Available
through :<https://www.federalreserve.gov/newsevents/speech/quarles20180222a.htm>.
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