Economics

Research conducted over the years has significantly indicated that the development of institutions inherently depends upon the level of economic growth within a particular country, specifically its GDP per capita ratio since the IMF in its report has conducted empirical analysis using that very variable. At the basis of it, one can conclude, employing theoretical concepts, that the relationship between economic growth and the development of institutions is extremely strong, however, when one attempts to delve deeper into that relationship is when things become murky in the sense that there can be a lot of reasons why the institutional development of a nation could be related to its economic prosperity and vice versa for example, when countries becoming economically stable, they tend to improve upon their institutions in order to further their economic goals whereas some nations inherently adopt the institutions left behind by their predecessors as is the case with colonies.

The case of colonies presents an extremely interesting viewpoint. It states that nations where colonization occurred heavily for the sole purpose of the settlers developing a firm stronghold within that particular nation lead to those nations being able to develop constitutionally sound institutions whereas nation which were colonized for the sole purpose of exploiting their natural resources were not able to learn from the settlers, developed in ways which induced prosperity to be held by only a select few, were eventually left with institutions that were inherently weak. The former case talks of British and European colonies while the latter can be attributed to Sub-Saharan colonies which never really developed in the true sense of the word. Thus history and geography have played an immensely important role in the development of institutions.

Hence, one can clearly stipulate that institutional changes have occurred slowly but surely over the past in accordance with the economic development of a particular country. That is why it can be clearly seen that developed countries now stand in positions of power based upon their concrete institutional development where as developing nations have inherently weak institutions which are reflected in almost every aspect of their economies. The distinction between bad and good institutions can be clearly signified by considering the type of policies that each enacts.

Primarily speaking, the formulation of an open trade policy as well as focus upon human capital formation in order to increase resource and factor productivity tends to lead towards higher economic growth. Such policies can also be categorized under the auspices of creating regulatory financial markets, decreasing volatility within the economy to foster foreign investment, strong legal and constitutional framework etc.

Lastly, countries that have seen rapid institutional reforms in the past decade or two have done so through various different means though it can be clearly see that there were a few generic points upon which amalgamation and commonness can be found. Firstly, countries have to promulgate the advent of trade openness and competition, specifically from international organizations. Secondly, censorship should be abolished at all costs thereby promulgating transparency and accountability at all levels of the institution. Lastly, it has been clearly seen that external affixes play an important role in regional institutional development. The biggest example that can be found is the inception and accession to the European Union model. This example can be further moved on to countries joining hands with organizations such as the WTO, IMF etc. These organizations help to build and improve upon institutions.

The importance of legal enforcement versus cultural norms in controlling corruption is very less understood. As a means of untangling these factors, Fisman and Miguel performed a natural experiment using the stationing of thousands of diplomats in New York City.  Diplomatic immunity for the diplomats means there is zero legal enforcement of diplomatic parking violations. Use of this setting has allowed Fisman and Miguel to examine the role of cultural norms alone in corruption (Newsmax). This setting essentially strips out enforcement effects which in turn allowed interpretation of the diplomats behavior as reflection of their underlying propensity to break rules when enforcement is not a consideration (Fisman and Miguel 2). This research approach allowed for the construction of a revealed reference measure of corruption for government officials across 146 countries. As opposed to the existing country corruption indices that are typically based on subjective surveys, this is an objective measure, based on real rule-breaking in parking and is arguably an improvement over the subjective surveys. The parking violations measure has a much more precise definition and explicitly cardinal interpretation (Fisman and Miguel 4). Empirically, Fisman and Miguel found out that parking violation corruption measure is strongly positively correlated with other country corruption measures. The raw correlation between the country corruption rankings and pre-enforcement parking violations per diplomat is 0.18, and the between the corruption ranking and post-enforcement violations per capita is 0.24 (Fisman and Miguel 35). The worst parking violators (in order) are Kuwait, Egypt, Chad, Sudan, Bulgaria, Mozambique, Albania all rank poorly in cross-country corruption rankings (Fisman and Miguel 9).

On the other hand diplomats from low corruption countries (e.g., Norway) behave well even in situations where they can get away with violations. This suggests that the diplomats bring the social norms or corruption culture of their home country with them to New York City. The parking violation dataset also provides an insight into the related issues of sentiment and affinity in individual decision-making. The study found that diplomats from countries where popular attitudes towards the United States tend to be unfavorable have significantly more parking violations than those from countries where attitudes towards the United States are positive. The main conclusion that can be drawn from this study is that factors other than legal enforcement (such as cultural norms and emotions) play significant role government officials corruption decisions. They suggest that understanding these factors should be taken seriously in debates about the causes of corruption and the policy measures to combat it. However, this study does not negate the importance of law enforcement measures. A crucial change in enforcement took place in October 2002, with implementation of the Clinton-Schumer Amendment to deal with the diplomat parking problem. This law gave the City permission to tow diplomatic vehicles, revoke U.N. parking permits, and have 110 of the total amount due deducted from U.S. government aid to the offending diplomats countries of origin. Parking violations fell substantially after this reform (Fisman and Miguel 8).

However, the focus of this study has been the pre-reform period from 1997-2002 using which Miguel and Fisman have illustrated that these diplomats bring the social norms or corruption culture of their home country with them to New York City. As an extension of this, it can be further argued that given the low levels of transparency and accountability in high corruption countries the government officials, including diplomats can break laws in their home country. It may be argued that much like the government officials, the average citizens too are influenced by the socio-cultural norms of their country. However, even though the diplomats and the average citizens have the similar norms, it may be argued that they still may display a different behaviour (given that average citizens, lacking diplomatic immunity have an increased susceptibility to falling under the purview of law enforcement).

Over the passage of time, economists have developed different quantitative measures to gauge the success of a country relative to another. The three most famous measures to determine the economic progress of a country are the gross domestic product (GDP), the Gini Index, and the human development index (HDI).

The GDP measures the total economic output produced by a country. The basic assumption is that if the output increases, then it means that everyone has more goods and services, and would therefore, be better off. It can be measured in three ways through the output approach, the income approach and the expenditure approach. It is divided by the total population to come up with the GDP per capita. Armenias GDP per capita was US 3877 in 2008.  (UN, 2009)

The Gini coefficient is a quantitative measure to determine the inequality in wealth in a country. It is calculated by measuring the shaded region in the Lorenz curve. It can range between zero (depicting complete equality), and one (depicting complete inequality). The Gini coefficient of Armenia was 0.37 in 2006. (CIA, 2004)

The HDI is a statistical index that ranks countries according to the level of human development. The formula for calculating the index incorporates three things, namely, life expectancy, the education level (measured by the adult literacy rate), and the standard of living. According to the 2009 human development report (HDR), Armenia falls into the medium human development category and ranks 84th out of 182 countries (HDR, 2009).

AmericaArmeniaGDP per capitaUS 45230US 3877Gini coefficient0.37 (2006)0.47 (2007)HDI rank84th (2009) 13th (2009)

Compared to America, Armenia has a significantly lower GDP per capita, and HDI. However, the Gini coefficient shows that the income is more equally distributed in Armenia.

World War I was a total war and required immense financial preparations to sustain it. However, Germany was ill prepared for this kind of war that placed such an economic burden on the people and government of Germany. Germany expected to win the War in a short time therefore, it postponed the ultimate resolution of the financial demands to the end of the War. During World War I, Germany concerned itself primarily with the production and supply of weapons for the front and the undisturbed funding of capital. At the end of the War, all three European powersFrance, Germany and Englandentered an inflationary period due to deficit spending and credit taken during the war period.
Even though all three powers had the same financial burden, Germany was in the worst position because it was viewed as the loser of the war. The funding of World War I created the germ of inflation. Nonetheless, the point of no return for Germany toward hyper-inflation and currency devaluation in the later years was not yet reached. Only the political events of post World War I solidified the inflationary situation in Germany. In these hard times, the United States played a major role in the economic solutions to the problems of Europe, particularly those in Germany.

The German inflation of 1919 to 1924 was rooted in the war inflation beginning in 1914. Then, Germany raised much needed cash for the war without a well-planned financial strategy. The poor infrastructure of Germanys taxation system made the collection of funds even harder. Germany tried to limit the progressing inflation by way of a new taxation system. However, the rising inflation caused the mark to devaluate producing a stronger economy. The new German commercial strength was used to revise the peace treaty of Versailles. This was done with a close tie to the United States to make use of the last possibility for Germany to regain its previous status in Europe as a great power.
This paper aims to discuss the consequences of the World War on the overall economic situation in Europe. In particular, its influence on hyperinflation in Germany is assessed. The steps and policies taken by the Germany in order to overcome this post-war devastation are also discussed. Finally, some conclusive remarks are presented.

POST WORLD WAR I ECONOMIC SITUATION IN EUROPE WITH EMPHASIS ON GERMANY
The four-year war, whose primary protagonists were the European powers, destroyed the world economic and currency system.Compared to pre-war times, the European population declined by seven percent or twenty-two million people due to the effects and consequences of the war (lower birthrates). This number was as high as the natural increase between 1914 and 1920. Thus, the number of inhabitants did not vary much during the period. However, it has to be noticed that most of the casualties of war belonged to the most productive part of the work force, persons between twenty and forty years of age. In addition, the war disabled and the unemployable injured soldiers did not enter the statistics.

From a national economic point of view, the material losses of the war were more of a problem for the reconstruction efforts in Europe and the rejuvenation of the world economic system. In his estimate, Aldcroft calculated a capital loss of approximately 200 billion British pounds in pre-war prices.  However, his evaluation did not include pure war costs as well as the decrease of capital value through missed maintenance or renewal.

After the end of hostilities, the countries and national economies of Europe were the main victims of the world-wide destruction. In particular, the material damage on the main battlefields of France, Southeastern and Eastern Europe was extensive. On the other hand, Great Britain, Germany and the new state of Austria had relatively little material destruction to show compared to the other countries. Still, in the case of the two main war losers, these limited losses were increased by high reparation demands as well as enormous territorial concessions. Particularly, the new division of the lost regions to other countries or the newly-founded nations often led to dismemberment of economic entities. These new units, split into separate components, had severe difficulties.

The war decisively shifted the position of Europe in the world economy. Until the year 1913, the major powers Great Britain, Germany, France, and the United States dominated the world economy. As modern industrial societies, these three European nations were responsible for three-fourths of Europes total industrial output. By themselves, the Americans were able to equal or surpass the Europeans in production. The supremacy of the three big European industrial societies was even stronger in their share of world trade. These nations bought seventy-five percent of all exports of foreign nations. Further, they transacted seventy-five percent of trade between Europe and the rest of the world, which likewise influenced the international capital markets.

The centers of finance were in Europe, whose large national economies maintained the world economy and supplied it with financial resources. This was possible due to three factors huge population density, high productivity as well as the import of raw materials. The center of the international capital market was London since Great Britain was the biggest trading nation in Europe.
The British economic system was based on the ideas of classical liberalism free trade and the enforcement of the gold standard. After the war, the British objective was to rebuild the international economic order, and therefore reestablish the dominating role of Great Britain. That this undertaking failed was mainly the direct result of the power shift in the world economic system to the disadvantage of Europe due to World War I.  

Considering the new situation, a new objective was necessary rather than the return to pre-war conditions. The economic hegemony of Europe changed. This was due to the war-related overburdening of its national economic resources. As a result, Europe shifted into a dependence on foreign products and capital. The United States, a supplier of raw materials, food and capital to Europe, worked its way up from debtor to the European nations to creditor. Moreover, the United States jumped into third markets, where the Europeans were not able to deliver promised products because of the war at home. In these markets, the United States could beat out the European competition.

The center of world trade shifted away from Europe due to the commercial weakness of the former leaders of the world economy. This shift had many positive affects on the other members. However, it also had some negative consequences. Thus, it was in the interest of all participants to stabilize the European economy. To vitalize trade, the European industrial nations had to import raw materials from overseas and at the same time find buyers for their finished products in the raw material exporting countries. This mutual dependency required a balance of trade. Once, one side of this mutual demand fell out, the other side could not hold its trade level and vice versa. Furthermore, the developing economies could not place trade barriers against each other.

REORGANIZATION OF MONETARY SYSTEM
One of the most important tasks dealing with the economic problems of post-war Europe and for the world economy as a whole, was the reorganization of the money markets. Due to the war, the participating countries gave up the gold standard. Government interference in financial and currency policies to secure funding for the war replaced the gold standard. Therefore, to a large degree many currencies lost their stability and value by 1914.

The gold standard of the pre-war period was based on the convertibility of the various currencies against gold at guaranteed preset exchange rates. In addition, there were no restrictions placed upon the transfer of gold to other countries or currencies. In reality, since the nineteenth century coin and paper money, which were convertible at a preset rate against gold at any time, declined in usefulness. The emphasis of the domestic and international method of payment shifted towards bank deposits and credits. This way, gold functioned as an international clearing unit in which all currencies could be exchanged. In addition, gold was seen as the guarantor of international currency stability.

To maintain such a system, it was necessary to keep trade and currency balances among the nations at a relative equilibrium. The central and issuing banks had to regulate this system through their monetary policy in order to guarantee the automatic adjustment. The prevention of large inequalities could be provided by the monetary institutions independently.

The basic prerequisites for the equilibrium were stable internal conditions in the larger industrialized nations and peace. This was to keep extreme currency policies (inflation or deflation) in the background, as long as internal and trade conditions stood in harmony with each other. This ideal state of being was destroyed with the start of World War I and the shift into a war economy. The attempts after the war to adopt the gold standard failed since the pre-war conditions did not exist anymore.

The game plan of the central banks proposed to increase the leading interest rates and make credits more expensive in countries where gold reserves diminished. On the other hand, nations with a gold surplus had to free up their money supply. A strong pound sterling was necessary for the smooth functioning of the gold standard. The pounds strength was based on the economic strength of Great Britain. A rush out of the pound was not preferable since there was no alternative currency available but the British pound.

During the war years, higher government expenditures gradually disassembled the gold standard by diminishing gold backing through the central banks. The central banks tried to support the gold standard only through temporary measures. In the case of Germany, credit bank loans or bills were used as a gold substitute. Directly after the war, the artificial exchange rates could not be retained anymore once the United States returned to the gold standard on June 1919. Therefore, the overvalued European currencies lost in value against the dollar.

Shortly thereafter, the free floating of currencies caused the fiscal policies of the European nations to fall in disarray. Alternatively, this was expressed in rising and falling exchange rates and in the worst case in higher inflation and currency devaluation. Therefore, the free floating presented a main obstacle for an economic reconstruction of Europe. Inevitably, the problem of reconstructing the European commercial system had to be linked to the economic order in Germany. The reason was that pre-World War I Germany was one of the main pillars of the world economic system. Therefore, any business and social variations in Germany had to be considered in the rebuilding of the business sectors.

SITUATION IN GERMANY
The constitutional monarchy in Germany was removed at the end of the war and replaced by a parliamentary governmental system whose survival was questionable. In addition, a socialist revolution, not dissimilar to the Russian model, waited to take over the war-ravaged capitalist-based national economy. The insecure political situation in the Weimar Republic was weakened by the provisions of the Versailles Peace Treaty. During the entire Weimar period, the agreement was considered as the main cause for the poor economic conditions in Germany and internationally. The winners as well as losers strove for the revision of the agreement due to commercial reasons and power politics.

By the end of the war, the condition of the German economy was marked by a devastated and one-sided manufacturing apparatus based on war production. In addition, the absence of qualified workers, as well as a collapse in agricultural output, made it harder to supply food and consumer products to the population. Even during the war, a shortage of workers, food, and raw materials, due to an Allied blockade, pushed the government to interfere in the economy. As Holtfrerich comments
the war involved a blockade of German foreign trade which not only made it difficult to export but also impeded the imports of the foodstuffs and raw materials on which the German economy so largely depended. The blockade outlasted the war, it was not lifted until the Versailles Treaty was ratified in the summer of 1919

After the war, the intrusion was continued due to the prevailing supply crisis, which could only be slowly disassembled.

On the other hand, it has to be mentioned that the Weimar Republics territory, with some exceptions in the East, was not part of the theater of war therefore, Germany escaped major destruction. Moreover, Germany financed the war by an increase in debt which was funded mostly domestically. The biggest advantage was the end of the war expenditure as a whole, which constituted approximately fifty percent of the GNP.

The Peace Treaty provided for a roughly 13.5 percent territorial detachment of the pre-war areas, a loss of 10 percent of the total population of the Weimar Republic. Besides the not yet determined reparations payments, the material obligations and territorial losses led to a worsening situation in Germanys balance of payments. This was due to an increase in food and raw material imports and a lowering in exports. Moreover, Germany was not able to fall back on its foreign exchange revenues from its merchant fleet as well as its overseas investments. Therefore, before the actual reparation payments, the outside value of the mark fell and the much needed imports rose in cost.

Erzbergers financial reform created a central financial system, which granted the young Weimar nation additional stability. Due to the necessity to raise money for the republic, a modern taxation system was created, which asked all sections of the population to contribute equally in relation to their productive power. A prerequisite for such a project to function was the relative stability of the purchasing power of the German currency as well as an appropriate reparations regulation to make the monetary policy calculable again.

Of course, the drastic tax rates were the right attempt to stop inflation. However, particularly the wealthy and influential classes of society were interested in getting rid of their tax bills through ongoing inflation. At the beginning of the 1920s, the Allied reparations policy supported this circumstance further by playing into the hands of the adversaries of such a solid fiscal policy due to their excessive demands.

Only the reparations agreement, through the Dawes Plan of 1924, could assure the workability of Erzbergers finance reform. Therefore, it can be concluded that the financial reforms, which aimed to avoid a government bankruptcy, were a failure. On the other side, the fiscal infrastructure of Germany was still alive but not able to handle these new demands. However, even the reorganization of the taxation system and fiscal policy was not able to stop the drift towards higher inflation. As long as government expenditures were not limited and the limitless borrowing at the federal reserve was not brought to a halt, inflation kept on rising.

CONCLUSION
An expanding national debt, falling tax revenues, and still open payment obligations to compensate the Allies made a reform of the German financial and taxation apparatus necessary. The improvement was needed to supply the essential means without further indebtedness. The weak taxation system of the Weimar Republic, with its financial constitution from the Imperial era and its dominating tax sovereignty of the states had to be eliminated.

The financial reform of 1919 stem the war rooted currency devaluation, the measures were taken too late. Second, when the new financial and tax laws were put in place, their advantages could not be clearly explained to the affected people. Third, the currency consolidation after the great inflation could be completed from the already existing financial laws of Erzberger, with foreign help.
The United States followed a policy of stabilization and reconstruction of the war-impaired world economy. In this order, German post-war inflation played only a minor role. However, Germanys inflation was to have momentous consequences for the world as a whole. The Weimar Republic tried knowingly to avoid the reparation demands by way of inflation. Even with the available possibilities of a currency stabilization, the inflationary strategy was still practiced. The introduction of inflation as an instrument of foreign policy disguised the internal causes, namely the continuation of the war inflation. Further, this inflation transferred the problems of the Weimar Republic to the outside so that the internal stability of the young republic was supported by shifting the difficulties outward.

Apparently it was not possible to find a solution to the problem without the assistance of the economically most powerful participant, the United States. Therefore, Americas idea of introducing a panel of experts prevailed, which at least helped to find temporarily a resolution to the bungled issue. Moreover, the inclusion of the stabilized German currency into the gold currency standard created the basis for the decline of Great Britain as a leading economic and financial power. As a result, the possibility of Americans placing capital investments in Europe was enhanced.

Conclusively, German inflation during the first three years after World War I provided the function to secure social peace in the country and to push back the danger of a revolution. Only after hyper-inflation did the effects of currency devaluation threaten the social order and existence of the Weimar Republic. Inflation impeded the reconstruction efforts of the United States in Europe. As an important industrial nation, Germany, due to its weak currency, was only able to participate in the world economy on a restricted basis. Finally, inflation was used by Germany as a means to revise the Versailles Treaty by trying partly to escape its obligations.

Part  I
Introduction
Australia is one of the developed economies of the world that has reflected a strong economic performance over the last few decades. The economic growth has been characterized by a rising level of skilled labor force, declining unemployment and increasing productivity. During the period when most of the countries are struggling to contain inflationary trends, Australia has a low inflation rate and the economy continues to remain insulated from the global influences. The macroeconomic policies of the country are closely monitored by government policies and regulations and this is one of the reasons behind its consistent growth and performance. The subsequent sections provide an analysis of the economic trends and performance of the key indicators.

Australia  economic analysis
Australia is a country cum continent having a vast land area of 7617930 sq km and a population of 22,309,168 (EconomyWatch, 2010). The population growth rate of the country is 2.1 percent in the year 2009. The countrys labor force is one of the primary reasons behind the strong economic performance over the past few years. The country has rich reserves of minerals and natural resources that have sustained its economic growth and development over the years. The country has a strong economy with a GDP rate that is comparable with any of the top four developed countries of the globe (Theodora, 2010).

Australia presently has a balance of trade deficit equal to 1924 million AUD. The country is a major exporter of agricultural products that include wheat and wool, minerals such as iron-ore, gold, energy and liquefied natural gas and coal. It imports machinery and transport equipment, computers, office equipment, and telecommunication lasers. The country has strong trading relations with Japan, China, United States, and New Zealand. (Trading Economics, 2010)

Economists are predicting a 4 percent growth in the Australian economy during the year 2010 in view of the increasing investment and exports in the country. Economic analysis reports from Reserve Bank of Australia have indicated a healthy growth in business initiatives within the country encouraged by the rising consumer confidence levels and improving global conditions. This is visible in the increased volume of exports and growing trade relations between the Asian countries and New Zealand.

Australia is experiencing a stable growth rate and economists forecast that the country will experience increased development in most of the sectors owing to its sound fiscal policies and regulations.

Australia has a sound and practical structure of financial regulations and institutions that provides certainty for business and is open to investment without undue delay. There is a strong, transparent corporate governance system along with business oriented corporate regulation and insolvency regimes (DFAT, 2009).

The low barriers to trade and investment have provided the economy with competitive environment that has spurred growth in production and efficiency in various economic sectors. Information communication and technology (ICT) is a powerful engine that has promoted many business ventures and led to increased efficiency in operations across industries. The government has provided the economic sectors with a strong infrastructure that facilitates easy accessibility to resources (DFAT. 2009).

Theoretical basis of analysis
According to the views of Adam Smith the true wealth of nations does not comprise of monetary strengths but includes the tools and resources that can be used by nations to produce goods of value. According to this classical economic approach excessive consumption cannot sustain a positive economic growth. Instead, increased savings among the citizens is the key to a prosperous nation in the future. The classical macroeconomic policies hence focused on savings and capital accumulation as the primary requirement for sustained economic growth. In contrast to this theory, John Maynard Keynes emphasized that consumption is the key to increasing market demands and subsequent economic growth. The Keynesian economic theories focused on using various monetary and fiscal strategies for increasing aggregate market demand and subsequent consumption in the nation (Romer, 1994).

The classical macroeconomic theory assumes the existence of perfect market conditions driving the prices of goods and services. The theory reflects that no individual buyer or seller can influence the prices of goods and commodities being sold in the market and that entrepreneurs are motivated purely by profits. This theory also assumes that the market forces determine the wages of the workforce. However, such perfect market conditions do not exist in reality and the economic forces governing the industries demand and supply are much too complex.

The Keynesian theory on the other hand, reflects the modern market environment where savings and investment decisions are not related as in the classical theory. The markets prices and wages are influenced by many factors that exist in the economic environment. Global economies are driven by complex market forces that govern the nations ability to produce goods and services that have value in the domestic and global markets. The major economic indicators that are critical to the countrys economic growth and development can be identified as gross domestic product, inflation, and labor trends.

Gross Domestic Product (GDP)
GDP reflects the total market values attached to the final goods and services produced by the country. It is a primary indictor used by most economists and policy makers to evaluate the capability of the nation in initiating new ventures, economic growth policies and financial regulations. The GDP report of any country includes a comprehensive picture of the personal income and expenditure of the economy, corporate profits, national income and inflation (Yamarone, 2007). The gross evaluation of the countrys income and expenditure is useful in providing a benchmark for analyzing the nations strengths and weaknesses. An insight into the countrys GDP figures provide a wide perspective on the national productive capacities, consumer spending on goods and services, investment patterns within the country, and trade pattern (imports and exports). Investment patterns relates to any kind of investment made by private individuals, corporations or government agencies.

The GDP hence is considered a critical economic indicator of countrys growth and output. It provides economic analysts with a wide range of tools for evaluating the present economic conditions and predicting future economic trends. However, a major difficulty in analyzing GDP is the availability of data and its accuracy levels. Collection of vital statistical data necessary for collating a report on a national level is not an easy task and it is a time consuming process (Yamarone, 2007).

Consumer Price Index (CPI) or Inflation
Inflation is a widely used tool by economists and analysts to evaluate the performance of the economy. It takes into the account the current prices of goods and services offered to the consumers in comparative assessment to previous years. The percentage increase in price levels determines the extent of inflation within the economy. In recent market environment the inflation levels of markets have assumed increased significance since it drives the extent of consumerism and its subsequent impact on the productivity levels. Inflation is hence an important determinant of economic growth and development.

Workforce or labor trends
Overall economic prosperity and growth is governed by an efficient and productive labor market that drives market forces and encourages a competitive business environment. The globalization of economies have removed geographical boundaries to expose economies to a liberated and open market forum where information and communications technology, unrestricted flow of data and information play a vital role in promoting cross-cultural work environment. A decade ago business enterprises were largely concentrated in domestic markets and labor markets were strongly regulated by government policies and internal organizational policies that provided the workers with a stable work environment. But with the advent of globalization and market liberalization concepts the labor markets have shifted to a more unstable and insecure grounds since changing market demographics and economic driving forces are bringing in new work culture and pattern. This includes offshoring and outsourcing of work processes as part of their business strategies.

Data analysis
GDP
The country has displayed a strong economic growth over the decades and presently it has an annual gross domestic product 1197197 million in the year 2009 (ABS, 2010).  The countrys GDP growth rate in 2010 is approximately 0.9 percent that is a significant increase from 0.68 percent in the year 2009. The Gross Domestic Product or GDP is an important economic indicator that measures the countrys annual output and income. The graph below provides an illustration of Australias GDP per capita growth during the period 1998-2008 (Trading Economics, 2010).

Graph 1 Annual GDP per capita since 1998 (Source tradingeconomics.com, 2010)

Inflation
The inflation rates in Australia have been relatively lower than some of the other economies across the globe. The graph below illustrates the inflationary trends in the country during the period 1999 to 2009.

Graph 2 Inflationary trend (Data source Australian Bureau of Statistics, 2010)

Unemployment
Employment trends and opportunities in the Australian economy have been rising steadily with improvements in various manufacturing and service sectors. The country has an estimated labor force of 11.44 million. The agricultural sector accounts for only 3.6 percent of the labor force while the manufacturing sector accounts 21.1 percent of the total labors employed. The service sector forms the biggest sector contributing to employment growth and opportunities in the country  the sector presently employs nearly 75 percent of the total workforce. (Theodora, 2010).

The unemployment rate in the country has gone up to 5.7 percent in the year 2009 in comparison to 4.24 percent in the previous year (Theodora, 2010). The sex ratio of the country is 99 males for every 100 females. The increasing number of females is on account of female longevity in comparison to males (ABS, 2010). The country faces an increasing ageing workforce on account of low fertility and increased life expectancy. Over the next several decades, population ageing is expected to have significant implications for Australia including health, labor force participation, housing and demand for skilled labor (Productivity Commission, 2005).

The graph below provides an illustration of the increasing population in the age range 65 years and above in the last 20 years (1989-2009).

Graph 3 Population aged 65 years of more (Source Australian Bureau of Statistics, 2010)
The ageing labor force is a cause of concern for future economic trends and subsequent impact on national productivity. The increasing proportion of the ageing workforce in the country hence requires some measures and initiatives in retaining a productive workforce by industries and various economic sectors. This can be improved through providing adequate health care services to ensure the fitness of the workforce, retention strategies to motivate the employees to increase the retirement age, and suitable educational framework to enable the younger generation to take over challenging roles.

The labor market is strongly linked with the economic growth and development since it has a direct relation to increasing purchasing power parity within the individuals. Market growth and consumption is driven by the existing wage rate and employment levels within the economy. A change in price of commodities is reflected in the form of income effect or substitution effect. Income effect is the change in consumption pattern resulting from a change in pricing of the commodity or services or a change in the consumers income rate. Substitution effect is the change in consumption that results when a price change results in a shift in individual preference to substitute products.
In the event of increase in income the purchasing power of the consumers increases and vice versa. In the labor market, income effect is felt when the wages increase and the labor substitute leisure hours with more working hours to take advantage of the increased wage rates. On the other hand it is can also be assumed that increased wages may result in increased leisure hours since workers will have more dispensable income in hand. In such cases the work hours will be substituted by increased leisure hours to take advantage of the increased disposable income. There are instances when the substitution effect overrides the income effect and this is evident in the form of increased work effort to earn more wages.

Conclusion
The Australian economy as evident from the macroeconomic analysis and performance of key economic indicators has displayed a positive trend in controlling inflationary trends, GDP growth rate and unemployment rates. Contrary to the economic issues faced by other countries in view of the impending global financial crisis the country sustained a steady growth owing to the sound monetary and fiscal policies adopted by the government. The proactive initiatives of the Australian government in formulating fiscal policies and increasing trade relations with Asian countries like China has boosted the economic growth towards a developmental phase. Moreover, the country has reduced its trade dependency on United States and this has been one of the key factors in minimizing the influences of global market upheavals especially during the recent economic crisis. One of the key measures taken by the government in this direction was the interest rate cuts to negate the impact of the crisis. The role of the government in controlling the markets and providing a supportive pillar for subsequent growth and development has ensured a balanced approach towards globalization and liberalizations moves.

Part  II Macroeconomic Analysis
Introduction
In the past few decades the global macroeconomic conditions have witnessed signs of increasing prosperity and market opportunities. Economic development of countries has been vastly influenced by the widespread globalization and market liberalization policies adopted by governments. The trade liberalization has caused many countries to incorporate a lot of structural changes within its economic framework and practices governing market entry and enterprise development. Australia is one of the most stable economies across the globe and has displayed a steady performance of economic growth and development over the past few years. The country has witnessed rapid economic growth over the past few decades. The study provides a macroeconomic analysis of Australia based on Keynesian economic model highlighting the role of key economic indicators and its impact on the economic growth over the past ten years. The Keynesian macroeconomic policies emphasize the positive role of state and state regulations in controlling markets, inflationary trends and money supply within the country. The economic analysis of Australia in this report recognizes labor as the key economic factor that influences markets, prices, and economic growth in the long run.

Key economic indicators  labor market trends analysis
The Australian labor market has grown considerably over the years presenting new opportunities for growth in various economic sectors. The unemployment rate is at 4.9 percent in the year 2009 (ABS, 2010). The Australian labor market has undergone similar changes over the past few decades and this is evident in the increasing focus on skills development and training programs within organizations. The ABS Education and work survey data (2005) observe that organizations are adopting various means to increase the skills of their workforce.

The openings of global markets have exposed the economy to a wide range of job opportunities both in the service sector as well as the manufacturing sector. The past few decades have provided the economy of Australia with the necessary impetus to boost its industrial and service sector towards rapid growth. The increased competitive market environment, influx of new technology and opening of the economy to multinational companies and liberalized trade policies have contributed immensely to the growth of the labor market in this country. The skill levels of the workforce are one of the critical factors deciding the rate of unemployment in the economy. Highly skilled professionals experience lower unemployment prospects in comparison to less skilled workers. Organizations are paying a great deal of importance to training their employees on a regular basis. Unskilled laborers find it difficult to gain decent employment and this is one of the drawbacks of the changes taking place in the labor market across the globe. The Australian Bureau of Statistics (ABS) Report (2010) claims growing employment opportunities in the next five years.

The Australian labor market has provided increased scope and employment opportunity to the masses that has a stabilizing influence on the overall economic growth and development. The positive impacts are visible in the increasing standards of living in the country and growing purchasing power of people.

Chart 1 Inflation rate since 2003 (Source CIA World Fact book accessed from indexmundi.com, 2010)

Low levels of inflation and consumer price index over the past few decades have ensured a strong control over the economic growth and development of the country.

Investment and economic growth
Increased and favorable economic growth is driven by growing consumerism within the economies and an economic environment that promotes market demand through increased opportunities to earn higher incomes by individuals. Global trade is one of the primary drivers of economic growth over the last few decades. The graphs below illustrate the trade statistics in Australia since 2003.

Chart 2 Exports and imports since 2003 (Source CIA World Fact book accessed from indexmundi.com, 2010)
An expansion in trade is marked by increase in employment opportunities and individual income levels. Moreover, growth in trade results in a competitive economic environment that boosts productivity and helps in increasing wealth creation and subsequent improvement in the standards of living. Such economic policies and conditions favor increased inflow of foreign funds and investment that act as propellant to countrys economic growth.

Foreign direct investment (FDI) is a vital factor responsible in boosting the economic growth of a country through its positive impact on the countrys domestic capital, productivity, and employment statistics. It provides the host country with numerous benefits in the form of increased labor standards and skills transfer, new technology transfer and increase in innovative ideas, improved infrastructure and a supportive business environment. It has become a leading source of external financing.

Countries that have stable market conditions coupled with high productivity, low costs of labor, effective government policies and adequate infrastructure facilities are considered to be the most favored destinations for foreign investment companies.

The FDI of any country has provided it with the necessary support to promote economic growth and development. Developing countries having a high economic growth rate that has been triggered by increasing inflow of foreign direct investments, have felt the positive impacts of this trend in creation of increased opportunities for entrepreneurs and skilled employees. Business enterprises are as result offering more wages and compensatory benefits to retain their workforce in the face of growing employment opportunities. The growth in wages has significantly increased the purchasing power of the people leading to growth in consumerism that has fuelled the demand for more products and services in the market. The financial institutions are also offering attractive loans and credit to consumers to tap the booming market conditions. This growth pattern has its downside if left uncontrolled to the market forces. However, increased access of households to credit has meant that consumer spending can increase, even with stagnant incomes, as (rising) levels of indebtedness substitute for (falling) household savings. But as balance sheets adopt smaller margins of safety the system becomes more and more fragile (World economic and social survey, 2008). Such trends and fluctuations in the market conditions can be prevented through adequate government policies and regulatory control as evidenced in the Australian economy.

Economic policy analysis
Government regulations are viewed as supportive pillars for a regulated economic growth and development. This holds much truth in the light of open markets and free trade environment. Unstable and unforeseen changes in the open markets can result in deep seated impacts on the economic conditions that affect all sectors of industry and commerce. It has been evidenced that a free market economy does function smoothly and Hong Kong is a classic example of such a successful economy. Government intervention is minimal in this country and the market has been allowed to automatically adjust to market driving forces. The government control and regulatory hold over monetary and fiscal policies, and labor markets in Australia have enabled a self contained economic growth strategy. The GDP real growth rate chart illustrates the countrys economic growth in the past few years

Chart 3 GDP  real growth rate since 2003 (Source CIA World Fact book accessed from indexmundi.com, 2010)
Experts and economic analysts believe that government intervention in the financial markets should be limited to setting policies, ensuring proper oversight of financial markets, monitoring and enforcement of policies, and building the legal and regulatory infrastructure needed for the private financial markets to operate (Vives  Staking, 1997). Too much of government control and regulation can restrict the healthy growth of financial markets. Adequate government measures and control that allows the financial markets to operate in a free economic environment is ideal for facilitating competitive growth.

Comparative analysis
The government of Australia has consolidated its economic growth through reduced reliance on foreign savings and investment options. The country has witnessed significant increase in FDI inflows over the past few years but this is low in comparison to other OECD countries who have displayed a strong trend towards increasing FDI. The countrys total FDI inflows in the year 2008 stand at US 55.8 billion as compared to US 237.5 billion in the United States (Australian government, 2010). The economic growth and prosperity of an economy is strongly linked with its ability to attract foreign investment through enabling and supportive government policies and regulations.

The current global financial crisis made a severe impact on all sectors of the economies across the world. The United States sub-prime mortgage crisis crippled the major economic powers causing severe setbacks in economic growth and development. During the global financial crisis the market prices had soared and the financial markets witnessed one of the most unstable market conditions. Banks and financial institutions were struggling to survive in such challenging economic conditions. The liquidity crunch affected the banking sector and financial institutions like Lehman Brothers and Fannie Mae had to close down operations as a result. Under such chaotic financial market conditions, the government interventions in the country played a critical role in restoring a semblance of order.

Australia has successfully managed to minimize the impact of the recent financial crisis through adopting a self sustained growth strategy. The country has strengthened its trade relations with China and other Asian countries and reduced its dependency on US for exports and imports. This has insulated the country from the credit crunch effects of the recent economic crisis. Some of the financial and regulatory moves made by the Australian government have made a positive impact on the economic markets of other Asian countries too. Australian government cut the interest rates and this move has greatly assisted the recovery of Asian markets. Market experts believe that the Australian move is expected to insulate the countrys banks, households and firms from the meltdown in global financial markets (domain-b.com, 2008). Hence the country has adopted a well balanced economic growth approach in order to sustain long term economic growth and development.

Conclusion
OECD reports reveal that Australia has boosted its productivity levels through strong regulatory frameworks and sound policies that have helped Australia weather the global crisis better than most OECD countries (OECD, 2009). However, it is also felt that increased focus is required on strengthening the competitive environment within the economy and remove infrastructural bottlenecks to reduce costs of operations and improve profitability environment (OECD, 2009). The states have lesser control on the work force and labor market movements, but such changes are a direct consequence of the government policies and the initiatives launched by government bodies to open its economy to global trade and commerce. The governments in order to facilitate these changes and achieve a more globalised and homogenized approach towards economic growth and development have removed trade barriers and restrictions. Such moves have led to dramatic changes in the macro economic models based on Keynesian approach. The new economic system that has emerged as a result of increased globalization and opening of markets is more complex and challenging to the governments since the paradigm of control over market forces have undergone a radical shift. Economies like Australia have provided a new model of economic growth and development through the perspective of adequate government controls and regulatory influences that have ensured a steady economic growth over decades.

Most economic policies have their foundation in the idea of a perfect market characterized by fully informed players, no transaction costs, and no externalities. Any deviations from the perfect model specifications lead to market failures. While scholars do theorize a perfect market, it is impossible to have a perfect market in practice (Booth, 2008). A market failure occurs when economic resources are allocated in a manner which leads to an outcome which is below the Pareto optimal (Makin, 2009). A market failure can occur if, among other situations, some players in the market possess information which others do not have, or there are too few players in the market, thereby encouraging collusion and price manipulation. For instance, when a few people have access to insider information and they use it unfairly to the disadvantage of the others, the market becomes biased against the majority. Government intervention in market operations also leads to market failure, mostly by forcing some people to pay for goods and services which others benefits from but do not pay for, for example taxes, subsidies, information disclosure requirements and performance standards. When the government gives subsidies to some farmers and not the others, the action tilts the market in favour of some, sometimes hurting others. All these factors affect market performance by making it less productive than a freely and fully competitive one. The market failure approach to analyzing policy evaluates and proposes solutions to bring an imperfect market to perfection, or to eliminate market failures. Depending on the cause and nature of the market failure, different policy solutions are advanced to correct the failure. Most instruments explored or proposed to correct market failure focus on allocation of resources and the efficiency of production processes. At the heart of most economic instruments is the emphasis on economic efficiency.  A successful market allocates economic resources in a manner that ensures that the resources produce the greatest good, without making others worse off (Makin, 2009).

Instruments which over-rely on measuring economic efficiency tend to ignore many other factors, which render them insufficient in assessing economic performance vis--vis the benefits society draws from the performance. Apart from the costs which are planned for in most economic projects, another cost is paid in the environmental impact of these projects yet the environmental cost is easily overlooked by developers and the experts using the economic instruments. Gold mining can yield great profits for the economy yet when this revenue is calculated, rarely is the environmental and human costs resulting from the ecologically-disastrous mining operations. Many measures of economic performance assume that all people in an economy get equal or equitable shares of the gains of the gross domestic product. However, this is untrue in most cases and has not been achieved even in the communist nations where economies were centrally-run. A small but influential (and politically-connected) minority gets the larger percentage of the wealth. An efficient instrument aimed at correcting market failure, or eliminating some of the weaknesses of imperfect markets, must take these additional factors into account.

No one policy instrument has proved sufficient and capable of singly correcting market failure (Goulder  Parry, 2008). Rather than propose one policy to correct all market shortcomings, policy-makers are confronted with the challenge of exploring a range of instruments to determine under which conditions an instrument or a combination of instruments is most appropriate (Bennear  Stavins, 2006). This is because different instruments are most appropriate in particular conditions and not others. For instance, mining and manufacturing industries tend to have large impacts on the people and the environment, compared to activities such as retailing. Policies to guide the former should therefore devote more attention to social and environmental costs of the activities.

Apart from economic factors, it is important that policy makers include environmental and social factors as criteria when designing policy. Practices which bring economic benefits to one country or class while harming the environment and other people must be judged as faulty yet instruments which are over-dependent on economic efficiency may find no problem with such practices particularly when the environmental and social cost (cost of the externality) is paid by others. For instance, the cost over-fishing in the high seas by one country may not necessarily be paid by the particular country. Policy makers further need to consider not just the distribution of resources but also the distribution of benefits from the exploitation of the resources. It does not follow that having access to resources leads to benefitting from the same. This happens when markets are controlled a few powerful people who ensure that the majority has only restricted access to the markets, and the benefits.

The international community efforts to ensure that nations have adequate financial resources to support social and economic development programs has lending of loans by the International Monetary Fund (IMF).Countries   that manage to secure IMF loans are expected to agree to the terms and conditions of lending provided by the IMF.Brazil is one of the countries that has received financial assistance from the IMF for decades   Brazil is the most populous and largest country in South America. The acceptance of Brazil by the IMF led to the establishment of a loan accord with the IMF (International Monetary Fund, np). Although positive changes have been witnessed in Brazil due to the IMF programs, the strict terms and conditions given by the IMF during lending have had counterproductive effects on the economy. This term paper will evaluate the negative and the positive impact of IMF loans in Brazil.

Discussion
Changes experienced in Brazil since its acceptance by the IMF
The IMF loans are expected to trigger positive economic growth but in some cases are counterproductive (Pastor, pg. 9). In1998, Brazil approached the IMF for financial assistance after its currency devaluation resulted to the soaring of the countrys debts. This marked the beginning of a loan agreement between Brazil and the IMF. In 2002, the IMF approved a stand by arrangement for Brazil.  Economic growth had Brazil in December 2005 make an announcement that it intended to make an early repayment of its debts to the IMF amounting to US 15.46 billion. The IMF financial assistance to Brazil over the years has had positive impact  that has  enabled Brazil to expand its presence in the world market .This can be attributed to  growth  and increased production in the manufacturing industry, agriculture, mining  and private service sectors triggered by economic programs funded by the IMF. Since 2003, Brazil has managed to make stable improvement in macroeconomic stability, build up foreign reserves, adhere to inflation targets, maintain its commitment to fiscal responsibility and reduce its debts by shifting the debt towards domestically denominated instruments. In addition, investor confidence and positive growth in GDP have been boosted by the injection of IMF loans into the Brazilian economy (International Monetary Fund,np). However, the global financial crises, implementation of fiscal adjustment programs and efforts to meet the terms and conditions of lending have had counterproductive effects on the economy. For instance, the onset of the 2007 global financial crisis had adverse effects on the countrys economic growth.

The pulling out of resources from the country by foreign investors and changes in Brazils stock market and currency resulted to a recession in the economy.  Commodity based exports in Brazil declined while the external credit was reduced. This was attributed to the vulnerability of the economy to global market shocks despite the positive impact of IMF loans in Brazil. Critics of IMF lending argue negative impact of loans can be attributed to the fact that the terms and conditions of the IMF in most cases represent the interests of the multinational investors more than the interests of the ordinary. Macroeconomic reforms and economic stabilization have improved economic growth in the country. In 2009, Brazil offered to give  10 billion to the IMF in order to boost its reserves and credit in developing countries. The recent signing of a US  10 billion Note Purchase Agreement with Brazil allows the loan to be paid in bond purchases.

The IMF Terms and Conditions of lending to Brazil
The IMF provides certain terms and conditions in order to offer its loans to the recipient country. IMF conditional lending  to Brazil  have had political and economical implications (Davis,np ).The strict fiscal conditions  of lending  have Terms and conditions of  IMF lending demanded that the government cut on spending .Furthermore, demands that Brazil implement structural adjustment programs has aimed at increasing fiscal responsibility and discipline. The IMF lending has also demanded that the government maintain macroeconomic policies. Although structural adjustment programs are expected to improve economic growth, social unrest can be triggered by the failure of structural adjustment programs to promote development and address critical issues that are of concern to the people. In addition, loans that demand for a large number of reforms can have deleterious effect on democratic practices. Political terms during lending exist. For example, in 2002, the terms of lending that the IMF gave to Brazil during its lending of US30billion was considered to undermine the Brazilian economy and sovereignty. The IMF demanded that the presidential candidates who were running for elections agree to maintain economic policies that had earlier been adopted. This meant that it would be difficult for the new government make changes in economic policies without the interference of the IMF .The IMF efforts to promote social responsibility and good leadership to facilitate good spending of the disbursed funds demands that the government addresses the problem of corruption effectively.

Positive impact of IMF loans in Brazil
The IMF loans offered to Brazil over the years have been critical in boosting economic and social development in the country. Through a loan accord that the two parties accepted, Brazil has managed to secure financial assistance from the IMF since 1998.The injection of the funds into the economy has promoted economic growth and growth in industries. However, Brazil like its Latin American counterparts continues to experience problems of unemployment and poverty .Brazil is the largest economy in Latin America and economic problems has been attributed to a decline in the net private capital flows and the slowing down of the world trade. For instance, low real income per capita resulted from tough economic challenges experienced after the 1998-1999 economic crises. The deterioration of economic situation in the country and the negative impact of global economy changes on the economy has made it necessary for the country to request for financial assistance from the International Monetary Fund (Brown, pg.435).The IMF loans that have been given to Brazil have played a key role in boosting investor confidence in the countrys economy and stabilizing the economy. This has in turn restored investor confidence in the economy, Social development through the improvement of public services has improved the living standards of the people and lowered poverty levels. For example, changes in urban planning have been characterized by providing social amenities to the poor. Small-scale businesses and domestic industries have benefited from social development programs funded by the IMF.

During the 2002 presidential elections, fears that the possibility of having a left-wing president elected would interfere with Brazils economic policies had negative impact on the economy when investor confidence in the economy declined. In response to this, the 2002 IMF loan to Brazil was one of the largest ever made by the institution and it aimed at boosting economic programs in the country and restoring confidence in the economy. Funds received from the IMF have to some extent lowered inflation, reduced poverty levels, narrowed income disparities and calmed the financial market. Brazils financial and economic programs have benefited from financial assistance offered by the IMF due to the implementation of sound economic policies .Economic reforms that have been triggered by the terms and conditions of IMF lending have encouraged fiscal responsibility and minimized corruption where government funds are embezzled. .A macroeconomic policy framework has been put into place and due to the positive impact of the implementation of macroeconomic policies in economic and social development, the international community and the IMF have shown their support for the framework. As a result, the IMF has been supportive of the macroeconomic framework that empowers small scale businesses and people to improve their living standards while at the same time encouraging the implementation of reforms.

Following the election of Lula da Silva as Brazilian president in 2002, the government was expected to pursue economic policies that combined monetary and fiscal discipline.The policies were anticipated to support efforts that aim at eradicating poverty. Financial assistance through loans increases a countrys debts which in future affect growth and increases dependency (Tomz, pg.17).This has to some extent been achieved although more will need to be done to eradicate poverty and improve living standards. Sustainable and equitable economic growth has been achieved in Brazil through government structural measures and economic reforms that promote the adoption of a new bankruptcy law as well tax and pension reforms. The IMF loans have rescued the plummeting of Brazilian currency, minimized the chances of a new government to default public debt and prevented investor flight from Brazil.

Increased foreign investment and external assessment of the economy have been achieved as a result of IMF conditionality lending. Foreign investors are attracted to establish business enterprises in the country due to the favorable business environment provided by the implementation of economic policies (CIA World Factbook.Brazil, np). The IMF reviews on the progress of the Brazilian government in achieving the set targets has assisted the government to implement sound policies and make necessary adjustments whenever it is necessary to do so. The IMF loans have played a key role in averting an economic meltdown in Brazil that can affect both regional and global economy. The continued implementation of strong social and stabilization policies has improved economic growth beneficial. For instance, in 2006, the real GDP growth was projected to reach 3.75 per cent while growth in 2007 was expected to reach 4.5 per cent.

Negative impact of IMF loans on Brazil
IMF is an international monetary institution that is expected to provide financial assistance to the countries that need the assistance by addressing the national interests of the recipient country. The IMF loans have had counterproductive effects on the Brazilian national economy apart from the anticipated positive impact on the economy. The IMF financial assistance to Brazil has contributed to the exacerbation of economic problems through the implementation of a fiscal policy. The emphasis of IMF conditionality lending on structural adjustment has not been beneficial to the recipient nations. It is important to note that although efforts such as cutting down on spending may be the best solution fore economic crisis in some cases, cutting down of spending when the government needs to increase spending to revive the economy or to support public services has had negative economic impact. Furthermore, concentration on macroeconomic policies has not necessarily triggered positive economic growth. When the conditions imposed by the IMF are counterproductive, slow economic growth and the worsening of financial situation has been witnessed. For example, the IMF has in some cases favored standard tax increase recipe which has been anticipated to harm the economy and hurt the middle class. The high interest rates that go hand in hand with IMF lending has undermined economic progress.

Studies that have been conducted to determine the lending terms of the IMF have shown that a countrys political alignment with powerful nations such as the US increases the probability of the receiving country to secure an IMF loan (Strom Cronan, pg 38).Political motives of the IMF during lending has sabotaged opportunity by the government to make economic policy changes that may help eradicate poverty by empowering the poor. For example, during the 2002 presidential elections, the possibility of having a left-wing president elected into office was a cause of concern to the international finance capitalists especially those in the United States. The Workers Party candidate Luiz Inancio da Silva and the Popular Socialist Party Ciro Gomes were competing for the presidency while President Fernado Henrique was lagging behind. Left-wing leaders in Brazil had earlier indicated that they would have the countrys free-market approach to trade and economics reversed in order to improve the living standards of the people and address the needs of the poor who have been disadvantaged by the free-market economy.

This form of an economy is promoted by   the economic policies that have been supported by the terms and conditions of IMF during lending over the years. For example, the IMF loan lending terms in 2002 required the presidential contestants    who were running for office to express their support economic policies and reforms as well as budget policies that had already been put into place. About US 6 billion was to be given to Brazil by the end of 2002 while the remainder (US24 billion) was to be disbursed to the government for use after the elections. The new government would only continue receiving the remaining proportion of the loan if it was able to meet the set budgetary targets. The failure to do meet the targets can lead to the withholding of loans. Sometimes, the setting and achieving of the set budgetary targets affects the economy negatively if the achievement of the targets is counterproductive. President Henrique while in office was recognized  by the West for his support for bold economic reforms  and ability to win the confidence of the international donors,However, his economic policies have been linked to the dependency of the countrys economy  on  foreign countries. Although the IMF loans to Brazil have mitigated short term financial problems, it has contributed to limited economic growth in the long term. In cases where there have been no optimism in the revival of the economy due to financial crisis, maintenance of primary budget surpluses and reduced interest rates based on the terms of lending is an advantage to the recipient nation.

When the IMF advocates for fiscal discipline when lending to the needy countries, millions of people suffer because there is no social safety net to address the changes that result from fiscal policy implementation. Fiscal discipline demands that the government makes cuts in expenditure and because this has not always been favorable in a country where there is high rate of unemployment, maintenance of fiscal discipline is a disadvantage to the poor. For instance, cuts in spending when the government needs to increase economic revival stimulus or improve public services leads to a decline in public services and low economic growth. The overdependence of Brazil on the international financial institutions and multinationals for economic development has been linked to Brazils low rate of economic growth. The multinationals are considered to have their interests at heart when lending rather than the interests of the recipient nation (Mitra, np).This was the case in Brazil in the late 1990s when a trade deficit was experienced due to the loans it received from the IMF earlier.

In the early 1990s, Brazil experienced a trade surplus of between 10-15 billion annually due to economic growth.However, by 1998, the trade surplus was turned into a trade deficit of about 8.3 billion. This was attributed to the presence of multinational companies in Brazil which competed with the domestic companies.Furthermore, the pegged Brazilian exchange rate worsened the financial situation when the exports became expensive as compared to the competitors in countries with flexible exchange rate regime. The multinational institutions tend to access markets that maximize exports and purchase of existing assets hence the host country may only earn very little additional  foreign exchange from the exported products  that belong to multinational companies. Some analysts   have indicated that the IMF loans to Brazil during economic crisis have been a bail-out for the US multinational interests. For example, loans to Brazil have been considered to be IMF efforts to boost the American banks Fleet Boston and Citigroup that may have lose greatly if Brazil defaulted its debt. In addition, the JP Morgan Chase has greater exposure to Brazilian loans as compared to its neighbors such as Argentina A lapse of investor confidence in economic performance leads to investor flight. International shocks in the global economy have affected the Brazilian economy when there is a depreciation of currency and a decline in foreign capital inflow. For instance, although the government tried to raise interest rates in order to prevent foreign capital inflow in 2001, there was need for an IMF loan to gain international financial markets confidence. The targets set by the IMF leads to economic problems if programs to facilitate the achievement of the targets lack adequate resources.

The IMF has been criticized for interfering with political autonomy of foreign countries and contributing to environmental destruction. When the terms and conditions of lending relate to political leadership and sovereignty of the recipient nations, the IMF interferes with the political autonomy of other nations. Lack of independence in political matters may undermine good leadership. For example, the IMF is considered to allow the powerful members of the organization to achieve their economic and political interests in the recipient nations at the expense of the national interests (Copelovitch, pg.52).The United States and other powerful nations within the IMF have been accused of intervening in political and economic matters of foreign nations. These interests are achieved through the acceptance of the terms and conditions that the IMF gives to the nations that require financial assistance from the institution

Conclusion
Brazil is the largest economy in South America and although the country has managed to make great progress in economic and social development, it has relied on IMF loans for along time to support economic growth and face challenges arising from financial crisis. Brazil has tried to pursue agricultural and industrial growth through the exploitation of natural resources.  Although it is the leading regional and economic power leader in South America, crime and high unequal income distribution are pressing problems in the country.  The fiscal situation in the country has been good despite the fact that the IMF loan lending terms have to some extent protected the interests of the multinational institutions in the country rather than the national interests. Financial assistance from the IMF has had both positive and negative impact in the country.

This aim in doing this research is to investigate the economic assistance of using the internet as an advertising tool in organizations. The research speaks about the various concepts of advertising, specifically aimed at TV and web ads, and seeks to determine their strengths and weaknesses so as to set them apart.

The proposal is based on the foundation that markets and industries are on the rise as a result of globalization and the introduction of new technologies. Conventionally, marketing is being done with traditional media print, television, and radio. Traditional marketing includes the magnitude, permanence, control, low-cost and mass market research (SRI International, 2001). The geographic focal point was partial on a national scale (SRI International, 2001). However, because of the fact that everything changes, marketing along with management has changed and grown by a long way over the years. In this era, the focal point has shifted to flexible specialization, strategic alliances, outsourcing and project teams (SRI International, 2001). Furthermore, the key requirements are now centered in the magnitude, speed-to-market, elasticity, modernization, networks, customer service and customization (SRI International, 2001). The long-established economy has been replaced by modern ways of marketing and management. As Castells (2000) stated, this new economy is fundamentally distinct from the traditional model, in that success now depends upon the effective use of information, the implementation of global concepts, and the creation of networks among economic agents. This involves familiarity, production prearranged on an international scale, and communication among various business networks.

With that in mind, should a quicker, cheaper medium with the capabilities to reach a larger target population such as the Internet replace television Popular brands such as McDonalds, Insurance Companies like All State, FedEx   just to name a few  are advertising on the internet and even more have been doing so in the past. This allows the companies to combine different types of advertisements, and they also have the option of placing banner advertisements on other websites. It is shown though that these companies still use television advertisements, this leads us to conclude that both medium are important tools for marketing. So what is the difference between the two The basis of this study is to review the differences and similarities between internet and television advertisement and to conclude their economic impact on organizations and which is advantageous and generally favored by companies.

BACKGROUND OF THE STUDY
Advertising can be defined as an act of gaining the attention of the public to a product or business, for example by paid announcements in various media types. Another definition deems it as a way to impart information about products which consumers use to make brand choices (Frith, 1997). Numerous businesses, whether it be a profit or non-profit, open or classified, use or create their own styles of commercials for any function they wish to accomplish. Leiss (1972, 122) states that, advertising has been recognized as a major vehicle of social communication in modern Western society.  Another characteristic of advertising is that it can target the specific direct needs of persons and appeal to them. Frith (1997) stated Embedded in advertisings messages about goods and services are the cultural roles and cultural values that define our everyday life. The products we consume express who we are, they are cultural signifiers (p.3).

Advertising is now being seen as a menace because it is being misleading, and as such tends to infringe on more than a few consumer rights, causing the consumer to become a casualty. They hoax consumers by including claims in that are not completely true and place the rest in the fine print or just go on to make statements that are unproven and not supported by any anybody. (Maine Attorney General, 2004). They sometimes tell customers about discounts that are not true or about free items that are not actually free, things you have to sign up for and pay for before you get your free item. (Maine Attorney General, 2004).

This type of deception tends to be minimal in television advertisements because the television stations operate by set regulations whereas anyone can get on the internet get a websites and say whatever they want to say.

A business can use various means of advertisements through printed paper (newspapers or magazines), radio, television, outdoor advertising, billboards, cinemas and direct mail (Ford-Hutchinson and Rothwell, 2002 Hofstrand, 2005). Those were once the most widespread types of advertisings, however, over the past few years there has been an increase in the use of the internet, and as such an increase in advertising through this medium. It is said by Ford-Hutchinson (2002) that television advertising still remains the dominant medium for organizations.

Television advertising remains the most established type of advertising in use. (Ford-Hutchinson and Rothwell, 2002). According to Katz (2003), almost every household in America has at least one television set, and two-thirds (75) have two or more. Also, the total TV consumption hours have grown, with the average household was projected to spend 1826 hours watching TV in 2005 (IBM Institute for Business Value, 2006).

Katz (2003) has said that the advantages of television advertisement include the opportunity to use sight, sound, color, and motion in commercials.  However, it has its disadvantages as everything else, these include high costs brief exposure time the cluttering of spots in the airwaves and the difficulty to find a good spot or schedule time.

Internet advertising is at times called web advertising and is a type of advertising where a person can organize or tailor the information according to hisher interest with the use of internet (Ming-Yi, 2001).  This medium provides immediate interface and association to the patrons since the buyers or the audiences are the ones who come to a decision on what ad to view which is favorable to the field of their curiosity. Using internet advertising the consumers are given the power to control the opportunity in establishing an on-line participation through the use of internet (Ming-Yi, 2001). They do not have to see advertisements for products or services they know they are not interested in.

A study that was done on the use of the internet, conducted by Brown (2003), found that Internet use was growing, specifically in Europe at the time of the study. They concluded that Internet penetration was almost 50 of the total populace in the United Kingdom and Germany, and nearing 40 in France, Spain and Italy (Brown, 2003).

Advertising and Economic Growth of an Organization
Advertising can be said to have two aspects, a positive and a negative, both of which have an impact on the economy. A good example can be the Economic Document Systems Foundations (2005) report that the advertising industry would generate 5.2 trillion in direct and indirect spending in the United States alone, or 20.5 of U.S. economic activity in 2005. A study done by Yankelovich Partners and Harris Interactive, found that advertising during a lethargic economy creates a gung ho advantage, with a preponderance of executives supporting that bearing in mind a company advertise throughout slower times makes them feel extra positive about the companys pledge to its products and services (LeClaire, 2006). Fundamentally, the study shows that the use of any advertisement for the duration of any economy can create customer faithfulness and a long-term aggressive advantage (LeClaire, 2006).

STATEMENT OF THE PROBLEM
The problem that is to be looked at in the study is the comparison of economic impacts of the two advertising medium  television and internet. The purpose of the study is to answer the following research questions.

1. What are the similarities and differences of TV and Internet advertising
2. What are the pros and cons of TV and Internet advertising
3. How does advertising affect the economic growth and success of an organization Which is more effective
4. What is the most fitting type of advertising policy that a business organization should apply

OBJECTIVE OF THE STUDY
The intent of the study is to determine which advertising medium is economically better for an organization  television or internet. The following are the specific objectives that will be addressed
1. Identification of the characteristics of the modern types of advertising in relation to economic growth and success of an organization.

2. Identification of the pros and cons of TV and Internet advertising in affecting the association model of customers and business.

3. To investigate how TV and Internet can help triumph over the obstacles of opposition, thus add to the achievement of the organization.

4. To study the most fitting means of advertising for sustaining the economic achievement of a business.

SIGNIFICANCE OF THE STUDY
The need to recognize the most efficient way to advertise an item for consumptionservice or business itself is one of the most fundamental practicalities in acquiring a reputation. Advertising entails towering sales guarantee that can be delivered by means of well-organized advertising philosophy and applications. Realization of competent advertising strategies and its apt choice in type is critical in ensuring economic achievement in the organization. As such, this research study gives an appreciation of the distinctiveness of TV and Internet advertising as one of the most accepted techniques used by many businesses. The assessment of its efficacy in the economic presentation of the organization is presented. In the same way, the study clarifies how TV and Internet advertising strategies provide pros and cons to both the organization and consumers. What is more, the significance and noteworthy functions of TV and Internet advertising are highlighted that allow them to meet the principles and strain of the consumer marketplace. As such, the conclusion of this paper will provide understanding of the concepts obtainable so as to produce statistics and information that every business could use in order to come up with campaigns and designs that will deliberately position them in the extremely competitive, varied, and multifaceted business atmosphere that is practiced at present.

SCOPE AND LIMITATION
This research proposal in particular is evocative and investigative in approach. The investigative purpose of this plan is absorbed on the individuality of TV and Internet advertising mainly their advantages and disadvantages as well as the direct and indirect effect and power in the economic enlargement and achievement of the organization. As such, it is essential to place a boundary on the scope of the study for upcoming researchers ease in using this study as a reference in their expected educational actions that this study at length or in part answers.

METHODS AND PROCEDURES
Primary and secondary studies will be conducted. In primary research, the study will review customers and organizations asking bout television and internet advertising. A structured questionnaire will be created and will be utilized as the study tool. It is intended that the questionnaire will have a 5 point Likert Scale. The data collected will be compared and analyzed using Statistical Package for the Social Sciences (SPSS).

A secondary study will also be conducted. The sources used possibly will comprise previous research reports, newspaper, magazine and journal content, organization statistics, just to name a few. Now and then secondary research is necessary in the introductory stages of research so as to settle on what is known and what new data are requisite if any, or to notify research design. In this paper, obtainable conclusions on journals and existing information on books will be used as secondary research. The conclusions from the journals and books will be analyzed. Types of research journals selected are all connected to issues in advertisements, exclusively television and internet advertising. On the whole, understanding will be conducted which can be qualitative in nature.

Till a few years ago it was fashionable to have the opinion that the relationship based system dominant in Asian economies was better than the Arms length Anglo Saxon system. There were even reported calls for the US to adopt measures from such a system. However, with the Asian economic crisis all such opinion has such subsided (Rajan and Zingales, 2000). The question still remains that is this a temporary setback for the system or does it herald its demise.

For this we first have to understand some basic features of these systems. There are two basic goals of a financial system, to allocate resources productively and give return to the financier. The relationship based system accomplishes this task by granting them implicit or explicit power over the firm being financed (Rajan and Zingales, 2000). The financier attempts to secure their investment by getting a monopoly on the firm. For this purpose some barriers are required to increase entry costs for competitors. This is in contrast to the arms length, Anglo-Saxon system where the financier is protected by explicit contracts. In this system the relationship between institutions matter less and the terms of transactions are better directed by the market.

The main and important difference in both of these systems is the degree of reliance on legal enforcement. The relationship based system does not depend much on legal enforcement. Instead, the enforcement is based on parties maintaining their reputation to ensure continuing business in the same network of firms. The arms length Anglo-Saxon system, on the other hand, explicitly depends on the enforcement of laws and the binding nature of contracts. The courts help keep up the spirit of the contracts under common law thus this system is dominant in countries with common law tradition. Another big difference is the transparency of contracts. Market based systems require transparency as a guarantee of protection (Porta and Silanes, 1997) while relationship based systems depend on opacity in order to preserve the relationship from the threat of competition.

For example, in relationship based systems when giving credit the bank will focus not on the risk of the project for which funds are required but rather on the firms long term ability to pay and various non-contractual levers the bank can pull to extract payment. The interest rate will be repeatedly negotiated. In arms length systems on the other hand, the loan will be for a specific time period and it will be a competitive one (Rajan and Zingales, 2000). When Mazda was in trouble, Sumitomo Bank did not only guarantee its debts but also ensured its rescue by taking other measures such as encouraging its employees to buy Mazda cars. This is because they had a relationship with Mazda which they expected to be continued after Mazda was back on track. Since relationship based systems are based on fostering relationships, there really is no price guidance.

Not everything about relationship based systems is, however, bad. They can sometimes allocate funds much more effectively than the arms length system because of their reliance on relationships. They allow companies to be more steadfast and stick to their objective because these companies know the banks have their back and thus they can take more risks. However the big downside is that this means that companies in the relationship based system are not very reactive to changes in price and cash flows. This has led to a huge misallocation of resources. Arms length systems (Rajan and Zingales, 2000), on the other hand allocate resources on the basis of market prices which makes them much more effective in fostering productivity.

However one place where the relationship based system seems to be working very well is in conglomerates. Conglomerates are the ultimate relation based systems because they represent a group of businesses working together through an internal capital market (Porta and Silanes, 1997). If the market system was used the funds would be allocated to the firms which were performing well and taken away from the low performance units. However it does not happen this way, instead the conglomerates often take funds earned by the good units and invest them in the weak units in order to make them perform better. It has been observed that conglomerates perform much better in developing economies, this may signal that the relationship based system works better when contractual binding is low and laws are not well enforced. In economies with a sufficient degree of contractual infrastructure the arms length transactions perform much better.

As per (Porta and Silanes, 1997) There are two factors which seem to affect the performance of relationship based systems. These factors are the adequacy of the contractual infrastructure and price signals. The Asian crisis can be seen as happening because of the fact that a lot of foreign investment came to Asia at a time when there was no proper infrastructure (Rajan and Zingales, 2000). As the two systems combined some misunderstanding and problems surfaced. Because the investors were not sure that their funds were being allocated properly and did not have enough safeguards to protect their investment they made sure that their investments were short term so they can pull out at the first sign of trouble. Thus when some fluctuations occurred the foreign investors started pulling out and due to the dependence on relationships everyone was affected by these.

The question that remains is that where do we go from here. In this papers opinion, relationship based system is the best choice to go to in the short run. However when the economies become stable again the Asian economies will have to create a proper infrastructure in order to make sure that proper cash inflows come in from foreign markets. The foreign investors need safeguards on their investment to make sure they can invest in long term. According to (Porta and Silanes, 1997) this will keep something like the Asian crisis for happening again. However in the short term the relationship system will have to work because the local businesses have been working on it and they will have to become stable and re-launch the economy. This has to be done in order to attract any form of foreign investment to these countries which rely on the relationship based system.