Assignment 7 1. When income inequality is prevalent in a society, financial intermediaries target high income earners. This helps them save money in terms of administrative and marketing costs. They only have to market their services to a smaller group of people. As stated in the article, high income earners have a low Marginal Propensity to Consume (MPC) so they save and invest more than low income earners. These savings and investments are the sources of funds for financial intermediaries. This is why financial intermediaries focus more on high income earners. 2. The participation of the US public in financial markets is limited to the top one percent (i.e. high income earners). These are the people that are able to save money and engage
in investment activities. They are the ones that trade securities, issue or buy bonds and are the targeted market of financial intermediaries. As the income gap widens, it reduces the number of people that can participate in the financial markets. 3. The Fed’s monetary policy tools are the open market operations, discount rate, and reserve requirements. The discount rate and reserve requirements are not frequently used since it directly impacts the profitability of banks. The open market operations however are commonly used by the Federal Reserve System. It usually involves the Federal Reserve System and nine investment banks. These banks have their top clients that they trade with, which are the top one percent. As a result, the low income earners do not benefit from these operations.
With each class comes a certain level in financial standing, the lower class having the lowest income and the upper class having the highest income. According to Mantsios’ “Class in America” the wealthiest one percent of the American population hold thirty-four percent of the total national wealth and while this is going on nearly thirty-seven million Americans across the nation live in unrelenting poverty (Mantsios 284-6). There is a clear difference in the way that these two groups of people live, one is extreme poverty and the other extremely
The stock market is a vehicle to invest money. It is where consumers buy and sell fractions of companies, and is referred to as stocks. A proven method to achieve wealth while keeping up with inflation, comprised of publically held companies who offer goods and services that are used by the general public daily. Companies sell stocks to public investors in a free and open market environment on a daily basis, which is an effective strategy to build a sound financial future.
One commonly cited solution for increasing the disposable income of the lower-class is rooted in the principles of trickle-down economics, implying that any gains of the wealthy “trickle down” to the remaining members of society. According to this theory, the government should offer more tax cuts and financial benefits to large businesses or investors to stimulate an overall widespread economic growth. Proponents of these trickle-down policies argue that redistribution of wealth from taxpayers to the upper class in the short-term will incentivize high earners to expand their levels of output, and thus generate more jobs and boost the overall standards of living in the long run. However, this proposal fails to recognize the important fact
Gerald, Cathy, and Russel (543) believes that, “The rich separate themselves from everyone else perpetrating their wealth from one generation to the next as nobility of the past century did”. In this society, it appears that individual feel that, if I go it then you should get it; no one wants to help others. Gerald, Cathy, and Russel (545), emphasizes that, “When income or wealth is taxed at high rates, the rich are not able to save and accumulate as
Borders, Max. "That Americans Want Less Wealth Inequality Is Irrelevant." The Wealth Divide. Ed. Noël Merino. Farmington Hills, MI: Greenhaven Press, 2015. At Issue. Rpt. from "Wealth Inequality: Predictably Irrational." Freeman (5 Mar. 2013). Opposing Viewpoints in Context. Web. 20 Sept. 2015.
The United States of America has the most unequal distribution of income and wealthy far, verging to an even greater inequality (5:33). The pillow company CEO is interested in lessening income inequality, because even though he is rich, it still effects him. With the problem of income inequality, his products cannot be sold as much. This is because people are no longer able to
During the 1920s, approximately 20 million Americans took advantage of post-war prosperity by purchasing shares of stock in various securities exchanges. When the stock market crashed in 1929, the fortunes of many investors were lost. In addition, banks lost great sums of money in the Crash because they had invested heavily in the markets. When people feared their banks might not be able to pay back the money that depositors had in their accounts, a “run” on the banking system caused many bank failures. After the crash, public confidence in the market and the economy fell sharply. In response, Congress held hearings to identify the problems and look for solutions; the answer was found in the new SEC. The Commission was established in 1934 to enforce new securities laws that were passed with the Securities Act of 1933 and the Securities Exchange Act of 1934. The two new laws stated that “Companies publicly offering securities must tell the public the truth about their businesses, the securities they are selling and the risks involved in the investing.” Secondly, “People who sell and trade securities must treat investors fairly and honestly, putting investors’ interests first.”2
The top 1 percent of Americans take home 22.5 percent of the entire nation’s income—almost a quarter of the total earnings (Desilver). This amusing fact can be perfectly summarized in two simple words: income inequality. Lately, income inequality in the United States of America has been at its peak, which is the reason why it became a controversy in the last few years. The problem, though, resides in the fact that it has taken a lot of time for Americans to understand the disastrous effects that this issue can create—and is creating—in their economy. Robert H. Frank and Paul Krugman both wrote about the increasing problem that income inequality is, and both agree that there is still time to solve the issue. Likewise, Constance M. Ruzich and
Financially, society affects us by bombarding our families with suggestions for wants and needs that we may or may not be able to afford. These range from housing choices, to schooling choices for college, shopping options, places to go, and things to do for which we would have to invest from our budget. If this constant exposure did not occur, perhaps the middle-class family would make less biased decisions on how they would spend their dollars. Many middle and lower class families spend more money than they can financially afford to purchase material items that are outside of
Income is the amount earned from salaries, interests on savings, profits, rent, dividends and wages. The gap between high-income earners and low-income earners is growing at a high rate in the United States. The number of people earning ten dollars within one hour has increased to fifteen percent over the past ten years. This has created a big gap between the low-income citizens and the wealthy citizens. These low-income earners have no access to health insurance and retirement benefits. People are blaming the Chinese and Indian investors on the big gap (Baranoff, 2015). They believe that the cheap labor offered by investors from both countries has facilitated the increase of low-income earners. Poor exchange rates have also facilitated the increase in poor
Income inequality continues to increase in today’s world, especially in the United States. Income inequality means the unequal distribution between individuals’ assets, wealth, or income. In the Twilight of the Elites, Christopher Hayes, a liberal journalist, states the inequality gap between the rich and the poor are increasing widening, and there need to have things done - tax the rich, provide better education - in order to shortening the inequality gap. America is a meritocratic country, which means that everybody has equal opportunity to be successful regardless of their class privileges or wealth. However, equality of opportunity does not equal equality of outcomes. People are having more opportunities to find a better job, but their incomes are a lot less compared to the top ten percent rich people. In this way, the poor people will never climb up the ladder to high status and become millionaires. Therefore, the government needs to increase all the tax rates on rich people in order to reduce income inequality.
Functions performed by financial intermediaries can be categorized into three functions; (1) maturity transformation, (2) risk transformation, and (3) convenience denomination. With maturity transformations, intermediaries convert short-term liabilities to long term assets. This conversion is common with banks and other institutions that provide liquidity for entrepreneurs, giving a short term debt a match with a long term loan. Rather than constantly evaluating short term loan options and rolling over the debt balance, a longer term commitment is able to be made that locks in a lower rate to benefit all parties. Additionally, intermediaries can provide risk transformation, which offer the ability to convert risky investments into relatively risk-free by lending to multiple borrowers to spread the risk. By pooling the funds of multiple investors, the intermediary – such as a mutual fund – inherently provides diversification and tolerance against a single investment producing undesirable results. Finally, convenience denomination is provided by an intermediary. With a large quantity of deposits being held at a financial intermediary, they are able to match small deposits with large loans, and larger deposit...
Money is an essential part of life where every people can satisfy whatever they need and every person in America has a chance to find a job. However, some of the people in the country wanted to go on with their life freely by being a part of a welfare. Furthermore, distribution of wealth is a huge demand of every citizen. Everyone today is trying to look down for every people in the lower class, as they did not give any benefit to the country, waiting for the benefits that they will receive from the government. For instance, when most lower class people have gone through a financial crisis due to overspending, insufficient fund or pay for their work to support themselves and/or their family. The example shows that lower class people made the economy of the country unstable, however, the middle class and the higher class is at fault as well. Furthermore, even though the benefit of that the lower class received is from the middle class, the middle class as well benefits from the higher class. To sum up, every class is at fault towards giving the country’s economy a positive
However, once interest rates began to rise and housing prices started to rapid drop.the borrowers were unable to refinance.” （Justin Lahart, 2007）Hence，commercial banks will face to many risks as chased profits. Those risks will cause an adverse impact on the financial system. In the financial system, Because producers can create more wealth. At the same time, they also need abundance fund to manage and develop their enterprise. Therefore, producers always be a mainstay. Howells. Bain said that “producers often dominate the regulatory process since the activities of regulators are much more important to each of the relatively small number of producers than to each of the much large number of the relatively small number of producers than to each of the much large number of consumers.”(Howells.Bain, p365, 2007) Agency would rather to pay attention to the profit from the producers. For customer, that lacks fairness. In especial for non-professional customer who has not experience in investment, so they deposit their money into the
Financial institutions, otherwise known as financial intermediaries, are establishments that conduct a variety of financial services to their customers, being individuals, businesses and/or governments. The main role of financial institutions in the financial system is to act as the intermediary between borrows and savers to channel funds from savers to borrowers. Broadly speaking, there are two types of financial institutions; depository institutions and non-dep...