Even non-profit organizations aren’t above the cold hard facts of economics. In this article it mostly discusses the non-profit hospitals having to close doors to some facilities, and open other hospitals in more affluent areas because they can’t keep up the facilities that have such a huge deficit.
Expansion and contraction of businesses is the economic way to adjust in the long term. With hospitals such as these, the marginal cost of taking care of a patient frequently is higher than the marginal benefit, in other words, many times hospitals actually have to pay money to take care of a patient. This causes a very interesting phenomenon for economics. The business must stay open and can’t decline patients services when they are badly needed. They try and cut costs where possible in order to reduce their variable costs.
In detroit there are becoming fewer and fewer hospitals. This trend is probably to adjust to the long term equilibrium in that area. as the demand goes down, or the willingness to pay goes down the supply must also become smaller after time. Initially the amount the hospitals “squeeze their capital” might be the initial response, but over time the amount of capital is decreased to minimize fixed costs.
In the end, non-profit hospitals are in constant flux to move towards a long term equilibrium. They adjust the amount of service by initially reducing the amount in which they squeeze their resources, and later, reducing capital, by doing so they maximize their profitability so that they can continue to take care of the people.
Tuesday, August 4, 2009
Consumer Price Index Falling
The Consumer Price Index had the single greatest monthly fall in the month of October since World War II. This is a new phenomenon because since WWII there has been almost exclusively inflationary times. The public policies and difficult situation of President Elect Obama are discussed in this article.
One of the problems with the falling price index is that the companies who already have large loans out have decreased profitability and must repay the loans back in dollars that are “worth more” than the previously loaned dollars. This causes many business and consumers to cut spending furthering the crimp in the economy. Prices may continue to fall causing more and more defaults on loans. The “time value” of money changes as the interest rates fall. It becomes less costly to hold onto cash because of the risks involved in investing and the deflationary period. The Federal Government must try and spur economic growth by lowering the interest rates thus raising the quantity demanded of loaned money. By lowering the interest rate banks may be able to loan more money out and incur less economic losses by loaning money from the Federal Government overnight.
One interesting point is that if wages are staying the same, deflation could potentially be a good thing for the people who retain their jobs. Their real wages would increase although the dollar amount does not change. They will be economically better off. They could purchase larger amounts of goods than before. The deflation hurts mainly the people with loans and all who lose their jobs because of the economic downturn.
One of the problems with the falling price index is that the companies who already have large loans out have decreased profitability and must repay the loans back in dollars that are “worth more” than the previously loaned dollars. This causes many business and consumers to cut spending furthering the crimp in the economy. Prices may continue to fall causing more and more defaults on loans. The “time value” of money changes as the interest rates fall. It becomes less costly to hold onto cash because of the risks involved in investing and the deflationary period. The Federal Government must try and spur economic growth by lowering the interest rates thus raising the quantity demanded of loaned money. By lowering the interest rate banks may be able to loan more money out and incur less economic losses by loaning money from the Federal Government overnight.
One interesting point is that if wages are staying the same, deflation could potentially be a good thing for the people who retain their jobs. Their real wages would increase although the dollar amount does not change. They will be economically better off. They could purchase larger amounts of goods than before. The deflation hurts mainly the people with loans and all who lose their jobs because of the economic downturn.
Market Instability and Consumer Price Index
This article discusses the markets recent instability, and the potential that it will continue to be unstable throughout the year. It gives the percent changes of the major stock indexes, most commonly the Dow Jones Industrial Average. This is a compilation of many stocks in the New York Stock Exchange. This Percentage change in the DOW can help one better understand the Consumer Price Index by comparing the way they are calculated.
The Dow Jones Industrial Average is a compilation of many different stocks. The Consumer Price Index is a compilation of goods that the average household buys. By adding all of the stocks making up the DOW, the result is the overall price for that specific “basket of stocks.” The CPI is found by adding the total amount for that specific “basket of goods.” For example, if a single good in the CPI costs more, the overall CPI still might not raise because other goods could cost less. Stocks in the DOW raise and fall frequently, yet the DOW raises and falls according to the overall trends. Similar to the CPI, the stock price for for the DOW may not necessarily raise or fall in accordance with a single good or stock.
The overall percentage change in the CPI or the DOW would be calculated by taking the new price for the total goods or stocks minus the old price for the same goods and stocks then dividing that amount by the original price. This would result in either a positive or negative number correlating with either an inflation or deflation, assuming there is a change. By understanding how stock prices for the DOW function, one can compare and better understand how the Consumer Price Index is found.
The Dow Jones Industrial Average is a compilation of many different stocks. The Consumer Price Index is a compilation of goods that the average household buys. By adding all of the stocks making up the DOW, the result is the overall price for that specific “basket of stocks.” The CPI is found by adding the total amount for that specific “basket of goods.” For example, if a single good in the CPI costs more, the overall CPI still might not raise because other goods could cost less. Stocks in the DOW raise and fall frequently, yet the DOW raises and falls according to the overall trends. Similar to the CPI, the stock price for for the DOW may not necessarily raise or fall in accordance with a single good or stock.
The overall percentage change in the CPI or the DOW would be calculated by taking the new price for the total goods or stocks minus the old price for the same goods and stocks then dividing that amount by the original price. This would result in either a positive or negative number correlating with either an inflation or deflation, assuming there is a change. By understanding how stock prices for the DOW function, one can compare and better understand how the Consumer Price Index is found.
Government Funding
The top 3 producers of american cars are asking for special funding from the government to help them survive the next couple of months. They have asked for 15 billion dollars to help them stay afloat. With the recent downturn their sales and profits have gone far into the negatives. Congress is debating over how much to help them, and stipulations that will be placed on the money.
The government must produce this money somehow. They have the options of borrowing it from investors, printing it, or taking from the people through taxes. Because this is unplanned governments expenditures, most likely they will borrow it from investors because they have not yet received their tax revenues. Also, the government hasn’t had time to adjust taxes to meet the needs of this new expenditure.
Usually, when the government borrows money from the people it reduces overall investment. This leaves the economy with less money invested into assets for work. With the recent bail out the government is planning on investing it into companies. This is a very different trend compared to most of american history. By actually investing the money into businesses the the investment section of the economy doesn’t get harmed as much. Investment just becomes partially government controlled.
To borrow the 15 billion dollars from the general public the government must give some incentive to the public. This incentive to invest in the bonds comes in the form of interest payed on the money borrowed. The money cannot be simply printed or else inflation would be dramatic and this would only cause greater problems in society.
The government must produce this money somehow. They have the options of borrowing it from investors, printing it, or taking from the people through taxes. Because this is unplanned governments expenditures, most likely they will borrow it from investors because they have not yet received their tax revenues. Also, the government hasn’t had time to adjust taxes to meet the needs of this new expenditure.
Usually, when the government borrows money from the people it reduces overall investment. This leaves the economy with less money invested into assets for work. With the recent bail out the government is planning on investing it into companies. This is a very different trend compared to most of american history. By actually investing the money into businesses the the investment section of the economy doesn’t get harmed as much. Investment just becomes partially government controlled.
To borrow the 15 billion dollars from the general public the government must give some incentive to the public. This incentive to invest in the bonds comes in the form of interest payed on the money borrowed. The money cannot be simply printed or else inflation would be dramatic and this would only cause greater problems in society.
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