Enterprise Risk Management Free Essays

Enterprise / Operational Risk Management IT Audit Manager City National Bank California State Polytechnic University, Pomona Enterprise risk management (ERM) is a relatively new discipline that focuses on identifying, analyzing, monitoring, and controlling all major risk classes (e. g. , credit, market, liquidity, operational risk classes). We will write a custom essay sample on Enterprise Risk Management or any similar topic only for you Order Now Operational risk management (ORM) is a subset of ERM that focuses on identifying, analyzing, monitoring, and controlling operational risk. The purpose of this paper is to explain what enterprise risk management is and how operational risk management fits into the ERM framework. In our conclusion, we discuss what is likely to happen in the ERM / ORM environment over the next 5 years. Introduction As the Internet has come of age, companies have been rethinking their business models, core strategies, and target customer bases. â€Å"Getting wired,† provides businesses with new opportunities, but brings new risks and uncertainty into the equation. Mismanagement of risk can carry an enormous cost. In recent years, business has experienced numerous, related risk reversals that have resulted in considerable financial loss, decrease in shareholder value, damage to company reputations, dismissals of senior management, and, in some cases, the very dissolution of the business. This increasingly risky environment, in which risk mismanagement can have dire consequences, mandates that management adopt a new more proactive perspective on risk management. What is Enterprise / Operational Risk Management? Clearly, there is a correlation between effective risk management and a well-managed business. Over time, a business that cannot manage risk effectively will not prosper and, perhaps fail. A disastrous product recall could be the company’s last. Rogue traders lacking oversight and adequate controls have destroyed old well-established institutions in a very short time. But, historically, risk management in even the most successful businesses has tended to be in â€Å"silos†Ã¢â‚¬â€the insurance risk, the technology risk, the financial risk, the environmental risk, all managed independently in separate compartments. Coordination of risk management has usually been non-existent, and identification of emerging risks has been sluggish. This paper espouses a recent concept—enterprise-wide risk management—in which the management of risks is integrated and coordinated across the entire organization. A culture of risk awareness is created. Companies across a wide crosssection of industries are beginning to implement this effective new methodology. 1 Enterprise / Operational Risk Management At first glimpse, there is much similarity between operational risk management and other classes of risk (e. . , credit, market, liquidity risk, etc. ) and the tools and techniques applied to them. In fact, the principles applied are nearly identical. Both ORM and ERM must identify, measure, mitigate and monitor risk. However, at a more detailed level, there are numerous differences, ranging from the risk classes themselves to the skills needed to work with operational risk. Operational risk management is just beginning to define the next phase of evolution of corporate risk management. Should firms be able to develop successful ORM programs, the next step will be for these firms to integrate ORM with all other classes of risks into truly enterprise-wide risk management frameworks. See Exhibit 1 for an example of an ERM / ORM organizational structure representative of the banking industry: ERM Organization Chart CEO Group Risk Director (ERM) Economic Capital (Planning) Risk Transfer Group Risk Executive Committee Change Program Credit Risk * Market Risk* Operational Risk (ORM)* Corporate Compliance IT Security and Business Continuity Corporate Risk Evaluation (Audit) †¢ Note – the major categories of risk to which financial services firms expose themselves are credit risk, market risk and operational risk. Not surprisingly, financial services firms’ largest risk concentrations—credit risk and market risk are most effectively managed. Exhibit 1 2 Why Enterprise / Operational Risk Management? There are many reasons ERM / ORM functions are being established within corporations. following are a few of the reasons these functions are being established. Organizational Oversight Two groups have recently emphasized the importance of risk management at the organization’s highest levels. In October 1999, the National Association of Corporate Directors released its Report of the Blue Ribbon Commission on Audit Committees, which recommends that audit committees â€Å"define and use timely, focused information that is responsive to important performance measures and to the key risks they oversee. † The report states that the chair of the audit committee should develop an agenda that includes â€Å"a periodic review of risk by each significant business unit. In January 2000, the Financial Executives Institute released the results of a survey on audit committee effectiveness. Respondents, primarily chief financial officers and corporate controllers, ranked â€Å"key areas of business and financial risk† as most important for audit committee oversight. In light of events surrounding recent corporate scandals (e. g. , Enr on, etc. ), and the increasing executive and regulatory focus on risk management, the percentage of companies with formal ERM methods is increasing and audit committees are becoming more involved in corporate oversight. The UK and Canada have set forth specific legal requirements for audit committee oversight of risk evaluation, mitigation, and management which are widely accepted as best practices in the U. S. Magnitude of Problem The magnitude of loss and impact of operational risk and losses to date is difficult to ignore. Based on years of industry loss record-keeping from public sources, large operational risk-related financial services losses have averaged well in excess of $15 billion annually for the past 20 years, but this only reflects the large public and visible losses. Research has yielded nearly 100 individual relevant losses greater than $500 million each, and over 300 individual losses greater than $100 million each. 1 Exhibit 2 is a listing of major operational losses. Interestingly enough, the majority of these losses have occurred in financial services, which explains the industry’s leading focus on operational risk management especially in the area of asset-liability modeling and treasury management models to manage risks in the highly volatile capital markets activity of derivative trading and speculation. The 1 Hoffman, Douglas G. , Managing Operational Risk (New York: John Wiley Sons, 2002), p. xvi. 3 Top Operational Risk Losses Company Numerous Financial Institutions and Others BCCI Sumitomo Corporation Tokyo Shinkin Bank Banca Nazionale del Lavoro Daiwa Bank Barings Non-Financial Institutions: LTCM Texaco, Inc. Cendant Corporation Dow Corning St. Francis Assisi Foundation Mettlgesellschaft Owens Corning Fiber Glass Orange County Atlantic Richfield Kashima Oil Showa Shell Prudential Securities Drexel Burnham Lambert General Motors Phar Mor Loss Amount $20 million. Initial Estimates $17 billion $2. 9 billion $2. 3 billion $1. 8 billion $1. 1 billion $1 billion $4 billion $3 billion $2. 9 billion $2 billion $2 billion $1. billion $1. 7 billion $1. 6 billion $1. 5 billion $1. 5 billion $1. 5 billion $1. 4 billion $1. 3 billion $1. 2 billion $1. 1 billion Date 2001 1991 1996 19901991 1992 19831995 1995 1998 1984 19851998 1994 1999 19911993 1980s1990s 1994 19861990 1994 19891993 1994 19981993 1996 1992 Description Terrorists hijacked four commercial airliners and crashed them into the World Trade Center. Over 2000 lives lost. Countless businesses impacted. Regulators seized about 75 percent of The Bank of Credit and Commerce International’s $17 billion in assets in a major fraud. Sumitomo Corporation incurred huge losses through excessive trading of copper. The manager of the Imasato branch forged 19 deposit certificates, which were used to raise money for stock deals. Former employees plead guilty to conspiring to arrange $5 billion in unauthorized loans to Iraq. Loss due to unauthorized trading by an employee. This catastrophic loss has become a benchmark for operational risk. Losses due to lack of dual control and checks and balances. Huge market losses due to inadequate model management and inadequate controls at Long Term Capital Management. Pennzoil sued Texaco alleging that Texaco â€Å"wrongfully interfered† in its merger deal with Getty. Largest and longest-running accounting fraud in history. Former executives conspired to inflate earnings. The company agreed to pay settlements to 18 women who indicated breast implants made them ill. Insurance fraud case in which Martin Frankel allegedly stole as much as $2 billion from this foundation. Loss due to liquidation of oil supply contracts. Settlement of asbestos-related claims. Largest people risk class case in financial history. Largest investment loss ever registered by a municipality. Settlement of North Slope oil royalties dispute with Alaska. Disguised losses on FX forward contracts. Major oil refiner in Japan faced losses from forward currency contracts. Settled charges of securities fraud with state and federal regulators. Former employees filed a class action suit charging the company with fraud, breach of duty and negligence. Heavy losses suffered due to 3 strikes. A former president of the firm defrauded in an embezzlement scheme. Exhibit 2 Source: Hoffman; Managing Operational Risk 4 Increasing Business Risks With the increasing speed of change for all companies in this new era, senior management must deal with many complex risks that have substantial consequences for the organization. A few forces currently creating uncertainty are: †¢ †¢ †¢ †¢ †¢ †¢ †¢ †¢ Technology and the Internet Increased worldwide competition Free trade and investment worldwide Complex financial instruments Deregulation of key industries Changes in organizational structures from downsizing, reengineering, and mergers Increasing customer expectations for products and services More and larger mergers Collectively, these forces are stimulating considerable change and creating an increasing risk in the business environment. Regulatory The international regulators clearly intend to encourage banks to develop their own proprietary risk measurement models to assess regulatory, as well as economic, capital. The advantage for banks should be a substantial reduction in regulatory capital, and a more accurate allocation of capital vis-a-vis the actual risk confronted. In December 2001, the Basel Committee on Banking Supervision submitted a paper â€Å"Sound Practices for the Management and Supervision of Operational Risk† for comment by the banking industry. In developing these sound practices the Committee recommended that banks have risk management systems in place to identify, measure, monitor and control operational risks. While the guidance in this paper is intended to apply to internationally active banks, plans are to eventually apply this guidance to those banks deemed significant on the basis of size, complexity, or systemic importance and to smaller, less complex banks. Regulators will eventually conduct regular independent evaluations of a bank’s strategies, policies, procedures and practices addressing operational risks. The paper indicates an independent evaluation of operational risk will incorporate a review of the following six bank areas:2 †¢ †¢ Process for assessing overall capital adequacy for operational risk in relation to its risk profile and its internal capital targets; Risk management process and overall control environment effectiveness with respect to operational risk exposures; 2 Basel Committee on Banking Supervision, Sound Practices for the Management and Supervision of Operational Risk, (Basel, Switzerland: Basel Committee on Banking Supervision, 2001), p. 1. 5 †¢ †¢ †¢ †¢ Systems for monitoring and reporting operational risk exposures and other data quality considerations; Procedures for timely and effective resolution of operational risk exposures and events; Process of internal controls, reviews and audit to ensure integrity of the overall risk management process; and Effectiveness of operational risk mitigation efforts. Market Factors Market factor s also play an important role in motivating organizations to consider ERM / ORM. Comprehensive shareholder value management and ERM / ORM are very much linked. Today’s financial markets place substantial premiums for consistently meeting earnings expectations. Not meeting expectations can result in severe and rapid decline in shareholder value. Research conducted by Tillinghast-Towers Perrin found that with all else being equal, organizations that achieved more consistent earnings than their peers were rewarded with materially higher market valuations. 3 Therefore, for corporate executives, managing key risks to earnings is an important element of shareholder value management. The traditional view of risk management has often focused on property and iability related issues or internal controls. However, â€Å"traditional† risk events such as lawsuits and natural disasters may have little or no impact on destroying shareholder value compared to other strategic and operational exposures—such as customer demand shortfall, competitive pressures, and cost overruns. One explanation for this is that traditional risk hazards ar e relatively well understood and managed today—not that they don’t matter. Managers now have the opportunity to apply tools and techniques for traditional risks to all risks that affect the strategic and financial objectives of the organization. For non-publicly traded organizations, ERM / ORM is valuable for many of the same reasons. Rather than from the perspective of shareholder value, ERM / ORM would provide managers with a comprehensive overview of other important items such as cash flow risks or stakeholder risks. Regardless of the organizational form, ERM / ORM can be an important management tool. Corporate Governance Defense against operational risk and losses flows from the highest level of the organization—the board of directors and executive management. The board, the management team that they hire, and the policies that they develop, all set the tone for a company. As guardians of shareholder value, boards of directors must be acutely attuned to market reaction to negative news. In fact, they can find themselves castigated by the public if the reaction is severe enough. As representatives of the shareholders, boards of directors are responsible for policy 3 Tillinghast-Towers Perrin, Enterprise Risk Management: Trends and Emerging Practices. (The Institute of Internal Auditors Research Foundation, 2001), p. xxvi. 6 matters relative to corporate governance, including but not limited to setting the stage for the framework and foundation for enterprise risk management. Right now, operational risk management is a â€Å"hot topic† of discussion for regulators and in boardrooms across the US. In the wake of the 2001 releases from the Basel Risk Management Committee, banks now have further insight as to the regulatory position on the need for regulatory capital for operational risk. Meanwhile, shareholders are aware that there are means to identify, measure, manage, and mitigate operational risk that add up to billions of dollars every year and include frequent, low-level losses and also infrequent but catastrophic losses that have actually wiped out firms, such as Barings, and others. Regulators and shareholders have already signaled that they will hold directors and executives accountable for managing operational risk. Best-Practice Senior managers need to encourage the development of integrated systems that aggregate various market, credit, liquidity, operational and other risks generated by business units in a consistent framework across the institution. Consistency may become a necessary condition to regulatory approval of internal risk management models. An environment where each business unit calculates their risk separately with different rules will not provide a meaningful oversight of firm-wide risk. The increasing complexity of products, linkages between markets, and potential benefits offered by overall portfolio effects are pushing organizations toward standardizing and integrating risk management. Conclusion It seems clear that ERM / ORM is more than another management fad or academic theory. We believe that ERM / ORM will become part of the management process for organizations in the future. Had ERM / ORM processes been in place during the past two decades, a number of the operational risk debacles that took place may not have occurred or would have been of lesser magnitude. Companies are beginning to see the benefit of protecting themselves from all types of potential risk exposures. By identifying and mapping risk exposures throughout the organization, a company can concentrate on mitigating those exposures that can do the most damage. With an understanding of risks, their severity, and their frequency, a company can turn to solutions; be it retaining, transferring, sharing, or avoiding a particular risk. Our thoughts on what will happen in the ERM / ORM environment in the next 5 years are: In the next 5 years, it is likely that companies will no longer view risk management as a specialized and isolated activity: the management of insurance or foreign exchange risks, for instance. The new approach will 7 keep managers and employees at all levels sensitized to and concerned about risk management. Risk management will be coordinated with senior management oversight and everyone in the organization will view risk management as part of his or her job. The risk management process will be continuous and broadly focused. All business risks and opportunities will be covered. In the next 5 years, the use of bottom-up risk assessments will be a standard process used to identify risks throughout the organization. The self-assessment process will involve everyone in the company and require individual units to focus and report on the threats to their individual business objectives. Through the selfassessment process, the organization will be able to understand loss potential and risk control by business, by profit center and by product. The individual line manager will begin to understand the loss potential in his or her own processing system. In the next 5 years, the use of top-down scenario analysis will be another standard method used to identify risks throughout the organization. Top down scenario analysis will determine the risk potential for the entire firm, the entire business, organization, or portfolio of business. By its very nature, it is a high-level representation and cannot get into the bottom-up transaction-by-transaction risk analysis. For example, because Microsoft has a campus of more than 50 buildings in the Seattle area, earthquakes are a risk. 4 In the past, Microsoft looked at silos of risk. For example, they would have looked at property insurance when they considered the risks of an earthquake and thought about protecting equipment and buildings. However, using scenario analysis they are now taking a more holistic perspective in considering the risk of an earthquake. The Microsoft risk management group has analyzed this disaster scenario with its advisors and has attempted to quantify its real cost, taking into account how risks are correlated. In the process, the group identified risks in addition to property damage, such as the following: †¢ †¢ †¢ †¢ †¢ †¢ 4 Director and officer liability if some people think management was not properly prepared. Key personnel risk Capital market risk because of the firm’s inability to trade. Worker compensation or employee benefit risk. Supplier risk for those in the area of the earthquake. Risk related to loss of market share because the business is interrupted. Michel Crouhy, Dan Galai, and Robert Mark, Making Enterprise Risk Management Payoff (New York: McGraw-Hill, 2001), pp 132-133. 8 †¢ †¢ Research and development risks because those activities are interrupted and product delays occur. Product support risks because the company cannot respond to customer inquiries. By using scenario analysis, management has identified a number of risks that it might not have otherwise and Microsoft is now in a better position to manage these risks. The future ERM / ORM tools such as risk assessment and scenario analysis will assist companies in identifying and mitigating the majority of these risks. In the next 5 years, companies will be using internal and external loss databases to capture occurrences that may cause losses to the company and the actual losses themselves. This data will be used in quantitative models that will project the potential losses from the various risk exposures. This data will be used to manage the amount of risk a company may be willing to take. In the next 5 years, companies will allocate capital to individual business units based on operational risk. By linking operational risk capital charges to the sources of that risk, individuals with risk optimizing behavior will be rewarded and those without proper risk practices will be penalized. In the next 5 years, internal audit will become even more focused on how risks are managed and controlled throughout the company on a continuous basis. Internal audit will be responsible for reporting on integrity, accuracy, and reasonableness of the company’s entire risk management process. In addition, Internal Audit will be involved in ensuring the appropriateness of the company’s capital assessment and allocation processes. Furthermore, audit will influence continual improvement of risk management and controls through the sharing of best practices. In the next 5 years, management will be looking for individuals who are skilled in risk management. Professional designations such as the Bank Administration Institute’s Certified Risk Professional (CRP) and the Information and Audit and Control Association’s Certified Information Security Manager (CISM) will demonstrate proficiency in the risk management area and will be in demand. In the next 5 years, external auditors will be required to report on the efficiency and effectiveness of a company’s risk management program. These companies will be required to disclose the scope and nature of risk reporting and/or measurement systems in their annual reports. Overall, companies will be better positioned in the next 5 years to deal with the broad scope of enterprise-wide risks. By implementing the ERM / ORM process now, companies will begin to maximize their overall risk profile for competitive advantage. 9 Bibliography Barton, Thomas L. ; Shenkir, William G. ; Walker, Paul L. Making Enterprise Risk Management Pay Off. New Jersey: Financial Times / Prentice Hall, 2002. Basel II Mandates a Nest http://web2. infotrac. galegroup. co Egg for Banks† US Banker. (July 1, 2002) 48. July 2002. BITS. BITS Technology Risk Transfer Gap Analysis Tool. Washington, D. C. : BITS, 2002. Bock, Jerome T. , The Strategic Role of â€Å"Economic Capital† in Bank Management, Wimbledon, London: MidasKapiti International, 2000. Business Banking Board. RAROC and Operating Risk. Washington, D. C. : Corporate Executive B oard, 2001. Business Banking Board. Risk Management Structure. Washington, D. C. : Corporate Executive Board, 2001. Consultative Document Operational Risk. 2001. Bank for International Settlements and Basel Committee on Banking Supervision. July 2002. http://www. bis. org/publ/bcbsa07. pdf Crouhy, Michel; Galai, Dan; Mark, Robert, Risk Management. New York: McGraw-Hill, 2001. â€Å"Elements of a Successful IT Risk Management Program†. Gartner. (May 2002. ) 9. July 2002. http://www. gartner. com/gc/webletter/bindview/issue1/ggarticle1. html Ernst Young, Integrated Risk Management Practices. Unpublished PowerPoint slides, Ernst Young: 2000. Hively, Kevin; Merkley, Brian W. ; Miccolis, Jerry A. Enterprise Risk Management: Trends and Emerging Practices. Florida: The Institute of Internal Auditors Foundation, 2001. Hoffman, Douglas G. Managing Operational Risk. New York: John Wiley Sons, Inc. , 2002. â€Å"In Brief: Ferguson Urges Investing in Risk Control†. American Banker. (March 5, 2002) 1. July 2002. http://0proquest. umi. com. opac. library. csupomona. edu James, Christopher, RAROC Based Capital Budgeting and Performance Evaluation: A Case Study of Bank Capital Allocation. Pennsylvania: The Wharton School, 1996. Jameson, Rob; Walsh, John, â€Å"The Leading Contenders,† Risk Magazine, (November 2000). 6. July 2002. http://www. financewise. om/public/edit/riskm/oprisk/opr-soft00. htm Insurance Industry – Participating companies: Allianz, AXA, Chubb, Mitsui Sumitomo, Munich Re, Swiss Re, Tokio Marine and Fire, Xl, Yasuda Fire and Marine and Zurich. Insurance of Operational Risk Under the New Basel Accord. Insurance Industry, 2001. Lam, James, â€Å"Top Ten Requirements for Operational Risk Management† R isk Management (November 2001) July 2002. http://0-proquest. umi. com. opac. library. csupomona. edu Marks, Norman, â€Å"The New Age of Internal Auditing† The Internal Auditor (December 2001) 5. July 2002. http://0-proquest. mi. com. opac. library. csupomona. ed McNamee, David; Selim, George M. Risk Management: Changing the Internal Auditor’s Paradigm. Florida: The Institute of Internal Auditors Research Foundation, 1998. National Association of Financial Services Auditors. â€Å"Enterprise Risk Management,† National Association of Financial Services Auditors. Spring 2002. 12-13. netForensics is a Web site that discusses those regulations that govern information security in financial services, healthcare and government. http://www. netforensics. com/verticals. html 10 Ong, Michael; â€Å"Why bother? Risk Magazine, (November 2000). 6. July 2002. http://www. financewise. com/public/edit/riskm/oprisk/oprcommentary00. htm Practice Advisory 2100-3: Internal Auditâ €™s Role in the Risk Management Process. March 2001. The Institute of Internal Auditors. July 2002. http://www. theiia. org/ecm/guide-frame. cfm? doc_id=73 Santomero, Anthony M. , Commercial Bank Risk Management: an Analysis of the Process. Wharton School, 1997. Pennsylvania: The Sound Practices for the Management and Supervision of Operational Risk. 2002. Bank for International Settlements and Basel Committee on Banking Supervision. July 2002. http://www. bis. org/publ/bcbs86. htm The Financial Services Roundtable, Guiding Principles in Risk Management for U. S. Commercial Banks. Washington D. C. : The Financial Services Roundtable, 1999. Verschoor, Curtis C. Audit Committee Briefing – 2001: Facilitating New Audit Committee Responsibilities. Florida: The Institute of Internal Auditors, 2001. Working Paper on the Regulatory Treatment of Operational Risk. 2001. Bank for International Settlements and Basel Committee on Banking Supervision. July 2002. http://www. bis. org/publ/bcbs_wp8. pdf 11 How to cite Enterprise Risk Management, Essays

Economics and Quantitative Analysis Demand and Employment

Questions: 1.Explain why real GDP might be an unreliable indicator of the standard of living. 2.Why does unemployment arise and what makes some unemployment unavoidable? 3.Consider the following statement: When the average level of prices of goods and services rises, inflation rises? Do you agree or disagree? Explain. 4. What is the aggregate demand (AD) curve and why does it slope downwards? Explain. 5.What is the long run aggregate supply (LRAS) curve and why is it vertical? Why does the short run aggregate supply curve slope upwards? Answers: 1. In order to measure the standard of living, real GDP is mostly used however; due to several causes, it can be misleading. This is mostly because real GDP does not comprise household production, useful activities performed in and around the house by the house owner. This in turn creates key measurement problem as these tasks are considered as an important element of the work of the individual. The underground economy as well as the economic activity that is legal is omitted by Real GDP (Fleurbaey and Blanchet 2015). It also does not include the measurement of health and life expectancy of an individual. Environmental harm is also barred from real GDP. Leisure time of an individual is also not a part of real GDP. Leisure time are valued by everyone and as a result, an increase in the leisure time enhances economic welfare of an individual that in turn lowers the well-being of the nation. Thus, it can be concluded that an economy that grows at the expense of its environment, misleadingly appears to offer greater economic wellbeing as compared to a similar economy that expands somewhat more slowly but at less environmental cost (Brynjolfsson and McAfee 2015). 2. Unemployment is mostly considered as an e economic reality and even a healthy economy has a certain level of unemployment. Unemployment arises mostly due to government regulation. According to labor laws, employers require to pay certain amount of wages and provide health insurance as well as other benefits when they hire a certain number of workers. This in turn adds to the cost of every worker and forces companies to hire fewer workers and terminate existing employees in order to make the remaining workforce more reasonably priced. Unemployment also arise due to increased competition between trades that leads to unemployment as trades looks for ways to reduce their costs in order to enlarge expansion or draw investors. Increased automation is also considered as a major historical reason of unemployment that leads to job loss in some industries. Increased automation is also referred to as increased technology that displaces employees. On the other hand, assistance programs by gov ernments that offers financial help to the unemployed workers are mostly considered as the root reason for unemployment. In other words, a noteworthy portion of unemployment statistics refers to individuals who register as part of the labor force in order to receive benefits. The most common cause for structural unemployment is technological change. In the long-run demand for workers is larger as compared to the temporary demand. As a result, the rate of unemployment is larger as compared to its natural rate (Levine 2013). Unemployment is unavoidable because there are always people who enter the workforce looking for a job at any point in time. On the other had there are some individuals who stops looking for a job if they are not able to find any. Unemployment is also unavoidable due to the existence of depressed employees (Holzmann, Gcs and Winckler 2012). 3. It is agreed that when the average level of prices of goods and services rises, inflation rises. Inflation is considered as the rate of increase in prices over a given time period. Inflation represents the overall expense of the appropriate set of commodities and services over a certain time period. The cost of living of an individual depends on the average level of prices of goods and services. Inflation is all about the general increase in the prices of goods and services. The major inflationary trigger is the fall in unemployment or the increase in economic movement. Inflation leads to speculative purchasing that leads to wastage. The average increase in price is mostly associated with inflation that is increases in paper money (Woodford 2012). 4. In macroeconomics, aggregate demand indicates the total demand for completed goods as well as services in an economy at a specified time. It denotes the amounts of commodities and services that will be purchased at all possible level of prices. It is also indicated as the demand for the gross domestic product of a country. It is also known as the effective demand however; at other times, this term is eminent (Gal 2013). The aggregate demand curve mostly slopes downwards due to three diverse effects, such as wealth effect of Pigou, interest rate effect of Keynes and exchange rate effect of Mundell-Fleming. Figure 1: aggregate demand curve slopes downwards (Source: Created by Author) According to the Pigou effect, a higher level of price indicates lower real wealth and as a result, lowers consumption spending. This in turn gives a lower amount of goods demanded in the aggregate. On the other hand, when prices fall an individual becomes wealthier, a circumstance that induces more customers spending. Therefore, a fall in the price level persuades customers to spend more, thus raising the aggregate demand. The Keynes effect on the other hand, states that a higher level of price implies lower real money supply and as a result, higher rates of interest results from fiscal market equilibrium. On the other hand, a low rate of interest raises the demand for investment as the cost of investment decreases with the rate of interest. The third cause that slopes the aggregate demand curve downwards is the exchange rate effect of Mundell-Fleming. Domestic investors mostly have a tendency to invest in foreign currency, if the domestic rate of interest is low as compared to inte rest rate available in foreign countries (Rao 2016). 5. The relationship between price level and output in the long-run is represented by the long-run aggregate supply. It differs from the short-run aggregate supply and is a presentation of potential output. Since LAS is considered as impending output, it is shifted by the factors that have an impact on impending output. These factors includes obtainable resources, capital, private enterprise as well as technological developments (Case, Fair and Oster 2012) Figure: LAS curve is vertical (Source: Created by Author) The LAS curve is vertical because, it indicates a potential output and when this takes place all prices, such as input prices, increases when an increase in price level takes place (Motyovszki 2013). Figure: SAS curve is upward sloping (Source: Created by Author) The graph shows that the SAS (short-run aggregate supply) curve is upward sloping as firms have a tendency to rise the level of price with the increase in demand and because in sale markets they are upward sloping curves. The two major theories that help to explain why the SAS curve is upward are the sticky-wage model and the sticky-price model (Bernanke, Antonovics and Frank 2015). References Bernanke, B., Antonovics, K. and Frank, R., 2015.Principles of macroeconomics. McGraw-Hill Higher Education. Brynjolfsson, E. and McAfee, A., 2015. 5. Computing Bounty: GDP and Beyond1.Understanding the Growth Slowdown, p.87. Case, K.E., Fair, R.C. and Oster, S.M., 2012.Principles of economics. Prentice Hall,. Fleurbaey, M. and Blanchet, D., 2015. Book Review of Beyond GDP: Measuring Welfare and Assessing Sustainability. Gal, J., 2013. Notes for a new guide to Keynes (I): wages, aggregate demand, and employment.Journal of the European Economic Association,11(5), pp.973-1003. Holzmann, R., Gcs, J. and Winckler, G. eds., 2012.Output decline in Eastern Europe: unavoidable, external influence or homemade?(Vol. 34). Springer Science Business Media. Levine, L., 2013. The increase in unemployment since 2007: Is it cyclical or structural?.Current Politics and Economics of the United States, Canada and Mexico,15(3), p.345. Motyovszki, G.E.R.G.?., 2013. The Evolution of the Phillips Curve Concepts and Their Implications for Economic Policy. Rao, B.B. ed., 2016.Aggregate demand and supply: a critique of orthodox macroeconomic modelling. Springer. Woodford, M., 2012.Inflation targeting and financial stability(No. w17967). National Bureau of Economic Research.

Norms and Cultures free essay sample

A brief examination of problems that a newcomer faces when joining an organization and attempting to conform to new norms and cultures. This paper defines what culture is and discusses what hurdles an outsider faces when joining a new organization. The focus is an example of a new work place and dress code ethics. Culture had been defined not as the behavior of the people living in it; it is the it in which they live. The culture of an organization includes the language, dress codes, and habits of the operations, value systems, an ethics code, attitude and interactions between various strata of the organization and work principles. Norms-are the organized and shared ideas of what the members in the organization do and feel, and how these norms should be regulated. The basic needs are physiological, needs for security, affiliation, to feel self-esteem and for self-actualization (Harvey and Brown, 1976).

Each vs. Both

Each vs. Both Each vs. Both Each vs. Both By Maeve Maddox A reader asks, What is the correct usage for each and both? Example: You and I both know what its like. or You and I each know what its like. Each is singular. In relation to a group, it means â€Å"all of any number, considered individually.† Examples of usage: Each child in the school has been vaccinated against smallpox. When groups of individuals join together in business partnerships,  each  member of the partnership becomes bound by basic legal  duties.   Both is plural. It refers to two of something. Examples of usage: Both men are Nobel Prize winners. Walthers lectures were  both informative and entertaining. When speaking of two people, both is usually the more appropriate choice. The only reason to use each when speaking of two people/things would be to emphasize the individuality of separate acts or to avoid ambiguity. Consider the following sentences: 1. Jack and Bill share a room. Both are responsible for cleaning half. 2. Mr. Jones gave both his daughters a dog. 3. Both of us received a letter this morning. Most listeners would understand the first sentence to mean that each boy is responsible for one half of the room. Sentence three might be understood to mean that each of the two received separate letters. Sentence two is definitely ambiguous: Did each daughter receive a dog of her own, or did both daughters receive one dog to share? The following revisions would prevent misunderstanding: 1. Jack and Bill share a room. Each is responsible for cleaning half. 2. Mr. Jones gave each of his daughters a dog. 3. Each of us received a letter this morning. In the reader’s question, the first example is correct: â€Å"You and I both know what its like.† The second example presents an impossibility of agreement: â€Å"You and I each know what its like.† The subject â€Å"You and I† is plural and requires the plural verb know. The word each, however, is singular and would require the singular verb knows. Want to improve your English in five minutes a day? Get a subscription and start receiving our writing tips and exercises daily! Keep learning! Browse the Misused Words category, check our popular posts, or choose a related post below:Possessive of Proper Names Ending in S30 Baseball Idioms10 Varieties of Syntax to Improve Your Writing

Quality Assurance in Clinical Bacteriology Assignment

Quality Assurance in Clinical Bacteriology - Assignment Example From start to end, the full production line has to be properly monitored and to be prepared with contingency plans. To achieve Total Quality Management, a Quality System—defined as the organizational structure and resources needed to implement quality requirements (Kumari and Bhatia, 2003, p. 20)—must be established. The organizationl management and structure, the referential (quality) standards, documentation, assessment (monitoring and evaluation) and training are all part of Quality Systems. Proper delegation of responsibilities and appropriate distribution of work load will provide balance to the systems as well as make a stable foundation for the work flow. Standards for quality measurement are also critical not only in ensuring the uniformity but also in the assurance of providing quality output all the time. Proper documentation and assessment of the work flow usually defines the level of progress the system will be able to achieve. Thorough evaluation of the whole process may uncover loop holes, weaknesses and possible sources of errors of the production line. Identifying th ese flaws is the first step in developing its solution. Henceforth, training of the work force and countinous update of protocols must be implemented for the whole group to improve. Aside from Quality System, Quality Audit is also important for the improvement of the laboratory. As explained by Kumari and Bhatia (2003), Quality Audits are established to verify the effectiveness of the acivities of the laboratory. This is to test whether the implemented actions do solve and/or accomplish its designated target. A separate team, either another group within the laboratory (internal audits) or a group not within the laboratory (external audits), usually handle these concerns to achieve an impartial view and judgement. Improvement is not a one-step thing. It is continous. It is vital for the system to repeatedly plan, do (implement), check and act

Essay Example | Topics and Well Written Essays - 250 words - 101

Essay Example This study goes further and defines performance as the actions of a speaker. Performance is the situation where a speaker is able to convey information through actions. In Brown’s report, competence has been referred to as i-language, which is the language in the brain. This is similar to the earlier definition of competence. Bloom also defines performance as e-language. This refers to language that is externalized. According to the three perspectives, performance is the actual saying of a word or a sentence. This is the sound that is articulated and made. Competence is the ability of a speaker to produce a word or a sentence. It is what is known about a word or a sentence. Linguistics has been described as the science that study language. This is because Linguists carry out experiments to obtain results that act as a basis for the various conclusions made about different aspects of language. The difference between descriptive and prescriptive approaches to language has also been brought out clearly. We see that the descriptive strategy normally has its basis on the past. It makes conclusions about a certain language depending on past state of issues. On the other hand the prescriptive strategy puts all factors into consideration while analyzing various criteria. The prescriptive strategy takes the second best option in choosing the strategy that could be applied realistically. A synchronic view to linguistics has been explained as a view that analyses a linguistic phenomenon at a given time (Aitchison,j.1992). On the other hand, diachronic analysis considers a certain phenomenon in terms of changes that have taken place over a given time duration. These definitions appear to be almost similar in the three cases that have been

Relapse Prevention Plan Essay Example | Topics and Well Written Essays - 250 words

Relapse Prevention Plan - Essay Example The initial procedure for early relapse prevention that Jed should use is as follows: he should recognize that he is undergoing an emotional relapse that is changing his behavior; he should also recognize that he is isolating himself and therefore he should ask for help. Nonetheless, Jed should understand that he is anxious and should employ new relaxation techniques (Addictions and Recovery.org, 2012). Consequently he should recognize that his eating and sleeping habits are deteriorating and practice good self-care. Prolonged emotional relapse will make him exhausted which might prompt him to go back to drinking; this will result into mental relapse (Melemis, 2012). The only way to avoid relapse is that he should take good self-care, and if he cant, he should ask for help. Whenever he feels a drinking urge he should call a friend, a support, or someone in recovery and share what he is undergoing. The moment he shares his feelings, the urge will automatically disappear (Clarkson,