Macro &Micro Economics Essay Example | Topics and Well Written Essays - 2000 words

Macro &Micro Economics - Essay Example 16). Within the vast arena of macroeconomics, the development of the model of Aggregate Demand and Aggregate Supply generally known as AD-AS model is of immense importance as it has been developed and applied for determining and evaluating the factors that are very useful in realizing the effects of Real Gross Domestic Product which is i.e, GDP deflated by the general price level. As a consequence the model also acts as a useful indicator for the determination of the inflation level of the economy (Taylor & Weerapana, 2009, p.695). The AD-AS model also incorporates the notion of micro economic concepts like demand and supply framework including equilibrium analysis (Karl, E, 2007, p. 409) and thus setting up a platform in accordance with the demand of the paper. Focus of the paper The paper will focus on the underlying mechanism of the aggregate demand (especially) and aggregate supply along with the concepts of volume of money demand and supply and its application and importance in the economy of the United States of America (US) with its recent financial crisis within the backdrop of the article, â€Å"It’s the Aggregate Demand, Stupid† written by Bruce Bartlett who has held senior policy roles in the administration of Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Pau. Crux of AD-AS model Before entering into the AD-AS model a short purview of the notion of law of demand and law of supply requires to be mentioned. The law of demand has been developed by the economists out of several criticisms (various exceptions like Giffen goods, Veblen effect) and the law basically states that for a normal commodity, there is an inverse relationship between the price of a particular commodity and the quantity demanded keeping all other things constant. The demand function can be stated as,signifying the inverse relation between price and quantity. A short mathematical and graphical explanation will m ake it clearer (Maurice & Thomas, p.43). Let, , (where a, b>0) be a linear demand curve which is taken for our purpose. Differentiating the above function with respect to Q we get, Therefore the slope of the curve is negative. The graphical representation is as follows: Fig.1 The law of demand (Maurice & Thomas, p.43) In the above diagram, at the price level P2, the quantity demanded was at the level Q2 when the price fell down to the level of P1, the quantity demanded rose to the level Q1. Thus the inverse relationship between the price and quantity as given by the law of demand is represented. The demand comes from the consumer’s angle in an economy that purchase goods and services in an economy for the maximization of their utility (Bhide, 2010, p. 313). The theory of supply on the other hand represents the positive relationship between the quantity and the price keeping all other things constant (Hussain, 2010, p. 214). It comes from the producer’s angle. More the commodity the producer sells more the price will it charge. Let a linear supply curve be considered as, . Now differentiating the

Target audiences and presentational devices Essay Example for Free

Target audiences and presentational devices Essay Newspapers have changed overtime in many ways even though most people are subscribed to at least one newspaper likeThe Seattle Times, The New York Times, The Sun, and The Daily Telegraph and so on. Now, because of the internet and online news publications for nearly every newspaper, newspapers have become a thing of the past. This means that people no longer have to spend money on buying a newspaper and also means that they can be more personalised. But in the early 19th century, many cities in Europe, as well as North and South America, published newspaper-type publications though not all of them developed in the same way; content was vastly shaped by regional and cultural preferences. Advances in printing technology related to the Industrial Revolution enabled newspapers to become an even more widely circulated means of communication. In 1814, The Times (London) acquired a printing press capable of making 1,100 impressions per minute. A wide variety of material has been published in newspapers, including editorial opinions, criticism, persuasion and op-eds; obituaries; entertainment features such as crosswords, sudoku and horoscopes; weather news and forecasts; advice, food and other columns; reviews of movies, plays and restaurants classified ads including display ads, editorial cartoons and comic strips. Most traditional papers also featured an editorial page containing editorials written by an editor and columns that express the personal opinions of writers. Another way they have changed is that they have included more stories which appeal to their target audience, meaning that they will include more pictures and stories depending on what the audience want for example: the sun tends to have lots of people with the socio economic of E-C which can connote that for most male adults and young male teenagers, they are mostly interested in page 3 models and sport. Before the internet, everyone received the good old Sunday paper. There are still some benefits of having a newspaper. You receive all of the news at once, and something that you might not think of clicking on online, you may glance across on a newspaper and find yourself interested in it. Also, the pure fact that a newspaper is a hard copy, easier to read for a longer period of time, counts towards the positives of newspapers. By 2007 there were 6580 daily newspapers in the world selling 395 million copies a day. The worldwide recession of 2008, combined with the rapid growth of web-based alternatives, caused a serious decline in advertising and circulation, as many papers closed or sharply retrenched operations. These days, most people find it a lot easier and quicker to turn on their computer and browse their favourite news website not to mention that online news sites are generally free, compared to newspaper subscriptions. All in all, the newspaper business is slowly fading out of our everyday life, being replaced by various online publications. All the funding and budget they get to make the newspapers is the newspaper is typically funded by paid subscriptions and advertising. There are many different types of newspaper job roles: Journalists reporters editor columnist copy editor meteorologist news presenter photographer political commenter Industrial Revolution Soon, it was adapted to print on both sides of a page at once. This innovation made newspapers cheaper and thus available to a larger part of the population. In 1830, the first penny press newspaper came to the market: Lynde M. Walters Boston Transcript. Penny press papers cost about one sixth the price of other newspapers and appealed to a wider audience. In France, i mile de Girardin started La Presse in 1836, introducing cheap, advertising-supported dailies to France. In 1848, August Zang, an Austrian who knew Girardin in Paris, returned to Vienna to introduce the same methods with Die Presse (which was named for and frankly copied Girardins publication). Impact of television and Internet By the late 1990s the availability of news via 24-hour television channels and then the Internet posed an ongoing challenge to the business model of most newspapers in developed countries. Paid circulation has declined, while advertising revenue which makes up the bulk of most newspapers income has been shifting from print to the new media, resulting in a general decline in profits. Many newspapers around the world launched online editions in an attempt to follow or stay ahead of their audience. However, in the rest of the world, cheaper printing and distribution, increased literacy, the growing middle class and other factors have more than compensated for the emergence of electronic media and newspapers continue to grow. On April 10, 1995, The American Reporter became the first daily newspaper, with its own paid reporters around the world and all-original content, to start on the Internet. The Editor-in-Chief and founder is Joe Shea. The site is owned by 400 journalists. Newspaper typically generates 70-80% of its revenue from advertising, and the remainder from sales and subscriptions. The portion of the newspaper that is not advertising is called editorial content, editorial matter, or simply editorial, although the last term is also used to refer specifically to those articles in which the newspaper and its guest writers express their opinions. (This distinction, however, developed over time early publishers like Girardin (France) and Zang (Austria) did not always distinguish paid items from editorial content. ) Newspapers have been hurt by the decline of many traditional advertisers. Department stores and supermarkets could be relied upon in the past to buy pages of newspaper advertisements, but due to industry consolidation are much less likely to do so now. Additionally, newspapers are seeing traditional advertisers shift to new media platforms. The classified category is shifting to sites including craigslist, employment websites, and auto sites. National advertisers are shifting to many types of digital content including websites, rich media platforms, and mobile. In recent years, the advertorial emerged. Advertorials are most commonly recognized as an opposite-editorial which third-parties pay a fee to have included in the paper. Advertorials commonly advertise new products or techniques, such as a new design for golf equipment, a new form of laser surgery, or weight-loss drugs, the tone are usually closer to that of a press release than of an objective news story. In all, only 39 percent of the stories were related to dangerousness, smaller than the 50 to 75 percent of stories reported in earlier research but consistent with the approximately 30 percent of stories found by Wahl and colleagues. However, more stories fell into the dangerousness category than any other category. Hence, the public is still being influenced with messages about mental illness and dangerousness. Findings suggest the complexity of these results. A majority of stories are about violent crime against others or legal defences related to mental illness. However, stories in this group also included themes of suicidal or self-injurious behaviours and non-violent crimes. Stories related to dangerousness often ended up in the front sections of newspaper, making them more visible to readers. The target audience depends on the section of the paper. The funnies would be children. The sports would (most likely) be men. The economical section would be adults in general; usually newspapers and magazines targeted audience is the General Public. In the case of newspapers, it its own local people. In some magazines, their target audience is business owners and well to do rich folk. Some have specific audiences like music lovers, car lovers, or nature lovers. In most newspapers and magazines theres something in there to read for everyone.

The Real Causes Of Nationalism And Imperialism History Essay

The Real Causes Of Nationalism And Imperialism History Essay Generally, war is the result of a national entity wishing to improve the standard of living for its people. A major second cause is when a nation perceives a possible reduction in a current standard of living and fights to protect what it at ready has. War is a behavior pattern exhibited by many primate species including human most basically and other species in the other hand like ant species. The primary feature of this behavior is a certain state of organized violent conflict that is engaged in between two or more separate social entities such conflict is always an attempt at altering either the psychological hierarchy or the material hierarchy of domination or equality between two or more groups. In all causes; at least one participant (group) in the conflict perceives the need to dominate the other participant. The perceived need for domination often arises from a belief that an essential ideology or resource is somehow either so incompatible or so scarce as to threaten the fundamental experience of the one group experiencing the need to dominate the other group. Leaders will sometimes enter into a war under the protest that their actions are primarily defensive, however when objectively their actions may more closely resemble a form of unprovoked, unwarranted or disproportionate aggression. World War I was the result of leaders aggression towards other countries which was supported by the rising nationalism of the European Nations. Economic and imperial competism and fear of war prompted military alliances and an arms race which will further escalate the tension contributing to the outbreak of war What really causes war are:- Nationalism Imperialism Bismarck and Alliance Collapse of Bismarck an Alliance Arms Race Crisis in Africa Nationalism At the settlement of the Vienna congress in 1815, the principle of nationalism was ignored in failure of keeping the peace. Germany and Italy were left as divided states, but strong nationalist movements and revolutions led to the unification of Italy in 1861 and Germany too in 1871. Another result of the Franco Prussian war of 1870-71 was that France was left of tumid the nation seethed with suppressed revolutionary activity over the loss of Alsace-Lorraine to Germany and Revanche was a major goal for the French Nationalism posed a problem for Austria-Hungary and the Balkans area in Germany comprised of many conflicting national groups. The ardent pauslavism of Serbia and Russia willingness to support and contribute to its Slavic brother conflicted with Austria-Hungarys pan-Germanism. Imperialism The factor which contributed to the increase in rivalry in Europe was imperialism, because of the competition between these countries; Great Britain, Germany and France because they needed foreign markets after the increase in manufacturing caused by the industrial revolution. These countries were competing for economic expansion in Africa, although Britain and France resolved their differences in Africa, several crises fore-shadowing the war involved the clash of Germany against Britain and France in North Africa. In the Middle East, the crumbling Ottoman Empire was alluring to Austria-Hungary, the Balkans and Russia. BISMARCK AND ALLIANCES World War I was caused in part by the two opposing alliances developed by Bismarckian diplomacy that was after the Franco-Prussian war, and in order to diplomatically isolate France, Bismarck formed the three Emperors league in 1871 an alliance between Germany, Austria-Hungary, Russia. When the French occupied Tunisia, Bismarck took advantage of the Italian indignation and resentment toward France and created the Triple Alliance between Germany, Italy and Austria-Hungary in 1882. In exchange for Italys agreement to stay neutral, no distinctive quality or characteristic or type if war broke out between Austria-Hungary and Russian. Austria-Hungary and Germany would protect Italy from France. Russia and Austria-Hungary grew suspicious of themselves over conflict in the Balkans in 1887, but Bismarck repaired the damage to these suspicious to his alliances with a reinsurance Treaty with Russia, allowing both the two powers to stay neutral if the other was at War. COLLAPSE OF BISMARCKIAN ALLIANCES Bismarck was fired by Kaiser William II in 1890, the tradition dislike and dont like the idea of slaves kept Bismarcks successors from renewing the agreement with Russia. France took opportunity to get an ally-to place in a friendly association, as by treaty or to unite or connect and the Franco-Russian entente was formed in 1891. The Kruger Telegram William II sent to congratulate the leader of the Boers for defeating the British in 1890 and he gave the German soldiers instructions to behave like Huns in China during the Boxer Rebellion and particularly the large-scale navy he was Building all contributed to British distrust of Germany. As a result of that, Britain and France overlooked all major impenalistic conflict between them and formed an Entente coordinate in 1904. Russia formed an Entente with Britain in 1907 after they reached an agreement with Britains ally Japan and William II had further alienated Russia by supporting Austrian ambitions in the Balkans. The Triple Entente, an informal coalition between Great Britain, France and Russia now countered the Triple Alliance. International tension was greatly increased by the division of Europe into two armed camps. ARMS RACE The menace (something that threatens to cause evil, harm, injury or a threat) of the hostile division led to an arms race, another cause of World War I. Acknowledging that Germany was the leader in military organization and efficiency the great powers of Europe copied the universal conscription, large reserve and detailed planning of the Prussian system. Organizational and Technological developments led to the formation of general staffs with precise plans for mobilization and attack that often could not be reversed once they were begun. The German Von Schlieffen plan to attack France before Russia in the event of the war with Russia was once such complicated plan that attracted and drew more countries into war than necessary. Armies and Navies were greatly expanded. The standing armies of France and Germany doubled the size between 1870 and 1914. Naval expansion was also extremely competitive, particularly between Germany and Great Britain. By 1889, the British had established the p rinciple that in order to maintain naval superiority in the event of war, they would have to have a navy two and a half times as large as the second-largest navy. This motivated the British to launch the Dreadnought, invented by Admiral Sir John Fisher in 1906. The Russo-Japanese War of 1904-1905 had demonstrated how effective these battleships were. As Britain increased their output of battleships, Germany correspondingly stepped up their naval production including the Dreadnought. Although efforts for worldwide disarmament (the act of laying down arms especially the reduction or abolition of a nations military forces and armaments) were made at the Hague conferences of 1899 and 1907 international rivalry caused the arms race to continue to feed on itself. CRISIS IN AFRICA The friction (the rubbing of one object or surface against another conflict, as between persons having dissimilar ideas or interest) of an armed and divided Europe escalated into several crises in Morocco and the Balkans which nearly ended in war. In 1905, Germany announced its support of independence for Morocco, the African colony which Britain had given France in 1904. The British defended the French and war was avoided by the international conference in Algeciras in 1906 which allowed France to make Morocco a French protectorate. BOSNIAN CRISIS OF 1908 There was conflict incited by the Austria-Hugarian annexation of the former Turkish province of Bosnia in 1908. The Greater Serbia threatened war on Austria-Hungary. Russia had pledged their support to Serbia, so they began to mobilize, which caused Germany, allied with Austria-Hungary, to threaten war on Russia. The beginning of World War I was postponed when Russia backed down but relations between Austria-Hungary and Serbia were greatly strained.

The Fires of Jubilee : Nat Turners Fierce Rebellion Essay -- Nathanie

The Fires of Jubilee : Nat Turner's Fierce Rebellion   Ã‚  Ã‚  Ã‚  Ã‚  The Fires of Jubilee, is a well written recollection of the slave insurrection led by Nathaniel Turner. It portrays the events leading towards the civil war and the shattered myth of contented slaves in the South. The book is divided into four parts: This Infernal Spirit of Slavery, Go Sound the Jubilee, Judgment Day, and Legacy.   Ã‚  Ã‚  Ã‚  Ã‚  The story takes place in Southampton County, Virginia where little Nat Turner is introduced. Nat led a normal childhood for the most part, supervised by his beloved grandmother. They were working as slaves on a plantation owned by Benjamin and Elizabeth Turner. The Turners became Methodists due to the emphasis on free will and salvation. The impact of religious institutions on slavery gave whites second opinions on slavery. Methodists, Quakers and anti-slavery Baptist made it their duty to see that their voices were heard.   Ã‚  Ã‚  Ã‚  Ã‚  Stephen B. Oats, the author, recalls the unlawful accounts of Nat's mother, Nancy, while being forced into slavery. Being just a teenage girl, she was abducted in North's Nile River Country by slave raiders. She was then marched hundreds of miles to the coast and sold to the Europeans. She endured the "middle passage" which was the dreaded voyage of being in a crammed small area with many other chained Africans. The results of this torment included suicide, starvation, and death from white man's disease. It was also noted that Nancy tried to kill her ba...

Learning the Culture and Language of the Media: A Critique

This article emphasized the necessity of learning the culture, norms and language that media uses in order to establish a mutually beneficial relationship between the media publisher (i.e. newspaper organizations) and another institution requiring publicity specifically academic institutions.Mass media plays a significant role in academic institutions in terms of promoting its programs, conveying a reputed image and establishing accountability and transparency.   Academic institutions on the other hand not only serve as sources of important news information (i.e. scientific breakthroughs) but of expert opinion which are necessary to reinforce the truth of the reports, which is the moral duty of journalists as public servants.The rest of the article elaborates on the different components of culture and language in media that needs to be understood by academic institutions which included: honesty, accuracy and reliability, importance of timeliness, sense of respect and ethics, restri ctions of news holes, consideration of readership, and significant differences in language or jargon, among others.Following Bredemeir and Stephenson (1962), sociology is an effort to illuminate as much as human behavior within the limits imposed by a scientific frame of reference and focusing attention on culture and groupness. This article features the unique framework in which journalist approach media publication in contrast to the framework of academicians or people in academic institutions.For instance, the concept of timeliness, readership and newsholes are crucial elements in mass publication that strictly impose restrictions on editorial priorities, which may run in conflict with an academician’s concept of newsworthiness and appropriateness of publication.   Thus, there are times when journalists are unable to immediately accommodate the news suggestions or features contributed by academic institutions.One of the most important things that this article emphasized is the business nature of mass media.   As business entities, news organizations try to balance newsworthiness and public service with the need to create a news product that retains readers and attracts new subscriptions on which depend their advertisements and sponsors, which often repulsively occupies the largest space in the paper to the disgust of readers.   One should understand that these advertisements constitute the bread and butter of news organizations.â€Å"It is important to understand the demographics of the news organization's readership to see if it corresponds with the demographics of the audience you're trying to reach† (Yee).   Editorial priorities and contents should match the orientation and demographics of the readership.   This is important in deciding which newspaper organization to use for an article or news you wish to publish.For instance, if one’s contributed article concerns a local initiative or statute (e.g. California Health and S afety Code on animal welfare), then it would be advisable to choose a local newspaper.   If it’s a highly technical breakthrough that concerns only a group of people (e.g. discovering a bug of the Windows Operating System), then it should published in an IT Newspaper.   But if the issue you tackle is a national or global concern (e.g. discovery for the treatment of N1H1 virus), then a national newspaper should selected.While the article was profoundly educational and informative, there is one issue averred by the author that needs further analysis and evaluation. Describing mutual relationships with mass media using C.T. Daniel, the author asserted that â€Å"relationships (with mass media) are governed by strict ethical standards and do not involve expectations for returned favors.†Daniel only adheres to the importance of honesty in media relations but the author incorrectly or inadvertently stated this as a matter of fact.   Everybody may have been familiar tha t the media had been used to condition people’s thinking and control their behavior through propaganda.   Harold Lasswell pioneered in recognizing the use of mass media for propaganda to control opinion and manipulate people which entailed a discrepancy between the information and the message conveyed among people.   (Heath and Bryant).Moreover, journalists are also humans who are subjected to commit errors.   Thus, contrary to the article, readers should not accept or absorb the information provided by newspapers plainly but should still remain evaluative and analytical in the news and articles that news organizations provide.Works Cited:Bredemeir, HC, & Stephenson, RM The analysis of social systems. New York: Holt, Rinehart & Winston, 1962Heath, R. and Bryant, J. Human Communication Theory and Research: Concepts, Contexts, and Challenges. Lawrence Erlbaum Associates, 2000Jennifer A. Yee   Ã¢â‚¬Å"Learning the Culture and Language of the Media† ERIC Educational Reports. FindArticles.com. 01 Jun, 2009. http://findarticles.com/p/articles/mi_pric/is_200009/ai_3530272867/  

Pakistan’s Banking Sector Current Situation And Critical Issues

Pakistan’s banking sector reforms which were initiated in the early 1990s have transformed the sector into an efficient, sound and strong banking system. The most recent comprehensive assessment carried out jointly by the World Bank and the IMF in 2004 came to the following conclusion: â€Å" for reaching reforms have resulted in a more efficient and competitive financial system In particular, the predominantly state-owned banking system has been transformed into one that is predominantly under the control of the private sector. The legislative framework and the State Bank of Pakistan’s supervisory capacity have been improved substantially. As a result, the financial sector is sounder and exhibits an increased resilience to shocks. † The major changes that have occurred in the banking sector during the last decade or so can be summarized as follows: a) 80 percent of the banking assets are held by the private sector banks and the privatization of nationalized commercial banks has brought about a culture of professionalism and service orientation in place of bureaucracy and apathy. ) The banks that were losing money due to inefficiencies, waste and limited product range have become highly profitable business. These profits are, however, being used to strengthen the capital base of the banks rather than paying out to the shareholders. The minimum capital requirements have been raised from Rs. 500 million to Rs. 6 billion over an extended period in a phased manner. The consolidation of the banking sector into fewer but stronger banks will lead to better management of risk. c) The banks that were burdened with the non-performing and defaulted loans have cleared up their balance sheets in an open transparent, cross-the-board manner. Contrary to the popular myth the main beneficiaries of the wirite-offs of the old outstanding and unrecoverable loans have been from almost 25 percent to 6. 7 percent by Dec. 2005. Small individual borrowers the ratio of non-performing loans of the Commercial Banks to total advances has declined. d) The quality of new assets has improved as stringent measures are taken to appraise new loans, and assure the underlying securities. Online Credit Information Bureau reports provide updated information to the banks about the credit history and track record of the borrowers. Loan approvals on political considerations have become passe. Non-performing loans account for less than 3 percent of all new loans disbursed since 1997. e) The human resources base of the banks has been substantially upgraded by the adoption of the principles of merit and performance throughout the industry. Recruitment is done through a highly competitive process and promotions and compensation are linked to training, skills and high performance. The banks now routinely employ MBAs, M. Coms, Chartered Accountants, IT graduates, economists and other highly educated persons rather than Clerical and Non Clerical Workers. The banking industry has become the preferred choice of profession among the young graduates. f) Banking Technology that was almost non-existent in Pakistan until a few years ago is revolutionizing the customer services and access on-line banking, Internet banking, ATMs, mobile phone banking and other modes of delivery have made it possible to provide convenience to the customers while reducing the transaction costs to the banks. Credit Cards, Debit Cards, Smart Cards etc. are a thriving and expanding business in Pakistan. Once the RTGS is put in place the payment system in Pakistan. Would enter a new phase of modernization. ) Competition among the banks has forced them to move away from the traditional limited product range of credit to the government and the public sector enterprises, trade financing, big name corporate loans, and credit to multinationals to an ever-expanding menu of products and services. The borrower base of the banks has expanded four fold in the last six years as the banks have diversified into agriculture, SMEs, Consumers financing, mortgages, etc. The middle class that could not afford to buy cars or apartments as they did not have the financial strength for cash purchases are the biggest beneficiaries of these new products and services. ) Along with strong regulation, supervision and enforcement capacity of the State Bank of Pakistan a number of measures have been taken to put best corporate governance practices in the banking system. ‘Fit and proper’ criteria have been prescribed for the Chief Executives, members of the Boards of Directors, and top management positions. Accounting and audit standards have been brought to the International Accounting Standards (IAS) and the International Audit Codes. External audit firms are rated according to their performance and track record and those falling short of the acceptable standards are debarred from auditing the banks. These practices were put in place in Pakistan long before the scandals of Enercon, World Call and Pramalat had shaken the corporate world. i) The foreign exchange market that was highly regulated through a system of direct exchange controls over suppliers and users of foreign exchange has been liberalized and all purchases and sales take place through an active and vibrant inter-bank exchange market. All restrictions have been removed with full current account convertibility and partial capital account convertibility. Foreign investors can now bring in and take back their capital, remit profits, dividends and fees without any prior removal and directly through their banks. Similarly, foreign portfolio investors can also enter and exit the market at their own discretion. The main lesson learnt from the last decade suggest that financial sector functions effectively and efficiently only if the macroeconomics situation is favorable and stable. The need to maintain macroeconomic stability will thus remain paramount in the years to come. The agenda for further reforms in the financial sector is still quite formidable and the challenges to spread the benefits of financial liberalization among the middle and low income households and small and medium farms and enterprises are still enormous. There are several areas of dissatisfaction with the banking sector that need to be addressed. The most serious complaint against the banking system in Pakistan today is that the depositors are not getting adequate return on their bank deposits. The difference between the monthly weighted average rates of lending and deposits is taken as an indicator of the spreads earned by the banks. It is true that these spreads have widened in the recent months land this phenomenon has caused resentment among those whose only source of income is their returns from bank deposits. But it is important to examine the facts and their form judgments The monthly comparisons are meaningless because PLS deposit rates are changed every six months, while the lending rates are continuously adjusting because they are automatically linked to T-bills or KIBOR rates. During the last eight months the weighted average deposit rate has risen from 1. 6 percent in July – Feb, 2005 to 3. 9 percent in July – Feb, 2006. This trend reflects that the return on the new deposits mobilized is much higher than what the average rate indicates. The old deposits are earning much lower rate because they were lodged at the time when the overall structure of interest rates had come down significantly. This lag is adjustment between the deposit and lending rates is due to the costs incurred by the depositor in shifting deposits from one bank to the other. The additional deposits mobilized in the last twelve months amounted to Rs. 382 billion i. e. a growth rate of 16. 8 percent. This growth rate took place despite deceleration in the volume of Resident Foreign deposit accounts. So if the deposit rates were unattractive then this high growth rate in deposits mobilized by the banks appears to be puzzling. The reason for this high growth is that the fresh deposits were fetching an average return of 6. 2 percent in March, 2006 compared to 3. 5 percent in July, 2005 – rise of 270 basis points in nine months. In the coming months the average rate is likely to move further upwards bringing them to positive real interest rates. Why have the profits of the banks risen so sharply in the last few years? There are several reasons that need to be understood: First, the drag of non-performing loans has been eased considerably reducing the need for setting aside the provisions for loan losses. As these provisions were made at the expense of the profits the banks are now reaping the benefits of building up substantial provisions and taking the hit on their profits in the past. Second, the corporate income tax rate on banks’ profits has gradually come down from 58 percent to 38 percent saving on their tax deductions. These savings not only get translated in to higher profits but also act as incentives for better performance because the tax rate no longer acts as a penalty. Third, the diversification of the banks assets into new and so far underserved segments such as agriculture, mortgage, auto, SMEs, Consumer and Credit Cards have raised their net interest margins. As competition has become quite tough in the corporate segment the margins on corporate loans have been squeezed considerably. But the spreads earned in these new segments are quite attractive. Thus a large part of the profits originate from lending to these underserved segments of the population. This is a Win- Win situation as small farmers, small businesses and middle class consumers, who had so far been denied access to bank credit, are able to get financing the banks are able to earn higher spreads. Fourth, there has been a shift in the maturing profile of both the banks’ deposits and banks’ loans. Half of the total deposits are now placed for short term duration earning negligible rates of return compared to the past where the distribution of deposits were concentrated in medium to long duration earning much higher returns. On the assets side, more of the bank loans are being disbursed for fixed investment purposes. These have long maturity structure and pay higher interest rates in double digits. This shift in the composition of deposits and advances has helped earn the banks a higher spread boosting their profitability. As the majority of the banks are operating in the private sector they will remain guided by the bottom line considerations i. e. the profits. Consolidation and market competition will act as a deterrent on abnormal profits but it is the responsibility of the regulator to ensure that these profits are not made by taking excessive risk with the depositors’ money or by banks indulging in collusive practices. The regulator has to ensure that the access to credit is further broadened and small farming households, small and medium businesses and middle classes are able to meet their legitimate credit needs. At the same time the regulator has to take stringent action against those banks found guilty of anti-competitive or collusive practices. Another popular indictment against the banking sector is that they are financing speculative activities such as stock market trading, real estate, commodities, auto etc. The facts do not support this indictment. Direct and indirect exposure by banks in stock market equities has been limited to 20 percent of their capital i. e. the maximum amount all the banks can collectively provide for this activity is only 40 billion. The outstanding stock of bank advances in March, 2006 stood at Rs. 2063 billion. Thus the bank credit allocated for stock market equity trading is less than 2 percent of the total advances of the banking system. If we further assume that some amounts are diverted from consumer loans or corporate loans also the exposure of the banks may double to as much as 4 percent but the securities and collaterals against the diverted loans may not necessarily be the scrips themselves. Real estate financing by banks is restricted to mortgage loans only and the purchase of plots cannot be financed by the banks. Mortgage loans can be disbursed in installments after physical verification of the various phases of construction. The total disbursements of loans for mortgage amounted to Rs. 11. 4 billion in FY 05. Commodity financing and its prevailing rates are not attractive for the borrowers as there has been net retirement of commodity loans in the first nine months of the current fiscal year. The regulatory environment for the banks to indulge in lending for speculative purposes is not very propitious. The State Bank of Pakistan supervisors are not only vigilant in their on-site inspection but they monitor the banks on a continuous basis and can detect irregularities and violations fairly quickly. The more deterrent effect of strong oversight by the supervisors is enough to discourage such activities. The penalties imposed by the supervisors on recalcitrant banks are quite severe.