Diminishing Marginal Utility



Diminishing Marginal Utility

This paper discusses an article that pertains to the marginal utility, an economics concept used at a micro-level. The article is taken from the Forbes. The paper also explains the importance of the article in terms of economics.

Review of the article

The article is about the argument for quantitative easing. It is written in response to the notion that quantitative easing won't be capable of stimulating the economy, the reason being that no desired results were produced by the previous quantitative easing. The answer to this is a very simple and a basic economic model of diminishing marginal utility, (McTeer,2011). Keeping all the other factors equal, the more someone wants of something, the less satisfaction comes from more of that thing. With the financial crisis that prevail the economy, the impact of recession, slow process of recovery and the failure of the banking industry, financial institutes such as the banks have had a big desire for the reserves that are in the excess as a backup or as a contingency, (McTeer,2011).

These reserves are in excess in a technical aspect; however they are not available in excess to the bankers in the present prevailing conditions. It is because of this that reserves, in form of a very big amount have been developed by the Federal Bank's previous purchases of the open market, and have ended up largely on the balance sheets of the banks in form of excess reserves, instead of being used to a full extent in creating money investments and loans, (McTeer ,2011). A Phenomena, similar to this happened during the depression period. Provided that the Federal Bank didn't involve itself open market operations with an aggressive approach, there is a very strong indication that the banks can strive to add more to their ...