Mona contracts to repair a computer for New Data, Inc. (NDI) for $450 and have it done by next Monday. Mona knows that without t
he computer by Monday, NDI will lose a sale in which it will make $5,000 profit. Mona does not perform as promised, NDI loses the sale, and has to get someone else to repair the computer at a cost of $1,000. NDI files a suit against Mona. As consequential damages, NDI can recover:
Consequential damages are damages that result from the one party in a contract not performing their part or breaching the contract.
In this case, New Data can sue Mona for consequential damages resulting from Mona not performing her contractual obligations. The damages that New Data can recover = $5,000 which is the profit from the lost sale. The $1,000 spent fixing the computer cannot be recovered.
The central bank have various tools to apply expansionary policy and these tools are :
- Reserve ratio.
- Discount rate.
- Open market operations.
The open market operations include the buying and selling of government owned securities by central bank to impact the monetary base in the economy. In case of any recession, the central bank should purchase government securities to enhance the money supply. Because whenever they do any kind of open market purchase there would definitely be increase in money in the economy. That's why increment in money supply decrease the interest rate in economy.
Nominal interest rate is the cost of borrowing so if there is decrement in interest rate, there would be consumption and investment activities. these both are the component of aggregate demand so the aggregate demand will increase, and this increment in aggregate demand helps the economy to recover in the situation of recession.
