World Financial Crisis AD/AS diagram

World Financial Crisis AD/AS diagram

Readers Question: how to illustrate the world financial crisis by using the graphs of aggregate demand and aggregate supply? The financial crisis has essentially caused an unprecedented fall in aggregate demand. Aggregate demand has fallen because: Bank lending decreased due to the credit crisis and shortage of bank funds. The shortage of bank lending has reduced investment and consumers spending (both components of AD) Falling house prices. The credit crisis has reduced the availability of mortgages and therefore reduced demand for buying houses. Also house prices were…

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Indian Economic Slowdown

Readers Question: what are the causes of recession in india now a days? India is not in a recession. What is happening is that the growth rate is slowing down from 7% a year to an estimated 5.5% to 6.5% (link) India’s economy has been slowing down because: Fall in exports to US, Europe and rest of the world. Although India is somewhat more detached from financial crisis than other countries, it is still affected by the global slowdown which leads to less demand for India’s exports. This is particularly acute…

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Regional Unemployment in UK

Readers Question: Why are there large differences in the unemployment rate across different regions of the UK? In the 1980s regional differences in unemployment were greater. To some extent regional differences in unemployment have narrowed in recent years. However, differences still exist. Some reasons include: Decline of Industry. Some areas relied on certain industries to provide a large % of jobs. If these industries close down then areas suffer from a high rate of unemployment. A good example, was when coal mines closed down in certain areas. It led to high…

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Multinational Corporations in Developing Countries

Readers Question: I have to debate why multinational corporations are good for developing countries, and I know the arguments for them being bad are strong so are there any really good positive arguments I could use to smash the opposition? Thankyou so much Arguments for Multinational Corporations in developing countries. They Provide an inflow of capital into the developing country. E.g. the investment to build the factory is counted as a capital flow on the financial account of the balance of payments. This capital investment helps the economy develop and increase…

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Shortage of Labour and Inflation

Readers Question: Discuss whether a widespread shortage of labour might be a major cause of inflation. Often a shortage of labour causes inflationary pressure. If firms are struggling to employ sufficient labour, workers are in a position to demand higher wages. This can easily lead to wage inflation which causesĀ  inflation. Why Rising Wages Cause Inflation If wages rise, firms will try to pass on the cost increases to customers – leading to cost push inflation. If wages rise, workers have an increase in income leading to higher disposable income and higher spending….

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Credit Crisis

I wrote a brief explanation to the current credit crunch, breaking it down into 10 stages – including why It occurred and who does itĀ  affect. Some Common questions on Credit Crisis Why Do US Mortgage Defaults Affect the UK? The US mortgage companies funded their mortgage lending by selling their loans onto other financial companies. This is known as rebundling debt; ironically, it was aimed at making the debt appear safer because the risk was shared amongst other financial institutions. (This is one reason why US subprime loans got a…

Forecast for Euro to Dollar

Forecast for Euro to Dollar

Many commentators feel that the Euro is looking overvalued against the dollar and Pound.On the futures market a majority of investors have taken a ‘short position’ on the Euro – meaning they expect it to fall in the coming months. Since 2007, the Euro has appreciated from 68p to 1 Euro to 96p to 1 Euro The Euro has appreciated from 0.68 to 1 Dollar to 0.79 $ to 1 Euro, in the past few months In recent months the Euro has been strong as the ECB have kept interest rates higher…