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Policies for Dealing with Economic Shocks

Q) UNDERTAKE AN EVALUATION OF THE CAUSES OF ECONOMIC INSTABILITY AND THE ROLE, IF ANY, THAT THE GOVERNMENT CAN PLAY IN REDUCING ECONOMIC INSTABILITY BY CONSTRAINING THEIR DISCRETION IN POLICY MAKING Basically, what can the government do to reduce economic instability? Dealing With Demand Side Shocks 1. Monetary Policy. Changing interest rates can affect AD. For example, in a recession the government can cut interest rates to boost demand and increase growth. However, there are many limitations of this 1. Monetary policy is usually operated by an independent Central Bank. Their target is low…

Economic Effects of Low Prices in Markets

Economic Effects of Low Prices in Markets

READERS QUESTION: how low price can affect the market? This depends on several factors. Firstly it depends why there is a low price in the market. 1. Increase in supply, inelastic demand. Many agricultural markets have an inelastic demand. For example, if the price of potatoes falls, people won’t particularly want to eat more potatoes. Therefore, if there is an increase in supply of potatoes we get a fall in price, but, only a very small increase in demand. Therefore, this leads to lower revenue for potato farmers. Diagram for inelastic Demand 

Chinese Yuan Dollar Forecast 2008

Chinese Yuan Dollar Forecast 2008

  See also: Chinese Economy 2008  For many years the Chinese Yuan was tied to the dollar, however in July 2005 the yuan was finally allowed to break away from the dollar. However, unlike most other currencies, the Chinese government still try to influence the level of the Yuan. They have tried to keep the value of the Yuan low, to enable Chinese exports to remain competitive. Chinese record growth is due mainly to its exporting sector. The Chinese government fear that if the Yuan…

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How Firms respond to Strong Pound

Examine Three ways manufactures may respond to a strong pound 1. Increase productivity and Efficiency. To remain competitive, firms need to try and cut costs so that they do not have to increase prices in other countries. However, they may already by as efficient as they can. Also productivity improvements may take a long time to occur. 2. Do Nothing. Demand may be inelastic for UK exporters. Also the strong pound may only be a temporary effect. Therefore, there is no need to change anything. However, if the pound remains strong for a…

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Why does the EU Give susidies to the Queen?

It may be hard to believe, but decades after being condemned as a grotesque waste of taxpayers money, the EU (through the Common Agricultural Policy) still give hundreds of thousands of £ in subsidies to rich farmers. It is estimated that the Queen, (who is hardly on the breadline herself) receives approximately £404,000 a year in European subsidies for her Sandringham estate and at least £140,000 for Windsor Castle. Some of the richest British aristocrats, such as the Duke of Westminster, the Duke of Marlborough and the Earl of Leicester,…

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Economics for Business Students

Reader’s Question: What are the importance of economics to a business student? There is a strong overlap between business and economics. A Business student needs to take into account these various aspects of  Economics. At various times I have taught Business Studies in addition to Economics. Several topics are the same. These are the key areas of overlap. Macro Economic Effects on Business Monetary Policy – Monetary policy involves changing interest rates to try and meet the government’s inflation target of 2% +/- 1. Interest rates have a significant effect on business….

The Importance of Supply Side Policies

The Importance of Supply Side Policies

Supply side policies are government policies which seek to increase the productivity and efficiency of the economy. They can involve interventionist supply side policies (e.g. government spending on education) or free market supply side policies (e.g. reduce government legislation) The main macro economic objectives of the government include: Higher economic growth Low inflation Low Unemployment Equilibrium on the balance of payments Quite often these objectives conflict with each other. For example, expansionary fiscal policy may contribute to higher economic growth and lower unemployment; however, it will be at the cost of inflation and a…

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Tips for Frugal Spending

What is the secret of preventing overspending? One important factor is to have a good attitude to money, if we have the wrong perspective it will be easy to spend recklessly or on items we don’t need. These are some of the characteristics of a frugal spender. Do I Need this? This is the most important criteria for deciding whether to buy an item. If we really ascertain whether the item is necessary, many impulsive purchases will be avoided. Also, when we examine its importance we are not swayed by sales…