Advantages and disadvantages of devaluation

Advantages and disadvantages of devaluation

Readers question: what are the advantages and disadvantages of devaluation? Devaluation is the decision to reduce the value of a currency in a fixed exchange rate. A devaluation means that the value of the currency falls. Domestic residents will find imports and foreign travel more expensive. However domestic exports will benefit from their exports becoming cheaper. Advantages of devaluation Exports become cheaper and more competitive to foreign buyers. Therefore, this provides a boost for domestic demand and could lead to job creation in…

The importance of economics

The importance of economics

Readers Question: What is the importance of economics? Economics is concerned with the optimal distribution of resources in society. The subject involves Understanding what happens in markets and the macroeconomy. Examining statistics about the state of economy and explaining their significance Understanding different policy options and evaluating their likely outcomes. Examples of the importance of economics Dealing with a shortage of raw materials. Economics provides a…

The Turkish boom and bust

The Turkish boom and bust

After a decade of secular stagnation in the west and ultra-low interest rates – from an economic perspective, the Turkish economy is ‘interesting’ in the sense that it gives a very different set of economic circumstances. An economic boom with parallels and similarities to the 1997-98 Asian Crisis. Since 2000, the Turkish economy has grown rapidly, helped by foreign direct investment which is attracted by new markets and an economy which is growing faster than the more sclerotic West.

Does higher government borrowing punish future generations?

Does higher government borrowing punish future generations?

Readers Question: The Labour party, among others, protests about the effects of government austerity policies on ordinary people but does government spending, even so-called ‘investment in infrastructure’, not automatically increase national debt which means punishing future generations? Firstly, if a government increases spending without any corresponding increase in taxes, then this change in the government’s fiscal stance will, ceteris paribus, lead to higher government borrowing – at least in the short-term. However, in the long-term, we need to consider the effect of: Impact of borrowing on economic growth – and…

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Does a trade war cause a recession?

A trade war involves the imposition of tariffs between trading partners. This will almost certainly cause a fall in economic welfare for all the countries who experience higher tariffs and a fall in trade. However, this fall in economic welfare is not the same as a recession (a fall in GDP). In some circumstances, a trade war can be the external shock which leads to a fall in aggregate demand and recession, but the link is not guaranteed. In the past, (notably them1930s) recessions have led to a trade war. This…

free-trade-winners-losers

Who are the winners and losers from free trade?

Readers question: Who are the winners and losers from free trade? Free trade means that firms can export and import goods without tariff barriers. Free trade leads to lower prices and increased exports and imports. Economists are generally agreed that free trade leads to a net gain in economic welfare; as a result, economists generally support free trade. However, these gains may not be equally distributed. Also, though there is a net gain in economic welfare – there can be groups of individuals who lose out (e.g. uncompetitive firms who close…

Government intervention in the labour market

Government intervention in the labour market

Government intervention in the labour market to reduce inequality and market failure can take various forms. Minimum wages/living wages Maximum wages (rarely used) Legislation to prevent discrimination on the grounds of age, sex, religion. Legislation to support or regulate trade unions. Maximum working week Legislation on health and safety Behavioural nudges (e.g. encouraging workers to take pensions) Government provision of education and training schemes Minimum wages The minimum wage sets a legal floor below which employers cannot pay. The minimum wage is designed to help increase the income of the low-paid….

UK National Debt

The UK national debt is the total amount of money the British government owes to the private sector and other purchasers of UK gilts. In June 2018, UK public sector net debt was £1,792.3 billion equivalent to 85.2% of GDP Source: (page updated 12 Aug 2018) Source: ONS debt as % of GDP – HF6X | PUSF – public sector finances at ONS Budget deficit – annual borrowing This is the amount…