Ask an Economic Question

You are welcome to ask any questions on Economics. Though you might also like to try google custom search (top right) to see if the topic has been covered before.

I am looking to explain economic principles / ideas/ recent developments in economics. I can’t promise to answer, but will try if it meets the criteria below.

  • Please don’t ask me to do your coursework / assignment e.t.c. (I can usually tell if it is a homework question!)
  • Please don’t ask any maths calculations.
  • The question and answer will be published here so that everyone can see it (including your teacher!)
  • I aim to try and simplify economics; as a rough guide, I would aim at an understanding similar to a good British A Level student.
  • I am looking to explain economic principles/ideas/ recent developments in economics.
  •  I will answer as a new post, if you leave email address, I’ll usually send quick email. Check home page of blog for new post. With question and answers

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2,583 thoughts on “Ask an Economic Question”

  1. If the people in a country have interest in its currency, will you advice the government in adopting seigniorage, in boosting its revenue strength, at least in the short run?

    • During periods of inflation, general price levels rise. The rise in the price level reduces the value of money.This reduces the volume of goods and services the Same amount of money can buy during the inflation period. This situation therefore erodes the purchasing power of money

  2. How should the government affect each of the main variables in the National Income Model.

  3. The bank is raising interest rates (I understand why). At the same time the government is being called to reduce taxes. These appear contradictory policies to me? What am I missing.

    Thank you if you have time to reply.


    • Risinig interest rates are meant to fight inflation as they make investment and consumption more expensive.

      Lowering taxes can have several effects: In the short run it alleviates household’s financial pressure by reducing the tax burden. Therby it goes along with a short-term inflationary effect because it raises demand for goods.

      At the same time taxrates always cause inefficiencies in markets because they distort prices leading for example to less working hours or less people being employed in the labor market than otherwhise. The marginal income you can get is lower than without the tax. So there is a tendency to work less hours for example. Lowering tax rates can therefore create a more favourable business environment incentivizing hiring more people, working more hours or probably evene more relevant increasing investments because of a lower taxburden and lower operational expenditures for firms. Thus lowering taxes can lead to a higher productivity raising aggregate supply. In the short term though the income effect resulting from lower taxes can have an inflationary effect.


  4. In the short run, when faced with increasing AD we tend to make existing factors of production work overtime. Does this necessarily mean that we are going beyond the ppf in the short run?

    • It will depend on whether the country is efficiently using its resources or some resources are lying idle or inefficiently utilized. If the country is already efficiently using its resources, an increase in AD will only stress the existing resources but Will have no impact on the ppf. But if resources are under utilized, an increase in AD will only move the country’s level of production towards its PPF. The factors that can lead to an upward shift in a country’s PPF are; increase in population, improvement in technology, Discovery of a new resource(s) etc

  5. do consumers lose their sovereignty in a free market if the industry is dominated by only a few firms?

  6. What is the relationship between US dollar index and interest rates? Are interest rates same as bond yield and what is the relation of bond yield to usdx, not the bond prices?

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