economics

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Is a strong economy generally accompanied by a strong currency?

Readers Question: Is a strong economy generally accompanied by a strong currency? In short, a strong economy is generally characterised by a strong currency. When the economy is doing well, and at a boom period of the economic cycle it implies higher interest rates to keep inflation low. These higher interest rates will attract hot money flows and more demand for the currency. A strong economy will also increase confidence in holding that currency. A strong economy may also imply that in the long-term the economy is becoming more…

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The importance and role of an entrepreneur

  An entrepreneur is an individual who sets up and grows a business. They combine different factors of production (such as – land, labour and capital) to try and create a new profitable business venture. Entrepreneurs are themselves an important ‘factor of production.’ and an essential aspect of a functioning free market economy. Importance of entrepreneurs Free market evolution. Entrepreneurs are important in a free market because they help the market respond to changing prices and consumer preferences. For example, with the rise in…

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Do workers on the minimum wage have any market power?

Readers Question: In the U.S. I have noticed that most restaurants and fast food places have window signs advertising for workers. Would these minimum wage workers, as a collective, be considered a monopsony or a monopoly? To answer your question, these minimum wage workers would be considered neither a monopoly or monopsony. The fact that unemployment is very low, but wages are not rising, suggests it is the firms who have a degree of monopsony power. If the minimum wage workers were able to organise and form a trade…

Debt as % of GDP

Debt as % of GDP

Readers Question: Why is debt related to GDP? Debt to GDP shows how significant the debt is relative to the size of the economy. This is important because it affects The size of debt compared to tax revenues. For example in 2018, the gross level of US public debt was $21 trillion. But, with a large economy, this only accounts for 77% of US debt. At current interest rates, the cost of servicing debt is manageable for the US government. For example, if total government debt stayed exactly the same, but GDP fell. It…

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What could cause the next recession?

A recession is a period of negative economic growth – a fall in output accompanied by rising unemployment. Recessions tend to occur in cycles of 8-10 years, though there is no hard and fast rule. Attempting to predict a recession by the number of years is not guaranteed to work. Recessions in UK Source: ONS Total fall in GDP. 2009 (Types of recession) The last recession 2008-09 occurred after 16 years of economic growth and some claims that we were seeing the end…

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Winners and losers from globalisation

Globalisation involves the increased integration and interdependence of the global economy. Since the 1960s, there has been an increased rate of globalisation, which has been characterised by rising trade, rising exports as % of GDP, greater movement of labour and capital, and an increased interdependence of the global economy. Globalisation has benefitted some countries more than others. In particular, South East Asian countries, such as Vietnam, Korea and China have seen a growth in living standards due to their export boom. However, countries in Sub-Saharan Africa have struggled to experience…

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…