Readers Question: How does an increase in imports cause inflation in the economy? If the quantity of imports increases, this should reduce domestic demand-pull inflation (AD = C+I+G+X-M). Therefore if consumers spend more on imports it will, ceteris paribus, reduce domestic demand. Therefore, we get lower growth of AD and lower inflation. Suppose there is an …
Readers question: Please tell me some products for which equilibrium price is not favourable for some producers and consumers which invite the state to impose price restriction. The equilibrium price is the price determined in a free market; the price determined by the interaction of supply and demand. Under what conditions could this market price …
Readers Question: Why do we Study Economics In School? 1. It’s good to study and improve the mind. At least, that is what I was told when I was learning ancient Greek and Latin. Many employers are not looking for a specific degree but, the ability to learn, write and understand relevant ideas. I guess …
In 1976, the minority Labour UK government of James Callaghan was ‘forced’ to borrow $3.9 billion from the IMF to stabilise the value of Pound. The loan was also accompanied with conditions to cut public spending and raise interest rates. It marked a symbolic break with the post-war economic consensus and was a reflection of …
Monetary policy (mainly interest rates) used to be managed by the government. However, in recent years, there has been a trend to give monetary policy to independent Central Banks. The idea is that Central Banks will be more independent of political considerations and willing to keep inflation low – even if there are political costs …
Substitute goods are two goods which can be used for a similar purpose – they provide different alternatives to consumers. In the case of Android and the iPhone, they offer similar functionality and form, but to some consumers there is a big differential in terms of brand loyalty, meaning for certain types of consumers they …
The current US administration have suggested they want to increase the US budget deficit to enable higher rates of economic growth. What does economic theory state about this idea? “We need to have new deficits because of that. We need to have the growth,” Mulvaney said. “If we simply look at this as being deficit-neutral, …
Definition of a recession A recession is characterised as a period of negative economic growth for two consecutive quarters. In a recession, unemployment will rise, output fall and government borrowing increase. See more on recessions Definition of depression A depression is a recession but much more severe and long lasting. There is no agreed upon …