Readers Question: What is the relationship/theory between the OCR (Official Cash Rate) and Inflation? The Official Cash Rate is the interest rate the New Zealand Reserve Bank use to control inflation. It is very similar to the base rate used by the MPC, Bank of England. Graph Interest Rates New Zealand Because New Zealand commercial …
Readers Question: What is meant by the term inflationary noise? Definition of Inflationary noise. When inflation distorts price signals. If inflation is 0%, and Peugeot cars increase in price then this is a signal Peugeot are more expensive. However, if inflation is 5 or 6%, it is harder to work out whether the increased price …
Readers Question: Could deflation lead to devaluation of the UK Pound? Deflation in the UK means prices fall. This hasn’t happened since the 1930s, but, if it did happen, it could lead to a further depreciation in Pound Sterling. Firstly, deflation would mean interest rates would likely fall to 0%. This fall in interest rates …
Readers Question: how does risk create an economic burden? Generally, people are risk-averse. For example, you may have a 0.1% chance of your house burning down. But, if it did burn down, the effects would be disastrous. Therefore, most people are willing to pay a premium to insure their house against this very unlikely scenario. …
Readers Question: What are CDOs? How do they work? Could you please explain in detail as I am very confused. CDOs are effectively a type of bond, which is backed by loans, other bonds or assets. Banks used CDOs to reduce the amount of debt on their balance sheet. One way to think of them …
Readers Question: what are the reason of dollar appreciation while the world economic situation is not good! i would apprecitae if you provide me a simple comprehensive answer. Many factors would normally make the dollar depreciate (fall in value) US interest rates cut to 1% US current account deficit US entering into recession Uncertainty over …
Readers Question: WHAT ARE THE PREDICTION FOR THE DOLLAR $ AGAINST THE EURO FOR 2009? 2009, will probably see both EU and US economies enter into recession. So far, the EU has been slow to cut interest rates; it has given greater prominence to the spike in inflation rather than the slowing economy. However, the …
Readers Question: Low inflation but slow economic growth, if any, or GDP growth , with the risk of 2 digits inflation? Which one is a better option,or the least harmful? The choice is not enticing. These are some point to consider: At the moment the UK economy is experiencing inflation of 5% (above the target …