Definition of Capital accumulation This is the process of acquiring additional capital stock which is used in the productive process. Capital accumulation can involve Investment in physical fixed capital (e.g. factories, machines) Portfolio investment – purchase of bonds, shares and cryptocurrencies Investment in assets, such as housing. Measuring capital accumulation Capital accumulation can be calculated …
The J Curve effect a depreciation in the exchange rate can cause a deterioration of the current account in the short-term (because demand is inelastic). However, in the long-term, demand becomes more price elastic and therefore, the current account begins to improve. The J-Curve is related to the Marshall-Lerner condition, which states: If (PED x …
Evolutionary economics is a branch of economics which views the economy through a dynamic model of constant change, adaptation, chaos and revival. Evolutionary economics was coined by radical economist Thorstein Veblen (1857-1929). Veblen was interested in psychological factors that often gave better explanations for economic behaviour than traditional rational choice theory. For example, Veblen noted …
Comparative advantage occurs when one country can produce a good or service at a lower opportunity cost than another. This means a country can produce a good relatively cheaper than other countries The theory of comparative advantage states that if countries specialise in producing goods where they have a lower opportunity cost – then there …
The rust belt is an area of mid-west US dominated by declining manufacturing industry. Cities and regions affected tend to have: High unemployment Declining populations Falling real incomes Social problems associated with structural unemployment. Although the rust belt refers mostly to the mid-west of the US, it can refer to any area which experienced a …
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 …
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 …
Joint supply occurs when two goods are produced together from the same origin / raw material. Examples of joint supply If you grow wheat, you get both wheat and straw. Producing refined flour creates bran as a byproduct. Bran can be used as fibre ingredient or using in compost If you increase the supply of …