In 1967, the UK government of Harold Wilson devalued the Pound from $2.80 to $2.40 (a devaluation of 14%). It was a major political event because the government had tried hard to avoid a devaluation, but felt forced into the decision because of a trade deficit, a weak domestic economy and external pressures from creditors. …
Intertemporal equilibrium is a concept which states economic agents make decisions taking into account the present and future time periods. At a particular point in time an economy may not be in equilibrium because individuals do not just decide based on the current situation, but also take into account for what may happen in the …
The aims of fiscal and monetary policy are similar. They could both be used to: Maintain positive economic growth (close to long-run trend rate of 2.5%) Aim for full employment Keep inflation low (inflation target of 2%) The principal aim of fiscal and monetary policy is to reduce cyclical fluctuations in the economic cycle. In …
Global economic imbalances refer to an unfair distribution of resources between different countries or it may refer to a one-sided trade situation. Global economic imbalances include Balance of Payments. Unbalanced trade between different economies, e.g. US trade deficit with China Unemployment levels, e.g. high unemployment in southern Europe versus low unemployment in US, UK. Poverty …
What are the problems of high government borrowing? The potential problems of government borrowing include; higher debt interest payments, a need to raise taxes in the future, crowding out of the private sector and – in some cases – inflationary pressures. Potential problems of high government borrowing Higher debt interest payments. As borrowing increases, the …
Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions. For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction. Utility maximisation can also refer to other decisions – for example, the optimal …
Monetary policy involves influencing and controlling the money supply/interest rates to target inflation and economic growth. Monetary policy primarily involves changing interest rates, though it can include other tools such as quantitative easing and open market operations. In recent decades there has been a trend to making Central Banks independent and responsible for setting interest …