Rust belt – definition and causes

Rust-belt

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 …

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Pros and Cons of Inflation

Readers Question: What are the advantages and disadvantages of inflation? The Government have an inflation target of CPI 2%. This suggests they would rather have moderate inflation than no inflation at all. Advantages of Inflation Deflation is potentially very damaging to the economy and can lead to lower consumer spending and lower growth. For example, …

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Capital intensive

Capital intensive refers to a productive process that requires a high percentage of investment in fixed assets (machines, capital, plant) to produce. A capital-intensive production process will have a relatively low ratio of labour inputs and will have higher labour productivity (output per worker). A capital intensive production process will tend to have a high …

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Variable Costs

Variable costs are costs which change with output. As output increases the firm needs to use more raw materials and employ more workers. These costs vary with changes in the output. Variable costs exclude the fixed costs which are independent of output produced. Examples of variable costs Raw materials. Aluminium, plastic, rubber, coffee beans. All …

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Fisher effect

The Fisher effect examines the link between the inflation rate, nominal interest rates and real interest rates. It starts with the awareness real interest rate = nominal interest rate – expected inflation. If you put money in a bank and receive a nominal interest rate of 6%, but expected inflation is 4%, then the real …

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Why does the Government Borrow?

Readers Question: Why does the government borrow? Essentially, the government borrows so that it can enable higher spending without having to increase taxes. The annual amount the government borrows is known as the budget deficit. The total amount the government has borrowed is known as the national debt or public sector debt. There are many …

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Does a trade war cause a recession?

effect-tariffs-on-consumer-surplus

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 …

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How do interest rates affect savers and saving levels?

saving-ratio-interest-rate

Interest rates determine the amount of interest payments that savers will receive on their deposits. An increase in interest rates will make saving more attractive and should encourage saving. A cut in interest rates will reduce the rewards of saving and will tend to discourage saving. However, in the real world, it is more complicated. …

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