Government Borrowing can be acceptable under certain conditions In 2008/09, US borrowing rose sharply as the economy went into recession. The borrowing enabled the government to bailout the car industry and provide automatic fiscal stabilisers. Without government borrowing, demand would fall by more. 1. Recession If there is a downturn in the economy, there will …
Outline some of the problems the economy might face in recovering from a period of recession. To recover from a recession there needs to be either a rise in AD or a readjustment in prices and wages. An increase in aggregate demand will increase GDP and help the economy recover from recession. Low Consumer …
Should the government be concerned if the CPI rises to 5%? Costs of Inflation The Government set the MPC a target for CPI of 2.% +/-1. It believes inflation higher than 3.0% is potentially damaging to the economy. Decline in relative competitiveness. If inflation in the UK is higher than elsewhere, then UK goods will …
A currency carry trade occurs when people borrow in one currency and invest in another country. For example, suppose Japanese interest rates are 0% and US interest rates are 5%. In this case, an investor can buy Yen and borrow from a Japanese bank at 0% interest. He can then exchange Yen for Dollars and …
The Common Agricultural Policy (CAP) is a European policy which involved: Setting minimum prices for many agricultural products Setting import tariffs to protect from cheap imports EU purchases of surplus food to maintain minimum prices Since 2005, farmers have been subsidised through Single Farm payments (SFP) and rural development funds The impact of minimum prices …
Definition of tight fiscal policy Tight fiscal policy involves increasing the rate of tax and/or cutting government spending. It is sometimes known as deflationary fiscal policy and aims to improve government finances Purpose of tight fiscal policy The aim of tight fiscal policy could be either Reduce inflationary pressure by reducing the growth of aggregate …
Definition of deindustrialization Deindustrialisation involves a decrease in the relative size and importance of the industrial sector in an economy. It may involve a decrease in the absolute size of industry or it might just mean that manufacturing/industry takes a smaller share of GDP and employs a smaller % of the workforce. Deindustrialisation will invariably …
Deregulation involves removing government legislation and laws in a particular market. Deregulation often refers to removing barriers to competition. For example, in the UK, many industries used to be a state monopoly – BT, British Gas, British Rail, local bus services, Royal Mail. However, deregulation allowed new firms to enter these markets and reduce the …