A look at how interest rates and inflation affect the exchange rate – in short, higher interest rates tend to cause an appreciation in the exchange rate. Readers Question: In currency investing, would it be more profitable to invest in a country with high-interest rates and high inflation, or low to zero interest rates with …
With UK interest rates close to zero, who benefits from low-interest rates? In summary, the main effects of low-interest rates are: Savers will get lower interest payments on their savings. Borrowers, especially mortgage owners will see lower interest payments on their debt, increasing discretionary income. The government can borrow from the private sector at a …
Real wage inflation means an increase in average earnings adjusted for inflation. See also: Real wages Rising real wages means an increase in living standards and greater purchasing power of consumers. In the past decade, many economies such as US and UK have witnessed stagnant real wage growth. A rise in real wages would be …
In the UK, house prices have shrugged off both the credit crunch and the longest recession on record. After a blip in 2007-08, house prices are at record levels. It means that UK house prices are relatively very expensive; UK house price to earning ratios are amongst the highest in the developed world. Unfortunately, there …
The gift economy refers to economic activity characterised by offering services and goods to other members of the community without the expectation of monetary reward. Giving things to other people may be based on pure altruism, a wish to gain status in society, the hope of reciprocal gifts in the future or out of a …
Government policies to increase economic growth are focused on trying to increase aggregate demand (demand side policies) or increase aggregate supply/productivity (supply side policies) Demand side policies include: Fiscal policy (cutting taxes/increasing government spending) Monetary policy (cutting interest rates) Supply side policies include: Privatisation, deregulation, tax cuts, free trade agreements (free market supply side policies) …
A carbon tax aims to make individuals and firms pay the full social cost of carbon pollution. In theory, the tax will reduce pollution and encourage more environmentally friendly alternatives. However, critics argue a tax on carbon will increase costs for business and reduce levels of investment and economic growth. The purpose of a carbon …
The fundamental economic problem is the issue of scarcity but unlimited wants. Scarcity implies there is only a limited quantity of resources, e.g. finite fossil fuels. Because of scarcity, there is a constant opportunity cost – if you use resources to consume one good, you cannot consume another. Therefore, an underlying feature of economics is …