A command or planned economy occurs when the government controls all major aspects of the economy and economic production. In a command economy, it is the government that decides what to produce, how to produce goods and how to distribute goods and services within the economy. Command economies were often associated with the political system …
People often refer to the idea of a Twin Deficit, especially in the US. The twin deficit refers to Government borrowing – government spending greater than tax revenues. Government borrowing creates an annual budget deficit and increases national debt. Current account deficit (imports greater than exports) on Balance of Payments US current account deficit 5% …
Many economists support free trade. However, in some circumstances, there are arguments in favour of trade restrictions. These include when developing economies need to develop infant industries and develop their economy. Reasons for blocking free trade Infant industry argument If developing countries have industries that are relatively new, then at the moment these industries would …
Privatisation involves selling state-owned assets to the private sector. For example, in the 1980s, the UK government sold many state-owned industries, such as BP, BT and British Gas on the stock market. The main arguments for privatisation includes: Efficiency gains. When firms are privately owned, there is a greater profit incentive to increase efficiency. In …
Under certain circumstances, the government might want to intervene in the foreign exchange markets to influence the level of the exchange rate. Methods to Influence the Exchange Rate Reserves and Borrowing. If the value of an exchange rate is falling and the government wants to maintain its original value it can use its foreign exchange …
Definition – A centrally planned economy is an economy where decisions on what to produce, how to produce and for whom are taken by the government in a centrally managed bureaucracy. Central planning is also referred to as a ‘Command economy’ or ‘Communist economy.’ WIth Central planning, the theory is that the government will take …
At different times there have been campaigns to ‘Buy British’ – patriotic efforts to support the economy. The campaigns seem quite popular, but usually fade out, having made little difference to major macro-economic variables. It is a form of economic nationalism and similar campaigns can be seen in many different countries. Buy British campaigns can …
The economic cycle plays an important role in determining the level of government borrowing, especially in the short run. Essentially, higher economic growth leads to lower government borrowing, but a recession will increase government borrowing. Over the past few years (2008-12) – the idea that an economic downturn increases government borrowing is probably one of …