Readers Question: Interest Rates are increased by the governments to bring down inflation rates, this makes exports price competitive as well, as a result, exports increase. However, an increase in interest rates can lead to an appreciation of the currency as demand for the currency increases. So this again increases the price of exports as …
During the years 1997-2007, there was a significant rise in government spending, though as a % of GDP the rise was less marked. Source: ONS Public Sector Finances MF6U – October 2014 Government spending as a % of GDP A more meaningful comparison is to look at the share of government spending as a % …
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 …