The Dutch disease refers to the problems associated with a rapid increase in the production of raw materials (like oil and gas) causing a decline in other sectors of the economy. When the raw materials run out, the economy can be in a worse position than before. – Can the discovery of substantial raw materials …
There are many costs associated with inflation; the volatility and uncertainty can lead to lower levels of investment and lower economic growth. For individuals, inflation can lead to a fall in the value of their savings and redistribute income in society from savers to lenders and those with assets. At extreme levels, inflation can destabilise …
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 …
Speculation occurs when individuals make decisions about buying or selling depending on expectations of future price changes. For example, if prices are rising speculators may take this as a sign that prices will continue to rise, and therefore, they buy more. This speculation causes prices to continue to rise. An example is house prices, where …
Summary – impact of devaluation in Yuan If the Yuan falls in value, Chinese exports will become cheaper compared to other countries (e.g. US, India, EU) A falling Yuan will increase demand for Chinese goods contributing to higher growth in China. However, a fall in the Yuan will make US and Indian goods relatively more …
The Covid recession is very expensive for governments. Not only are we experiencing the usual cyclical fall in tax receipts, but there has been unprecedented government spending – such as the furlough scheme for workers, loans for business and a large rise in welfare payments. Government borrowing will increase to record peacetime levels. In April …
Capital controls are government measures to limit the flow of financial capital and financial assets. Capital controls include limits on foreign currency exchange, limits on the purchase of assets and taxes on financial transfers. Some economists argue that capital controls can help limit destabilising capital flows which cause banking crisis and economic booms and busts. …
The policy trilemma refers to the trade-offs a government faces when deciding international monetary policy. In particular, the policy trilemma contends that it is not possible to have all three objectives at the same time, but has to choose two from the following three options: Free movement of capital Independent (autonomous) monetary policy Fixed (managed) …