A look at some problems and limitations of quantitative easing. Readers Question: I was wondering if anyone could help me with how Quantitative easing can possibly reduce a budget deficit? and what are the downsides of quantitative easing? The Bank of England has pursued a policy of quantitative easing. This has involved creating £275bn of …
The UK government has given the Bank of England an inflation target of CPI 2 % +/-1. The Bank of England is responsible for using monetary policy (e.g. interest rates) to achieve this goal of low inflation. But, as well as targeting inflation, the Bank of England also has a wider remit of considering objectives …
International competitiveness measures the relative cost and value of a countries exports. For example, if UK goods and services become more expensive than its competitors, then the UK would see a decline in its international competitiveness. International competitiveness is determined by Short-run factors – inflation and exchange rate Long-run factors – Education, health-care, institutions, levels …
The UK recession of 1991 was primarily caused by high-interest rates, falling house prices and an overvalued exchange rate. Membership of the Exchange Rate Mechanism (1990-1992) was a key factor in keeping interest rates higher than desirable. The recession also came after the late 1980s economic boom – a period of high economic growth and …
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 …
Definition The Balance of Payments shows a countries transactions with the rest of the world. It notes inflows and outflows of money and categorises them into different sections. The two sections of the Balance of Payments are: Current Account. – Trade in goods/services/investment incomes/transfers) Financial (Capital) account. – Foreign direct investment, capital flows, portfolio investment Balance …
How can a change in the terms of trade affect the balance of payments ? How can a change in the balance of trade affect the terms of payments ? The terms of trade is the index of export prices divided by index of import prices (*100) The current account balance of payments is primarily …
Definition of capital mobility – easy for physical assets and finance to move across geographical boundaries. Capital immobility – when capital faces restrictions on the free movement. What is capital? Capital principally refers to physical capital – durable goods used in the production process – machines, factories. This physical capital is determined by levels of …