Disequilibrium occurs when the markets fail to clear and find their final equilibrium point. Disequilibrium could occur if the price was below the market equilibrium price causing demand to be greater than supply, and therefore causing a shortage. Disequilibrium can occur due to factors such as government controls, non-profit maximising decisions and ‘sticky’ prices. Disequilibrium …
A significant issue in the US political economy is the perceived transgressions of Chinese economic policy. These tend to revolve around: Undervalued Yuan – making Chinese imports cheaper Current account (trade) deficit. China exports more goods and services than imports – switching demand from US firms to Chinese firms. Copyright infringements and lack of intellectual …
Readers Question: Hi! Can you explain why floating exchange rates reduce the risks of currency speculation? What are those risks? Thank you very much! Currency speculation is when investors feel the exchange rate is wrongly valued and so buy/sell currency in the hope of making a profit. For example, if a currency is pegged at …
Readers question: what are the advantages and disadvantages of devaluation? Devaluation is the decision to reduce the value of a currency in a fixed exchange rate. A devaluation means that the value of the currency falls. Domestic residents will find imports and foreign travel more expensive. However domestic exports will benefit from their exports becoming …
A look at the economic impact of a fall in the exchange rate (termed depreciation or devaluation) A fall in the exchange rate is known as a depreciation in the exchange rate (or devaluation in a fixed exchange rate system). It means the currency is worth less compared to other countries. When there is a …
A recession is a period of negative economic growth. In a recession, we see falling real GDP, falling average incomes and rising unemployment. This graph shows US economic growth 2001-2016. The period 2008-09 shows the deep recession, where real GDP fell sharply. Other things we are likely to see in a recession 1. Unemployment The …
A devaluation means there is a fall in the value of a currency. The main effects are: Exports are cheaper to foreign customers Imports more expensive. In the short-term, a devaluation tends to cause inflation, higher growth and increased demand for exports. A devaluation in the Pound means £1 is worth less compared to other …
Economic growth means an increase in real GDP – which means an increase in the value of national output/national expenditure. Economic growth is an important macro-economic objective because it enables increased living standards, improved tax revenues and helps to create new jobs. Aspects of economic growth Causes of economic growth Costs/benefits of economic growth Policies …