There are various economic costs associated with inflation – uncertainty, decline in investment, redistribution from savers to borrowers – but although there are costs with inflation, is zero inflation actually desirable? Governments usually set an inflation target of around 2%. (UK CPI target is 2% +/-1) There are reasons for targetting inflation of 2% – …
The Indian Rupee has fallen in value against a basket of currencies since independence in 1947. In recent years, the Indian Rupee has continued to depreciate in value. Indian Rupee value against US Dollar In 1990, you could buy $1 for 16 Indian Rupees. By 2013, the value of a Rupee had fallen, so that …
Readers Question: how to illustrate the world financial crisis by using the graphs of aggregate demand and aggregate supply? The financial crisis has essentially caused an unprecedented fall in aggregate demand. Aggregate demand has fallen because: Bank lending decreased due to the credit crisis and shortage of bank funds. The shortage of bank lending has …
Readers Question: What are the implications of a higher dependency ratio? The dependency ratio measures the % of dependent people (not of working age) / number of working people. Children (0-15) + Number of elderly (> 65) ———————————————— Number of working age (16-65) In the western world, we are seeing an increase in the dependency …
Readers Question: Can anyone explain the reasons why the Banking Crisis may have brought about increased unemployment? A banking crisis implies major banks run short of money (liquidity). In a severe banking crisis (e.g. Great Depression 1929-32), some banks may go out of business. If banks do face liquidity shortages or worse, it will have …
What is the difference between a liquidity issue and solvency issue? A liquidity issue (crisis) occurs when a firm (or country) has a temporary cash flow problem. Its assets are greater than its debts, but some assets are illiquid (e.g. it takes a long time to sell a house. A bank can’t suddenly demand a …
Readers Question: Why is it that when there is low economic growth, unemployment rises? A low rate of economic growth can cause higher unemployment. Though it is not always the case. During 2010-13 the UK experienced a slow rate of economic growth, but unexpectedly unemployment fell. If there is negative economic growth (recession) we would …
Barack Obama served as President from Jan 2009 – Jan 2017. When Obama came to office in Jan 2009, the US economy was in a deep recession, with falling real GDP, high unemployment and rising levels of government borrowing. As President, Obama oversaw a moderate fiscal expansion which helped to promote economic recovery and falling …