A devaluation leads to a decline in the value of a currency making exports more competitive and imports more expensive. Generally, a devaluation is likely to contribute to inflationary pressures because of higher import prices and rising demand for exports. However, the overall impact depends on the state of the economy and other factors affecting …
Derived demand occurs when there is a demand for a good or factor of production resulting from demand for an intermediate good or service. Example – mobile phones and lithium batteries The rise in demand for mobile phones and other mobile devices has led to a strong rise in demand for lithium. Lithium is used in …
A key factor in determining inflation is people’s expectations of future inflation. If firms and consumers expect future inflation then it can become a self-fulfilling prophecy. If workers expect future inflation, they are more likely to bargain for higher wages to compensate for the increased cost of living. If workers can successfully bargain for higher …
Readers Question: Identify and explain clearly the determinants of a nation’s productive capacity. How does the concept of productive capacity differ from a nation’s actual GDP? A production possibility frontier shows potential output. Here an investment in capital goods enables the PPF curve to shift to the right. Factors that affect productive capacity A nation’s …
Consumer confidence is the outlook that consumers have towards the economy and their own personal financial situation. This outlook can be optimistic (high consumer confidence) or pessimistic (low consumer confidence) The level of consumer confidence will be an important factor that determines the willingness of consumers to spend, borrow and save. A high level of …
The 1920s are sometimes referred to as the ‘roaring twenties’, but for the UK economy, it was a period of depression, deflation and a steady decline in the UK’s former economic pre-eminence. In the US, the economy boomed on the back of mass production techniques, growing efficiency – and increasingly a credit bubble, which would …
Readers Question: Identify and explain economic variables that may be affected negatively by the economic slowdown. Some of the problems of a recession include Falling Output. Less will be produced leading to lower real GDP and lower average incomes. Wages tend to rise much more slowly or not at all. Unemployment. The biggest problem of …
After the UK’s decision to leave the EU, what economic problems will it face? Summary of problems Devaluation of Pound Sterling, increasing price of imported goods, such as food, oil, manufacturers and domestic inflation. This cost-push inflation is again putting pressure on real wages. WIth low nominal wage growth – inflation has led to falls …