Many argue that on simple purchasing power parity, the Chinese currency the Renminbi is undervalued by approximately 30%. This is a source of friction in the US, with firms claiming they lose out to a cheap Chinese currency which can undercut US goods. The Chinese government wish to keep the currency undervalued because: A weaker …
UK Inflation Since 2000 Readers Question: How can we have both inflation and deflation in the economy at the same time? (the RPI falling to 0% and CPI rising to 3.2%) Deflation requires a fall in prices. We would need a negative inflation rate (e.g -0.3%) to have deflation Note if the inflation rate fell …
Readers Question: Is there any other political influence on the falling rate of sterling, something like monetary policy or political uncertainty? And why did some news reports say inflation and weak sterling could be helpful to UK economy? Thanks. The value of a currency is primarily influenced by economic factors. E.g. weak sterling can be …
Readers Question: what are the causes of recession in india now a days? India is not in a recession. What is happening is that the growth rate is slowing down from 7% a year to an estimated 5.5% to 6.5% (link) India’s economy has been slowing down because: Fall in exports to US, Europe and …
Readers Question: Why might the public ignore future tax liabilities when making spending decisions? A tax liability is a tax bill that you will have to pay the government in the future. In theory, if you have a large tax liability in the future, you will reduce current consumption to be able to pay the …
Readers Question: Greece has a current account deficit of almost 14% (!) of GDP and Greece is a member of the EU. How can it resolve the problem if it cannot devalue the currency ( the quick way out, which was used in the past when the greek drachma was around) and when productivity is …
It is difficult to predict the dollar because there are few different factors pulling the dollar in different directions. Firstly, the dollar has been surprisingly resilient since the US slipped into its worst recession and US interest rates tumbled to near 0%. The resilience of the dollar is not based on economic fundamentals but, a …
Readers Question: how do recessions affects a company operations? Recessions involve lower output so usually consumer spending will fall. Therefore, firms will see a fall in demand for their products. The extent of this fall in demand depends on the products they produce. For example, if they produce luxury goods like sports cars or organic …