An economic downturn implies a fall in real GDP. A downturn also includes that period just before a recession – with a fall in the rate of economic growth and a widening output gap. A downturn will also include a period of negative economic growth and recession. An economic downturn is part of the economic …
Summary – If a country has a higher inflation rate than its competitors, then its good will be increasing in price at a faster rate and therefore, they will become relatively less competitive. It will experience less demand for its exports and therefore less demand for its currency. This will tend to cause a depreciation …
Readers Question: Could you differentiate between micro economics and macro economics? Microeconomics is the study of particular markets, and segments of the economy. It looks at issues such as consumer behaviour, individual labour markets, and the theory of firms. Macro economics is the study of the whole economy. It looks at ‘aggregate’ variables, such as …
Readers Question: Does Government debt matter? Do high fiscal deficits threaten economic stability? Summary Many worry that high levels of government debt could cause economic instability. In certain occasions, countries with high debt have seen investors lose confidence, leading to higher bond yields and putting pressure on the government to slash spending, for example, several …
The economic trade cycle shows how economic growth can fluctuate within different phases, for example: Boom (which is a period of high economic growth possibly causing inflation) Peak (top of trade cycle, where growth rates may start to fall) Economic downturn/Recession ( where the growth rate falls and may become negative – leading to a fall in …
The natural rate of interest is the interest rate consistent with maintaining economic growth at its trend rate and stable inflation. Another definition of the natural rate of interest is: “the real interest rate consistent with real GDP equalling its potential level (potential GDP) in the absence of transitory shocks to demand. (FR) In other …
A devaluation (depreciation) occurs when the exchange rate falls in value. This causes exports to be cheaper and imports to be more expensive. In theory, it can help increase economic growth, though it may cause inflation. In theory, a devaluation will cause the following to happen: The price of UK exports will be lower in …