Greece is facing a very difficult situation with it’s bond market reduced to ‘junk bond status’ Interest rate on two year Greek bonds have an interest rate of 18%. See: European Fiscal Crisis Countries have experienced higher levels of government debt as a % of GDP. However, in the case of Greece, there appears a …
For manufacturing investment, the real interest rate is important for determining the viability of investment. Lower interest rates make it cheaper to borrow. Therefore lower interest rates tend to encourage business investment. High real interest rates discourage investment. How interest rates affect the efficiency of investment At lower interest rates, the marginal efficiency of capital …
2010 will be a difficult year for the UK economy. After the deepest recession since the 1930s, the outlook is for a sluggish recovery. Though recovery is welcome, it still leaves the problem of spare capacity, high unemployment and record levels of peacetime government borrowing. It will be a difficult tightrope between boosting economic growth …
As output falls, you would expect a rise in unemployment. If output is lower, firms will need less workers. Okun’s law is a look at the relationship between falling output and rising unemployment. As a rough rule of thumb, in Okun’s original statement of his law, he found a 3% increase in output corresponded to …
A key element of UK competition policy is that any merger which leads to the creation of a firm with more than 25% of market share will automatically get referred to the competition commission. The competition commission will then evaluate whether the merger is in the public interest. However, the due to exceptional circumstances, the …
Why do people gamble on the lottery but insure their car? When you gamble, in the long run, you lose money. Let us say, the payouts are 50% of the amount you pay in. Therefore, gambling in the long term makes no rational economic sense. Over time, the odds will even out and you will …
Readers Question How do you explain the long boom in house prices from the late 1990s? There were several reasons for the long boom in house prices between 1994 and 2007. Low Interest rates. In the early 1990s, UK interest rates reached 15% and were in double figures for several months. After the 1991 recession …
Readers Question: Why does the federal reserve buy treasuries? Isn’t that just taking money from one pocket and putting it in another? There are a few reasons the Federal Reserve is buying treasuries. With recession and falling velocity of circulation, the Money supply adjusted for velocity of circulation is showing deflation. Therefore buying Treasures and …