Living standards vary significantly across the globe. Wealthy economies, such as the US have an average GDP per head (at PPP) of $59,495 in the US (IMF 2017) This compares to an average annual income as low as $808 Burundi. (IMF 2017) There are many reasons for these divergences in income including – historical trends, …
Summary. A look at policies a country can consider to increase the value of a currency. Readers Question: I was wondering, what are some of the policies and possibilities a country can use to increase the value of their currency? Specifically, countries who would be trying to “overthrow” the US dollar like China, India, Brazil, …
Currency substitution occurs when an economy uses an alternative currency to the domestic currency. The alternative currency maybe used in parallel to the domestic currency or some cases may completely replace it. Currency substitution can also be referred to as ‘dollarisation’ when the dollar is used. Examples of countries with official currency substitution include Ecuador …
Readers Question: In 2008, did banks lend money to people who wanted to buy a house because they believed that the value of the housing market would keep rising? So even if people defaulted on their loan repayments then the banks could reposes the house as it was used as collateral. As the value of …
Economic growth is an increase in national output/income (higher real GDP). There are two main aspects of economic growth: Aggregate demand (AD) (consumer spending, investment levels, government spending, exports-imports) Aggregate supply (AS) (Productive capacity, the efficiency of economy, labour productivity) To increase economic growth We need to see a rise in demand and/or an increase …
A look at how a Central Bank may act as lender of last resort to commercial banks and the government. A lender of last resort means if banks or the government are short of funds, the Central Bank will step into prevent illiquidity. This helps to maintain confidence in the banking sector. Lender of last …
Definition – Hot money flows refer to capital flows moving to countries with higher interest rates and/or expected changes in exchange rates. Example of hot money flows For international investors, there are substantial gains to be made from moving money between different countries with different interest rates. Suppose the EU and UK both have an …
There was a global recession in 1974, 1980-81, 1991-92 and 2007. Readers Question: In this period of recession, is gold a safe investment? Gold is traditionally seen as a safe investment, especially during a time of financial uncertainty, high inflation, depreciating exchange rates and economic recession. The main reason is that gold has an intrinsic …