The marginal efficiency of capital displays the expected rate of return on investment, at a particular given time. The marginal efficiency of capital is compared to the rate of interest. Keynes described the marginal efficiency of capital as: “The marginal efficiency of capital is equal to that rate of discount which would make the present …
Readers Question: The Labour party, among others, protests about the effects of government austerity policies on ordinary people but does government spending, even so-called ‘investment in infrastructure’, not automatically increase national debt which means punishing future generations? Firstly, if a government increases spending without any corresponding increase in taxes, then this change in the government’s …
Readers Question: What are the advantages and disadvantages of inflation? The Government have an inflation target of CPI 2%. This suggests they would rather have moderate inflation than no inflation at all. Advantages of Inflation Deflation is potentially very damaging to the economy and can lead to lower consumer spending and lower growth. For example, …
The Fisher effect examines the link between the inflation rate, nominal interest rates and real interest rates. It starts with the awareness real interest rate = nominal interest rate – expected inflation. If you put money in a bank and receive a nominal interest rate of 6%, but expected inflation is 4%, then the real …
Readers Question: Is there an economic term for the phenomenon of ignoring (or turning a blind eye to) future risk, assuming that the current situation will prevail? I refer to the situation we currently see of both borrowers and lenders who are being caught by interest rate rises, having seemingly assumed that interest rates would …
What do we mean by balanced economic growth? Also, is it important for an economy to promote a balanced approach to growth? A balanced economy suggests that economic growth is sustainable in the long-term, and the economy is also growing across different sectors – and not focused on one particular industry or area. A balanced …
A trade deficit occurs when the value of imports of goods and services is greater than the value of exports. For example, in 2016 the US exports totalled US$ 1,450,457 million. Imports totalled US$ 2,248,209 million. (WITS) Source: Trade balance at St Louis Fed. Since 1990, the US has run a persistent trade deficit. The …
Definition of balanced growth: Balanced growth refers to a specific type of economic growth that is sustainable in the long term. It is sustainable in terms of low inflation, the environment and balance between different sectors of the economy such as exports and retail spending. Balanced growth is the opposite of volatile boom and bust economic …