A carry trade occurs when an investor borrows in one country (at a low interest rate) and invests this money in another country (which has higher interest rates.) If we assume exchange rates are stable, then this carry trade enables an investor to make a profit – and the profit could be even more if …
Currency wars are said to occur when countries seek to devalue their currency to gain a competitive advantage. However, if one country seeks to become more competitive through devaluation, it means other countries become less competitive. Therefore, they may respond by weakening their currency too. Thus, we may get a situation of competitive devaluation where …
A useful tool for students is the idea of an ‘economist toolkit’. This is essentially a few key ideas that can be used to help answer different questions. Let us consider a question. – Discuss the impact of an increase in interest rates? Macro-Economic Toolkit This question is quite open-ended. First of all, consider the …
Definition of investment: Investment is the addition to Capital Stock of the economy – e.g. factories, machines, or any item that is used to produce other goods and services Note saving money in a bank is not investment in economic terminology The value of capital stock depreciates over time as it wears out and is …
Accommodative monetary policy means a policy of allowing the money supply to rise in line with national income and the demand for money. Accommodative monetary policy will also usually involve lower interest rates. Accommodative monetary policy may also be known as ‘easy monetary policy’ / loose monetary policy / expansionary monetary policy. The aim of …
Readers Question: If there is a significant slowdown in the rate of Chinese economic growth – how will it affect the UK and other global economies? Summary The Chinese economy has been growing very rapidly, and is now one of the biggest economies in the world. The size of the Chinese economy means it has …
Readers Question: what are the possible consequences/effects of protectionism with regard to the UK and the rest of the world? Protectionism occurs when countries place restrictions on imports into the economy. This can involve higher tariffs (a type of tax on imports) or quotas and embargoes. Other forms of protectionism can be less obvious, such …
Supermarkets have strict criteria for the cosmetic appearance of fresh fruit and vegetables. The result of these criteria is that a high percentage (10-40%) of a farmers harvest can be rejected because the vegetables do not meet these standard rules of conformity. This problem of rejected vegetables was highlighted on a recent BBC programme ‘War …