You are welcome to ask questions on Economics. Though you might also like to try google custom search (top right) to see if the topic has been covered before.
I am looking to explain economic principles / ideas/ recent developments in economics. I can’t promise to answer, but will try if it meets the criteria below.
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I studied PPE at Lady Margaret Hall college, Oxford University, and currently work as an Economics A Level teacher. I have also examined several different economic units for Edexcel AS and A2.
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What are the main effects of the strength of the pound on starting a business?
If exchange rate of pound increases than it will make pressure on firms and companies who export output in other countries. In case , companies who import and sell in UK can get advantage. In case if business uses resources from inside the country and also sells inside the country would have very less effect.
In general case due to high exchange rate, cost of production in Britain would increase comparable to other countries .
Please can you explain to me the main advantages and disadvantages for borrowers and lenders in secondary markets?
Secondary markets play an important role in modern economy . They increase liquidity and capacity. As capacity is increased naturally this may create more risk.
Fannie Mae and Freddie Mac were big player of secondary markets. They increased credit market in US. Secondary market increases the capacity and decreases the risk of primary markets . Fannie Mae and Freddie Mac bought huge loan from mortgage banks.
I have a problem with my assignment. So we have a machine that can be purchased for 15000$ there is no salvage value… it can operate for 5 years. It will cost 150 per day to operate, and it will raise 450 $ per day of operation. The MARR is 10%.
we need to know the number of operating days that is needed to B/c be 1….
What are the pros and cons of the fuel subsidy in Nigeria?
Main advantage of Fuel Subsidy is that peoples can get fuel at low rates. This helps poor people. Secondly it can also help in increasing economic growth in some time.
Financial burden on state is big problem . Secondly due to fuel availability on subsided rates , there would be more consumption and wastage of fuel. Any thing which is available at high rate , naturally we use it efficiently and there would be less wastage. Subsidy on fuel also decreases competition in local market specially with other renewable energy sources such as solar cooker .
The argument in Europe at the moment is whether the ECB should be able to buy bonds (new? old?) directly from governments as well as being able to buy old ones on the open market (“secondary market”?). Is it correct that in either case that the ECB would just the create Euros to buy the bonds? I am confused about when the central banks create money and when they use other reserves.
I can already hear you asking me “Well where else would they get the money from?”, but talk of borrowing from China, and all the fuss over quantitative easing has left me just a bit confused.
With thanks,
Rod
ECB can help European countries by buying bonds issues by those countries. This is a financial help to countries which are suffered from financial problems. This is a type of loan to European countries that need money. They can also get money from outside Europe such as China or Japan.
Every country’s economy has their own dynamics. Competitiveness is more or less adjusted by appreciation and depreciation of individual currencies in free economies. Then why EU pressurizing Greece to stay in Erozone? Except borrowings at a cheap interest rate, what are other real advantages of Euro?
EU is pressurizing Greece to stay in Euro zone because if Greece leaves, many other countries who have same problems may also leave Euro. This is very bad for the future of Euro. Like any other thing, some countries such as Germany, France etc have more benefits of Euro and some have very less benefits .
Main advantage of common currency is that it increases spectrum of currency. Currency is more reliable because underlying economy is wide. For example , most countries would like to save reserves in US Dollar or Canadian dollar than Hong Kong dollar. Secondly common currency would increase business activities between European countries. European economy would be more united and this would also increase competition and efficiency. Euro is also a symbol of European goodwill . Before Euro US dollar was most respected currency of world and German Mark, French etc were not as respected currencies as US Dollar.
Dear Mr. Raj,
Thanks for your reply.
In my opinion, why EU countries like France and Germany in pressurizing Greece is because of bond and interest rate at which they are borrowing. In case of exit of Greece from Euro zone, there will be instability. Bond’s interest rate might increase and will go well over 7% due to lose in confidante in Euro. That might also make countries like France very difficult to sell their bonds. They will have to face this situation for the future of Euro. I don’t know the political issue here but due to Euro, many countries are happened to be uncompetitive. With exit from euro zone, countries like Greece might face devaluation and unemployment for a certain period but continuing like this will need them another bailout in near future. Euro with few ups and downs will survive even after exit of Greece.
Please comment.
Manish
Hello Mr Manish
Yes , interest rates may be reason but I think it is not very important issue specially in long run. German and French economies are very big. Germany has just 1.90% bond rate for 10years which is less than US and UK which have more than 2% yield . Although if Greece leaves Euro ,this will make pressure on borrowing rates of European countries due to instability of Euro and lack of confidence . Main reason behind Euro was not cheap borrowing. It was politically and economically motivated. Economically, main motives were-making economy wider, more stable and more competitive.
It is not only matte of Greece. If Greece leaves, door will be opened for many other countries like Spain, Ireland , Italy, Portugal etc.
Actually in long run growth does not depend too much on currency of country. If Greece did not join common currency, most possibly situation would be different. Economy automatically depreciates its currency as a reaction. And problem does not grow too much.
It is very difficult for Greece to remain in European Union and It is also not very easy to give bailout fund to Greece and Italy. This will make burden on German and French economies. Yes Euro can easily survive without Greece as Greek economy is very small and leaving of Greece would not leave big effect on European countries if other members remain in union.
Hi,
I don’t know if you’re familiar with this area, but I just wanted to get your opinion/knowledge on whether you think Branchless banking / mobile financial services can have a major impact on the development of low income economies in the future? We are clearly reaching the end of a post war keynesian deficit spending paradigm and it seems the capitalist solution to the economic problem of scarcity is failing.. Could mobile finance be a new policy tool/approach to fight poverty and increase financial inclusion?
Building on the idea of the big/great society and community based policy instead of the capitalist policies which have kept the 3rd world in poverty for all these years.
Thanks
I don’t think there is major relationship between development and Branchless banking / mobile financial services of low income economies in the future. Capitalist policies are not fully responsible for bad economic conditions of 3rd world. Actually political corruption and low developed human resources are main reason for poverty in these countries. Yes there are some problems in capitalist policies but you can’t blame them for all the problems.
Hello Mr. Raj,
Thanks for the comments.
Yes, Euro plays an important role to make EU economy wider. Having said this, we have noticed that since Euro became a single currency, few countries became uncompetitive and more unstable. Excessive borrowing to meet its daily expenses and ever-increasing costs with a jobless growth created this situation.
Exchange rate of a country plays a vital balancing role for sustainable GDP growth with jobs to its people. For example, cost of making shoes is not similar in every county of EU. It depends upon productivity of labors plus other costs of each country. If the exchange rate is similar to every county, whichever will be able to produce shoes at a cheaper rate will produce and sell more shoes compared to others. It means GDP growth of those countries will grow much faster than those countries whose productivity is lower and costs are higher. In this situation, the exchange rate plays a vital role. With devaluation, those countries can also sell their shoes at the same price. In the long run, exchange rate will help to maintain a balance.
Exit of Greece and few other countries from EU will help to end the uncertainty in the market with few hiccups. It will also help to regain confidence in Euro for a medium to a longer term.
Please comment.
You are absolutely right. If a country has more productivity and less cost and other country has more cost of production. For example assume , in Germany cost of production is less than Greece. There is big difference. Germany can easily sell its goods in Greece but Greece is not able to sell its goods in Germany and after long period of time ,this leaves a big gap between Greece-German trade balance . This will start depreciation of Greece currency. This will increase value of German Mark compare to Greece currency. With the depreciation of Greece currency , cost of production in Greece will decrease. This effect will help to re -balance trade between German and Greece and help Greece economy to become competitive against German economy.
But practically, many times this does not happen because governments directly or indirectly interfere in fixation the value of their country‘s currency.
Big problem of adopting Euro is that individual country cannot print money as it wish to fulfill its financial requirements ,it has to take loan. There are restrictions. If Italy has its own currency, then problem could be smaller than now. Italian govt could issue as much money as it needed. As result there could be more inflation but Govt’ s position of debt would be better. This is difference between USA and Greece. Position of USA was never better than Greece.
However, we can’t blame Euro for all problems . Even in countries with single currency like USA, England ,Japan are also facing problems of recession . Bad policies of governments are also responsible for this situation.
Thanks
Hi, I know you have previously answered the following question however I cant seem to find the guideline on this website. I was wondering if you can help?
Discuss the proposition that the UK’s over reliance on deregulated banking industry is the key factor in the current economic downturn.
Regards
Fahad
Hello FAHAD
Deregulation or soft laws regarding banking companies is one reason of this financial crisis although many other factors are also responsible for recession. Due to soft laws regarding Banks , many banks gave big amounts of loans to unreliable customers. Mortgage lenders borrowed hugely and lent it to customers without any hesitation . They borrowed as much they can and lent as they can without any fear. Major Banks moved in sub prime mortgage business . This wiped out capital from banks. Govt ignored growing unsecured loans. There were not effective restrictions regarding large exposures. Bank of England did not set Minimum Reserve requirements effectively. Cash Reserve Ration in England remained very less on sometime even less than 3% . This is more than 15% in HONGKONG and even more than 20 % in China. Banks of both countries are very less effected from financial problems. In simple words, Govt can easily save banks with proper control although they did not grow very fast but their position could be more stable.
I remember a time when people saved money to buy goods and property. Credit (even to buy houses) was not available to the general public. And people could afford everything.
Is seems to me Bank Leverage is a short term solution to improve production and development, but it has disastrous effects in the long run. In a very basic line of tough, it looks like everybody is eating the crops before the harvesting.
In you opinion, to what extent bank leverage is good to the economy?
Is it worth it to have this current levels of leverage?
Thanks a lot!
Bank leverage is a need of modern economy. But excess of everything is bad.
There should be strict rules related to credit which banks should follow.
When time is good banks forget risk factor. They just try to give more and more loans and increase their business. Loan may be taken for different purpose. Most dangerous purpose is to take loan for investing in Real Estate . Due to downturn in property prices borrowers become unable to return money. Banks must follow a common standard regarding their credit policy .
if the lender of last resort calms gilts investors, keeps the yields low and helps government borrow cheaply and finance its deficit cheerfully, why is printing money bad news as it sends gilts upwards and generates inflation. in essence lender of last resort = money printing press, so how are these reconciliated?
Hello dan
Government borrowing rate depends on financial position of government. If government has less deficit , repay its loans easily , this will keep yields low.
If deficit is high and government is unable to fund it from taking loans or from taxes and decide to print money to fund it , then it will keep yield high. Simply printing money will also inflate currency . Due to this borrowing rate will also increase due to general high interests.
Financial position of Greece and Italy is very bad. Both countries have big deficit. Governments have already taken big loans. Both countries feel difficult to repay its borrowing. Due to this, market feel risk to give them fund. Due to more risk, yields increased naturally.
what are the arguments against free trade? and possible reasons why the Doha round failed.?
Human Resource development and economic conditions in different parts of world are not similar. So free trade is possible between them. Some country will get advantage and some have to face problems with it. Main idea behind free trade is to make world economy more competitive and productive. An agreement on free trade will make different effect on America, Europe and on Asian countries . So all have different demands regarding their requirements. They are agree on many things but most of them are not agree on agriculture issue.
What happens to short selling when shares are suspended/company files for bankruptcy?
In naked shortselling, do you have to deliver the contract? How do you buy back the shares when it is suspended/delisted? Do you deliver the contract when suspension is lifted or when the contract is due?
In regular shortselling what happens to trades when the company is suspended/files for bankruptcy? How do you determine the buying price of shares you need to cover for the shortselling?
In the current environment of deleveraging, how does printing endless amount contribute to inflation?
Basically debt is just being converted into equity, so in effect the ‘value’ remains the same.
If the Fed buys up assets e.g shares, property etc other than bonds, then no new debt is being created, is that correct?
In this case this would not be inflationary.
The only reason why central banks should not print money is purely morality, and nothing else.
Printing more paper money in general increases inflation. As you said, if Fed buys assets by printing paper money, this will also create inflation. Inflation means decreasing purchasing power of paper money. Yes will help to increase value of assets at some level. Yes purchasing money for buying assets than just for funding great deficit generally creates less problems as assets are limited in nature. You gave argument about value. You should think why govt need to buy? Because there is no buyer in market to buy that property or share at same rate . So govt naturally buy at more than market value. It give more money for property or shares i.e market value of property is less but govt pays more paper money than the market value of shares.
In general this action will inflate money and deflate property up to some level.
How come a company can still trade even after declaring bankruptcy e.g AMR? Why is there still residual value in the share price? Is there a difference between trading and share price in a Chapter 11, vs Chapter 7 bankruptcy?