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 …
The current account on the balance of payments measures the inflow and outflow of goods, services, investment incomes and transfer payments. The main components of the current account are: Trade in goods (visible balance) Trade in services (invisible balance), e.g. insurance and services Primary income account – includes – compensation of employees, investment income from …
Definition: Current Prices measures GDP/ inflation/asset prices using the actual prices we notice in the economy. Current prices make no adjustment for inflation. Constant prices adjust for the effects of inflation. Using constant prices enables us to measure the actual change in output (and not just an increase due to the effects of inflation. Example This shows …
Definition Deadweight Debt. Debt that is incurred but does not create any meaningful asset or spending which might help may the debt off in the future. For example, if you have a credit card debt with 17% interest, the interest payments on your initial debt will increase your total debt, but, will help in no …
Definition of Debt Burden: Debt burden is the cost of servicing debt. For consumers, it is the cost of interest payments on debt. The debt burden will be higher for credit cards and loans with high interest. The debt burden on mortgages will be relatively lower compared to the value of the loan. For countries, …
Similar to the Latin America Debt crisis of 1980-84, the debt crisis in Sub-Saharan Africa follows a similar pattern of high levels of borrowing to finance investment. Unfortunately, finance was often misused due to a combination of political corruption, inefficient allocation of resources, lack of infrastructure to make use of the economy. Throughout the 1980s, …
Definition of debt crisis. When a country cannot or will not pay the interest repayments on a debt. In the case of a country these are its external debt commitments. In the 1980s there was a major international debt crisis because several less developing countries in Latin America and Africa defaulted on their debt repayments. …
Definition of Debt Service Ratios – A country’s debt service ratio measures the amount of debt interest payments to the country’s export earnings. For example, if a country has export revenue of £100bn and pays £15bn interest payments on its external debt, then its debt service ratio is 15%. A rising debt service ratio is …