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 …
Fixed capital formation refers to the process of a firm increasing its stock of fixed capital. Fixed capital are assets used in the productive process, that a firm holds for over a year. (Fixed capital formation does not include current raw materials used in the productive process) Fixed capital can also be referred to as …
A fixed cost is a business cost that is unrelated to output. They can also be referred to as ‘indirect costs’ Whatever the output fixed costs (FC) remains constant at £300. Average fixed cost (AFC) declines with increased output Examples of fixed cost Rent on premise Cost of buying machines and factories. Salaries of managers …
Wages are said to be flexible when they respond to changes in supply and demand and lead to the market clearing wage being set. It implies that the wage will be set by the Marginal Revenue Product of labour and marginal cost of labour. Any change in supply and demand for labour will lead to …
Flight From Money is a situation where people in an economy lose faith in paper money and resort to barter or saving in the form of assets like gold or silver. Flight from money can occur during periods of hyperinflation. Hyperinflation is a situation where the inflation rate becomes very high. This means the value …
A floating exchange rate occurs when governments allow the exchange rate to be determined by market forces and there is no attempt to influence the exchange rate. Value of the Pound Sterling. The Pound devalued 25% in 2009, but the Central Bank/government made no attempt to intervene – interest rates were kept at 0.5% A …
This states that consumer choices will be influenced by how information is presented. For example: Presenting a positive spin A sign that says 10% of our customers are not fully satisfied – implies a negative connotation. 9/10 of our customers are fully satisfied – is a much more positive spin. In this case the company …
Definition of the Free Rider Problem – This is a situation where individuals are able to consume a good without paying. This creates a situation where there is little incentive to pay for the good – instead, we hope that others pay for it and we can get the good and save our money. Because of …