Readers Question. EVALUATE THE LIKELY ECONOMIC EFFECTS OF A FALL IN THE UK’S COMPETITIVENESS. I know some points, such as deficit on current account, slower economics growth etc. However, I don’t know how to evaluate and write a conclusion on this one. Can you please help me? This is definitely the more difficult part of …
Readers Question: How and why do firms use derivatives to hedge risk? Financial derivatives are a mechanism for managing risk. They involve options to buy or sell at a certain price in the future. This means that a firm can guarantee being able to buy or sell a contract at a certain price. Why Firms …
Readers Question: How about the case of cost push inflation like that of China? there’s high inflation and yet the economy is not operating at its full level of employment and due to the fact that its exchange rate is fixed, monetary policies would not be effective but fiscal policies would further increase unemployment. What …
Equilibrium national income occurs where aggregate supply equals aggregate demand. An increase in equilibrium national income requires an increase in long-run aggregate supply and aggregate demand. Equilibrium national income and Keynesian Consumption function We can also show equilibrium national income using a Keynesian consumption function. In this case, an increase in domestic aggregate demand (C+I+G) …
Readers Question. Explain how interest rates could be used to boost the economy. Why, then do the govenment frequently hesitate to take such steps. Interesting Question. Generally, lower interest rates help increase consumer spending, investment and economic growth. Lower interest rates help increase Aggregate Demand for various reasons. Lower interest rates make borrowing cheaper encouraging …
Readers Question: What are the effects of the economic decline in America to the country of Vietnam? If the US economy entered into a recession the main effects on other countries would be: 1. A decline in exports. American consumers are a key component of world trade. If there was a decline in exports to …
Readers Question: When my class and I try to test the Marshall-Lerner condition it doesn’t always work. i.e. we assumed a country with just one export and one import and assumed their price elasticities added up to less than one. We gave each a price and quantity that led to a current account balance =0 …
Definition of Hedging – Setting up an investment positions which helps to protect against losses from a related investment. For example, if you export goods to the US, an appreciation in the exchange rate can make your exports uncompetitive. Therefore, you can hedge against your position by buying Sterling futures. If sterling appreciates, your exports …