Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
Question 2: Exports
One of the few 'good' things about an economic downturn is that it tends to increase the desirability of a country's exports and thus reduces the balance of payments to nations abroad in international trade. When a nation is spending at a deficit to stimulate its economy, this tends to decrease the value of that nation's currency. The cheapened value of the dollar, for example, means that the dollar is much less valuable in relation to other currencies in a flexible exchange rate system. Interest rates also tend to be lowered during a period of economic contraction, as they are now, to act as an incentive for individuals to borrow and spend more. This makes it more attractive for foreign companies to invest money in a nation, and to borrow money from the nation's central bank.
During an economic expansion, as citizens have more money, the balance of payments tends tip in the favor of imports, as wealthier workers buy more foreign...
The central bank will usually raise the interest rate, to stem the tendency towards inflation. As the deficit of the nation will usually go down, at this time meaning the nation is less indebted to foreign creditors, the value of the currency will increase in relation to foreign currencies.
A fixed exchange rate, where the value of the currency is 'pegged' to the value of gold, will be less sensitive to such changes in the economy. Trade and investments are more stable, but this also makes the economy less sensitive to the ability of the central bank to stimulate or slow down the economy, as a lower or higher interest rate and greater liquidity do not drive down the value of the currency to the extent that they do with a flexible interest rate.
References
ECB: Objectives and tasks. (2008, March 28). Deutsch Bank. Retrieved February 28, 2010 at http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000222630.pdf
Subprime loans are said to be among the biggest reasons for the most recent financial crisis which hit the world economy at the end of year 2008. Had the lenders considered the level of income and repaying abilities of the borrowers before lending them money, the World's financial sector would not have seen such critical circumstances. The consequences of subprime loans have not ended yet; economists and researchers in the
While it was generally agreed that the increase in prices was due mainly to an insufficient offer as the stock house was limited, opinions have also been forwarded according to which the buy-to-let purchases have contributed to the inflation of the house prices (Property Mark). The debate concerning the reasons for the massive price increases for residential properties (materialized mostly between 1996 and 2005) is however still ongoing. On the
"Forecasts by Moody's Economy.com now use a 20 percent drop in median existing-home prices from their 2005 peak as a baseline, with prices weakening through at least mid-2009" (Shinkle, 2008, p. 44). Moody's director of housing economics Celia Chen, states in the same report that the 20% decline is the good news and that the bad news is that it could easily be more than that. The worst-case scenario is a lot more than that. "You
The panels could also be assembled quickly often within a day. Some panels have an in-built wiring in them making the housing construction to be faster. The panelized off-site building technologies could also involve exterior wall of building designed to provide the load bearing structural support, and the panelized building system could be made of light gauge steel, timber, structural insulated panels (SIPs), non-structural or concrete, which could be
Eurozone Maastricht Treaty Euro zone Treaty The European Community established the convergence criteria. These criteria was established in order to allow its EU Member states to take part in the Euro Zone, and using the Euro, as an official currency. The members of the European Union formed the Maastricht Treaty in 1992. The principle goals of the treaty were to establish an economic and monetary union, strengthen the democratic legitimacy of its
Obama Urges Tougher Laws on Financial Fraud In the wake of the Wall Street bank bailouts and the various security fraud cases that have occurred nationally the Obama administration has been under pressure to enact new legislation that effectively prosecutes financial fraud cases. Critics have argued that financial regulators have lacked the tools necessary to properly investigate and prosecute the financial executives who were responsible for the near collapse that occurred