Q&A - Macro
Tutor2u has only a few posts having this tag. However, they are all pretty interesting. The first one discusses the accelerator effect: it describes a principle where how much a business chooses to spend on capital investment will be influenced by how quickly demand is growing for their products. After this definiton a further explanation follows, which after that is supported by the most current example (in this article it's investments in turbines due to very high prices of oil and gas). After that they provide some data and graphs:
Accelerator effect helps to show that the business cycle does exist. Just look at the graph!!
The second post is about monetary policy. The question was about the relatioship between changes in the base rate and other banks' interest rates.
There is no guarantee that a change in base rates will cause all other interest rates to move too. That depends on the commercial decisions taken by the banks, building societies and other financial institutions.
This post also explains the mechanism of setting different rates (mortgage rates, LIBOR) and how base rates might influence interest rates changes in other banks. To cut a long story short, the base rate doesn't mean that all banks should set it. The base rate helps banks to understand in which direction their interest rates should move, however, it's up to banks - what to do with their interest rates.
The third post is about international trade, being more precise - about the correction of balance of payments current account deficit. The post distinguishes two different ways of reducing the amount of deficit:
- expenditure-switching (changing the prices of exports and imports, making exports more cheaper and imports more expensive). This can be done using the following methods:
*A depreciation of the exchange rate
*Export subsidies
*Import tariffs
*Policies to lower the rate of inflation in the home economy
- expenditure-reducing (reducing AD, which will slow down spending on imports). Methods:
*Higher taxation
*A fall in government spending
*A rise in interest rates or a fall in the availability of credit
Also they suggest a number of supply-side policies in order to solve this problem.
The fourth post discusses reasons for a sustained surplus on a current account. Briefly I will write those reasons:
- Export-oriented growth
- Undervalued exchange rate
- High domestic savings rates
- Closed economy
- Strong investment income from overseas investments
Use the link to get the full explanations on these reasons.
The last one is a great way to look at an evaluation process. The topic is whether transport capital investment should be increased in order to reduce the rate of unemployment. They mention a couple of obvious points like acceletator effect and reducing cyclical unemployment, however, there are plenty of thoughts and ideas that might help you guys with your studies.
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