How Does Deflation Affect The Economy

The beneficial effects on the economy may take as much as two years to be fully felt. I Further, the UK should be careful not to rely on a weak currency in order to support its competitiveness. An Exchange rates tend to fluctuate in value over time and the strongest economies are usually those with high productivity and low production costs, or those which produce highly innovative products. The long term performance of the UK economy could be adversely affected if a weakening of the currency was allowed to distract from these more fundamental determinants of economic performance. An Overall, however, in the current context, a weakening of Sterling is likely to be seen as beneficial for the UK economy, helping to support it through a difficult time and aiding a rebalancing of the economy towards the export sector. Despite this, it should be remembered that in other contexts, for example when controlling inflation is a more pressing problem, a fall in the exchange rate could be damaging.

It is this that has sparked China’s vulnerability to external shocks. In 2011, China’s exports amassed almost $2 trillion, however in Feb 2012, China recorded a $31.5 billion trade deficit as a result of the European sovereign debt crisis in which China’s main trading partners plunged into recession. China’s severe BOGS decrease is an attempt to control growth and a sustained level of 7.5%. Investment policies are also critical for China to achieve economic growth and development. Foreign Direct Investment (FDI) in China is being sought primarily in the redesign of State Owned Enterprises (SOE’s) and in the development of interior provinces. Between 75-80% of World Bank loans to China in 2008 were directed to the central and western regions, the most economically disadvantaged. This promotes increased wealth within China, leading to higher levels of development due to a more positive Human Development Index (HDI), which currently sits at 0.687, up from 0.677 in 2010. Thus, trade and investment are critical factors in ensuring that China’s growth remains sustained at 7.5% whilst still encouraging increases in development.

When the domestic currency goes up against a foreign currency, it makes imports of goods cheaper and exports more expensive. So domestic businesses that import a lot (i.e. retailers such as Debenhams) would be happy and exporters (i.e. coal miners) would be unhappy. As it will cost cheaper for domestic imports. This will not be a loss of profit for

In an open economy with few capital restrictions and substantial import-export trade, a rise in interest rates and a decline in the producer price index of inflation will

Fourth, the global economic situation is not clear at present. The stock market collapse and economic data pointing to a slowdown in China have clouded the outlook for the global economy. At the same time the other emerging economies slowed their growth economy or started to fall. It has the negative impact on the exports. And it even outweighing any advantages the collapse of the dollar may

Other economic influences could be that inflation may rise faster than expected in the future as a result of the U.S.’s selling of its debt overseas and the value of the U.S. dollar could fall. (Beams, 2004)

International trade and subdued investment combined conspired to the slowest world growth since 2009. World bank economic growth is expected to rise to 2.7% in 2017 from 2.3% last year. Throughout Europe and Japan, monetary support and fiscal policies should help support economy activity this year. In China, growth is projected around 6.5% which reflects certain factors like uncertainty about global trade, and private investments. China accounts for about one-tenth of all global imports and exports, and roughly one fifth of investment accounts but has slowed from 21% to 10% in the last few years. With the recovery in certain commodity prices, like oil, the divergence is expected to narrow heavily. The environment the world is in right is a difficult one, negative interest rates constrict monetary policies and may warrant more fiscal policies. What needs to be done is to initiate more useful policies to include human capital, investment, global technology transfer, and heavily promoting trade in order to obtain at least some level of positive

International finance tells us that the lower interest rates makes U.S. investments less attractive in the short run, sending U.S. money to foreign markets. Given that the demand for U.S dollars stays the same, the increase in net capital outflow will increase the supply for U.S. dollars. This will raise net exports and depreciate the dollar. Janet Yellen and the Fed have expressed concerns about the strength of the dollar and net exports, so maybe this will rectify these

Recession is when the economy activity falls and the gross domestic product decreases. The recession happened because banks were able to create too much money, too quickly and used it to increased house prices, when banks were lending people high amounts of money many people could not pay the loans back causing the banks to go bankrupt. The recession is a really bad history in the US. The recession was from 2007 to around 2009 affecting many industries, financial institutions, people, and hospitality industry. Many large financial institutions in the country declared bankruptcy because they were heavily invested in mortgages. The collapse of house marketing had an effect on the U.S and banking systems. Many smaller known banks where force

Since the financial tsunami and the bankruptcy of Lehman’s Brother in September 2008, the world’s economy took a deep plunge and the Chinese economy is no exception. In the wake of the global financial crisis, The Economist (2008) reported that China’s real GDP growth slowed to 9 percent in the third quarter of 2008 and export growth slowed to 21.1%. It was, in fact, well below analyst expectations and recent

Indeed, for over two years China experienced the lowest growth rate of its export on October, 2011; its export to Europe, especially Italy reduced by almost 18%. This is because the affected European countries are taking measures that in turn are reducing the demand for China’s export. For instance, these countries have opted to reduce their public debt by minimizing public spending, such as cutting civil servants salaries. Consequently the disposable income of these servants has been reduced, leading to a lower aggregate

There are different influences that cause inflation such as energy, food, commodities, and other goods and services. The entire economy is affected by rise of the cost of living. It also affects the cost of operating a business, borrowing money, mortgages, corporate and government bond yields, and every other aspect of the economy. There are several advantages of inflation in the economy. Some include moderate rates of inflation which allows prices to adjust. This is considered a sign of a healthy economy. With economic growth available we usually get a generous amount of inflation. Also moderate inflation rate reduces the actual value of debt. If there is a reduction, the real value of debt increase leads to a squeeze on usuable income.

Investment is recognized as an effective measure to maintain the economy stable and ease the unemployment rate if financial crisis happens. When the global economic crisis happened in 2008, Chinese government invested 4 trillion RMB for expansion of domestic demand because the government thought that rarely depending on export cannot develop economy anymore. The fact is, the financial crisis reduced the consumption capacity of developed countries and they decrease the import from China. So, it is very important for Chinese government to do the investment. This investment plays an essential role in the consequent good economic performance of China while a wide range of severe economic depression happened in the world. However, now, many people agree that that 4 trillion stimulus package is a overreaction for financial crisis and lead to detrimental consequences.

The global financial crisis of 2008-09 that spread contagiously across the globe has particularly hit the European economies hard, accentuating turmoil in the world financial markets and precipitating the European sovereign debt crisis almost instantaneously. This has consequently wiped away all of EU’s accomplishments in economic growth and job creation (European Commissiona 2010:3). Statistics published subsequently exposed the magnitude of the crisis: real GDP contracted by 4%, unemployment soared at an unprecedented level, deterioration of public finances, and the fragmentation of social cohesion in the EU (Eurostat 2010). The

Because the interest rates are expected to decline, I would assume the capital flows will decrease to the UK. Since the US interest rates are expected to rise, capital flows to the US will increase. However, the inflation rates implies that the US purchase more British goods and will sells less goods to the UK due to the changes in prices in the two countries. Since Mesa believes that capital flows are more important, they believe the pound will depreciate in the future.