Extract 1 econ

HideShow resource information
  • Created by: Chloe
  • Created on: 08-01-13 09:09
View mindmap
  • Extract 1
    • Fixing Argentine currency to US$ 1to1
      • Products produced in Arentina appear exceptionally expensive to outside world
      • Uncompetitive businesses close
        • Unemployment rises
          • More pressure on wages
      • High inflation in countries with readjustment of prices
        • Very high hum costs (lose jobs, fall in wages to prices)
          • Reducing living standards as earning fall in real term
    • Fixing exchange rate during inflation times
      • Discipline effect
        • Government publicly stated to adhere the rate of exchange stated (1 US to 1 peso)
          • Makes it less likely that it will increase money supply (reduce value of money so devaluation and probable inflation)
      • Confidence effect
        • Causes people to save rather than spend in an effort to get rid of it before it loses too much value
          • Fall in inflation
          • increasae international (and local) confidence in Peso
            • Increase in FDI for Argentina
    • Increase in Investment
      • Increase in productive capacity of economy (money spent on new factories, technology, infastructure)
      • Increasae in long run supply side
        • Increase in Economic growth
        • Fall in inflation to make output increase faster than demand
      • Increase in international competiveness
        • increase in demand for exports
        • Reverse the increase in unemployment( made by fixing exchange at tough rate.
      • Fig 1.1 show inflation rate in Argentina fell below 1%by 1996
    • Incrase in FDI
      • Increase in output
      • Productive capacity of the economy
        • Depends upon scale
        • Nature of investments
          • Some on supply side
          • it can manifest in purchasing property, shares assets
            • Increase in demand can cause asset bubbles as investors sees the increase in prices and purchase speculatively
          • Type of investment has limited impacts on supply side
            • Shown by property boom in Spain
      • Increase in prices so inflationary
        • fall in international competitiveness (haapened in Argentina) Greece was made worse by the high wages and low productivity in Greece
  • Case of hyperinflation price out of control
    • Fig1.1 shows Inflation was a big problem in Argentina (3,079.8% per year by WBS 1989)
      • Extract 1
        • Fixing Argentine currency to US$ 1to1
          • Products produced in Arentina appear exceptionally expensive to outside world
          • Uncompetitive businesses close
            • Unemployment rises
              • More pressure on wages
          • High inflation in countries with readjustment of prices
            • Very high hum costs (lose jobs, fall in wages to prices)
              • Reducing living standards as earning fall in real term
        • Fixing exchange rate during inflation times
          • Discipline effect
            • Government publicly stated to adhere the rate of exchange stated (1 US to 1 peso)
              • Makes it less likely that it will increase money supply (reduce value of money so devaluation and probable inflation)
          • Confidence effect
            • Causes people to save rather than spend in an effort to get rid of it before it loses too much value
              • Fall in inflation
              • increasae international (and local) confidence in Peso
                • Increase in FDI for Argentina
        • Increase in Investment
          • Increase in productive capacity of economy (money spent on new factories, technology, infastructure)
          • Increasae in long run supply side
            • Increase in Economic growth
            • Fall in inflation to make output increase faster than demand
          • Increase in international competiveness
            • increase in demand for exports
            • Reverse the increase in unemployment( made by fixing exchange at tough rate.
          • Fig 1.1 show inflation rate in Argentina fell below 1%by 1996
        • Incrase in FDI
          • Increase in output
          • Productive capacity of the economy
            • Depends upon scale
            • Nature of investments
              • Some on supply side
              • it can manifest in purchasing property, shares assets
                • Increase in demand can cause asset bubbles as investors sees the increase in prices and purchase speculatively
              • Type of investment has limited impacts on supply side
                • Shown by property boom in Spain
          • Increase in prices so inflationary
            • fall in international competitiveness (haapened in Argentina) Greece was made worse by the high wages and low productivity in Greece
    • Argentine government focused on reducing the inflation rate
  • Fig1.1 shows Inflation was a big problem in Argentina (3,079.8% per year by WBS 1989)
    • Ability of money to function is lessened
      • Becomes virtually worthless
    • Causing a reduce in demand for Argentine exports until prices fall significantly
      • Be acheived by increasing productivity
      • Reducing costs (wages)
    • Fig 1.1 show inflation rate in Argentina fell below 1% by 1996
      • What happend to Argentina was similar to the Greek situationwhen Greece joined EMU and euro
        • Greek Drachma was fixed
          • Ceased to exist
        • Greek inerest rates had adramatic fall
          • increase in borrowingmainly by Greek government
      • Once a government choses to fix its exchange rate to another country, it has surrended ' sovereignty' (given up ultimate control) over its monetary policy.
        • Governments who wish to increase money supply cannot
          • fall in interest rates cause fall in exchange rates
      • Fall in interest rates, 'hot money' leaves domestic economy
        • Once a government choses to fix its exchange rate to another country, it has surrended ' sovereignty' (given up ultimate control) over its monetary policy.
          • Governments who wish to increase money supply cannot
            • fall in interest rates cause fall in exchange rates
        • Results in an increase in supply of that currency and fall in its value
      • currency board - this is a government-appointed organisation that manipulates currency reserves and influences (but not necessarily decides) monetary policy of a country to maintain a fixed exchange rate.
      • Log scales- look at the annual rate of inflation axis in Figure 1.1. Rather than increasing by a geometric amount (10,20,30,etc.), it increases in a logarithmic scale. This shows that the increase is actually far greater than it may first appear.
      • Hot money - A lot of international investors will put their money in the country with the highest interest rates to gain the highest return. Therefore, if one country reduces its interest rate, then investors will move this 'hot money' to a country where it will secure a better return.
      • Purchasing Power Parity - PPP is where prices/incomes or GDP (as well as other monetary values) are converted to a common currency (usually, but not always, the dolllar0

      Comments

      No comments have yet been made

      Similar Economics resources:

      See all Economics resources »See all resources »