LDCs must increase investment to grow and develop. However, most LDCs suffer from a domestic savings gap, that is, they do not have enough domestic savings to use for investment to grow and develop. Arthur Lewis, a famous development economist, posits that an LDC...
A monetary union is a group of economies sharing the same currency. One central bank controls the currency, monetary policy and exchange rate policy for all the members. In the European Monetary Union (EMU), the European Central Bank (ECB) controls monetary policy and...
Globalization is a multidimensional process of global integration and interdependence. Globalization increases international trade, FDI, migration, knowledge and technological transfers and homogenizes cultures and tastes. Globalization basically transforms the world...
International competitiveness is the ability of a country to compete with rival countries in terms of prices and/or quality. A rise in the UK’s international price competitiveness means UK goods are cheaper, UK consumers buy more UK goods so imports fall and foreign...
An exchange rate (XR) is the price of one currency in terms of another. Assume that the XR is the amount of foreign currency that can be bought for a unit of the domestic currency. A fall in the XR means the domestic currency is cheaper, that is, more of the domestic...
Below are the benefits and costs of foreign trade. World Trade Organization The World Trade Organization (WTO) promotes free trade between all of its member countries. The WTO provides a forum for free trade negotiations by conducting rounds, a series of negotiations...
2) Quotas. A quota is a direct restriction on the quantity of imports. Domestic consumers must buy more of the good from domestic firms. 3) Subsidies. An economy could subsidize its firms, domestic firms’ costs fall, domestic firms can charge lower prices and...
Poverty Absolute poverty occurs when a person’s income is below the minimum income required to afford basic necessities for human survival (food, water, shelter, clothing). A person is in absolute poverty if they are below the poverty line, that is, their income is...
Real wages equal money (nominal) wages divided by the price level. Workers care about real wages, not money wages, because workers care about how much they can buy. A higher real wage means workers can buy more, but a higher money wage does not necessarily mean...
A direct tax is a tax levied directly on a consumer (income tax) or firm (corporation tax). An indirect tax is a tax levied on a good or service (VAT). Progressive, regressive and proportional taxes: - A progressive tax is one in which the proportion of income paid in...