Posts tagged economy

Analysis of Greek Economy in Debt Crisis

Probability of  Countries Being Unable to Pay Back Debt

BBC News: Article 1

BBC News: Article 2

European Commission has announced that Greek economy would shrink by 3% this year due to its high risk of defaulting.

As illustrated in the graph, Greek’s probability of defaulting has passed 50% and is heading for 60%. At this rate, Greece will most definitely default if there are no strict cut-offs on government spending and European countries to aid Greece.

Other countries in Eurozone fear for Greek’s economic crisis might affect Eurozone severely. As a result of Greece’s high CDS, it is badly affecting Euro.

“The euro hit its lowest level against the dollar in more than a year, at $1.2887, and was also down against the pound, with one pound worth 1.1706 euros.”

EU economic and monetary affairs commissioner Olli Rehn describes Greek economic crisis as a “bush fire” and that “it must be contained” in order to prevent it to become a “forest fire” putting Eurozone at risk also.

Accordingly, EU and IMF has promised immediate aid and bail-out package for Greece’s debt crisis. However, there are many doubts about how the bailout package could help the Greek crisis.

“The problem is no one has a clear idea of how we’re going to get out of this situation,” said Julian Callow, chief Europe economist at Barclays Capital.

What will happen if Greece defaults? Last post, I have explained about the consequences of defaulting. First, the Greek currency and possibly Euro will experience hyperinflation and it will be a no better than a piece of toilet paper. Second, as the currency Euro is affected, this will affect the taxpayers in the Eurozone, forcing them to carry the some parts of Greek burden. If this is sever enough, it could mean the dissembling of the Eurozone.

So, what are the actions Greece is taking to fight this problem? Well, first is that they have asked help from EU and IMF, which helped them pay their short-run bills. Secondly, they have announced to cut their governmental spending from more than 10% to 3% by 2012.

It was a wise choice to ask for a bailout package, however, if Greece fails to recover from this debt crisis, it means that they’ve just added another debt to their already unbearable- debt list.

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Yuan Rise Harmful for Chinese Economy

Yi Xiaozhun says the currency has been turned into a political issue

BBC News: News Article 1, News Article 2

According to BBC News, allowing the yuan to strengthen against the dollar would hurt the Chinese economy in the short-term.

If yuan strengthens against the dollar, the Chinese firms or international firms in China will have difficult time exporting their products to foreign markets. Because Chinese economy and growth is heavily depended on its exports to foreign markets, especially US market, it is resentful toward the appreciation of yuan against US dollar.

The minister Yi Xiaozhun argued that if yuan value rises, the Chinese economy would suffer short-term economic depression. China has already experienced its first ever trade deficit of $7.2bn and if the appreciation of yuan takes place, this trade deficit would be aggravated. Some experts say that this could be a short-term phenomenon due to unplanned importing, however, it could be a serious problem for Chinese economy if yuan appreciates.

In sum, China will suffer economic depression if its currency, yuan, rises against US dollar. Thus, even if United States politically, diplomatically pressures China, China will never give up due to this its pivotal role in Chinese economy.

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The World’s Best Economy

After listening to all of the presentations in the class, I have come to the conclusion that Finland might be one of the world’s best economies in the world. I personally thought Hyun, Daniel, and Max’s presentation was intriguing.

I expected that Finland would have high education, high standard of living, and etc because it was one of Scandinavian countries. However, I was surprised that other countries such as Netherland had low points in the ‘happiness index.’ I heard that many people in Netherlands were depressed, which I assume that it is from the country’s gloomy climate.

I didn’ think that comparing water availability was appropriate for comparing European countries because most countries in fact have 100% clean water availability for everyone. The index should be used only when comparing developing countries like in African countries.

In sum, I personally thought that Finland is the world’s best economy after the presentation for its high HDI.

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G7 nations pledge debt relief for quake-hit Haiti

Earthquake crisis in Haiti could be a chance to recover economy

BBC News: Click Here

According to BBC News, the world’s leading industrialised nations have pledged to write off the debts that Haiti owes them, following a devastating earthquake last month.

“Some $1.2bn (£800m) of Haiti’s debts to countries and international lending bodies has already been cancelled.”

This earthquake crisis could be said to be a catastrophic setback for many Haitians. However, in my opinion, this could be a chance to recover their impotent economy. Many countries are trying to financially support Haiti by financial aids and cancellation of debts.

Haiti had about $1.9bn of debt was an impediment to economic development and growth. But, already, $1.2bn of its debt had been cancelled. I am very hopeful that Haiti’s economy will recover right after its reconstruction with many countries willing to support Haiti.

As a conclusion, this quake crisis could be a setback for many Haitians, but, it could be a chance for them to recover their economy.

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Broad Social Goals in Command and Market Economies

Today we have learned about what the primary goals of command and market economies are. We read two diaries of teenagers from different economies to compare what their economy’s goals are.

In the Student Diary A, the economy there valued economic equity, security, and stability. On the contrary, the economy in the Student Diary B valued economic freedom, growth, and efficiency.

In sum, there were 6 social goals in economics.

  1. Efficiency
  2. Equity
  3. Freedom
  4. Growth
  5. Security
  6. Stability

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We learned that neither of these economies alone can achieve all of the 6 goals. If it was a market economy, it often acheived 1, 3, and 4, but found it hard to achieve 2, 5, and 6. Similarily, planned economy often acheived 2,5, and 6, but failed to achieve 1, 3, and 4.

In summary, there are opportunity costs of choosing between market and planned economy.

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Production Possibility Curve

Summary:

  1. Resources are limited
  2. Shows how efficient an economy is
  3. Choices between alternatives -> trade offs
  4. Opportunity Cost increases
  5. Shifts outwards -> better technology & new resources

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Opportunity Cost

  1. Reservation price is what the price in your mind you are willing to pay for making some decision.
  2. Economists use cost benefit analysis to make decisions.
  3. Utility is enjoyment or satisfaction you get from making economic decisions.
  4. Opportunity cost is a potential cost that is caused by making a decision. It is the next best alternative decision.
  5. People tries to maximize their utility.

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