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Democratic Republic of the Congo

The 10 Poorest Countries of the World: Hottez

Republic of the Congo is one of the very poor countries in the world. In fact, many people believe that this country might be the poorest country in the world. The blog Hottez has ranked the Congo as top number 1 in the most poorest country in the world.

The GDP per capita is $300 (2010 est.) and the GDP is $22.92 billion (2010 est.) which is the 119th in the world. Despite its large land (2,344,858 sq km) and large population (70,916,439) the GDP is quite small.

Population growth rate is 3.165% which is high. The data for unemployment rate is not available. It may be because that there are so many people in poverty and jobless. The life expectancy is only 54.73 years for the whole population.

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Table of Types of Protectionism

Type of Protectionism Definition Real World Example + Link
Tariff It is the tax on imported goods, which could be imposed on specific products. Japan imposes tariff on imported rice.Article Link: Click Here
Quota It is a limit to the imports set by the government. The trading economy can only export maximum amount of goods to the economy that is imposing quota. European Union imposes quota on Japanese cars.Article Link: Click Here
Subsidy It is the sum of money given to the weak industry in order to maintain the job places that it provides. The Japanese government is giving subsidies to Japanese rice farmers.Article Link: Click Here



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How can demand/supply side policies help variety of people?

How should the government implement demand/supply side policy to help corporate leaders, unemployed workers and retired people? The government should utilize the policy that both stabilizes the inflation rate and lowers the unemployment rate to help all of these people. There aren’t any absolute solutions to these problems all simultaneously, yet there are always ‘best’ solutions.

The government could nullify the labor union’s power and make the wages flexible. By lowering to wages to an apt level, there will be surplus of money that can be used to employ a number of people. Also, the money that’s left could be used to increase the pension of the retired people. People who were employed will be angry, however, it’ll give them a strong sense of job security by looking at numbers of people coming in.

In order to protect the working population from the inflation, the government should implement the monetary policy in order to cut down money supply. By cutting down money supply, it’ll significantly decrease the inflation rate  to stable state. Also, the government could increase the interest rate in order to curb inflation.

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What Greece must do to Survive the Debt Crisis

A frustrated Greek expressing his angry through violent protest

CNN News: Click Here

In action to fight off the increasingly unbearable debt crisis, Greece chose to get financial support from both EU (mainly Germany) and IMF. This might help Greece out of the problem in a short-run, yet they still have to pay back the money they have borrowed from EU and IMF. Now all Greeks must tighten their belt in order to fight off the crisis. There is a list of what Greece must to do recover their economy.

  1. Salary Cuts
  2. Retirement
  3. Increase in Taxation
  4. Reform in Pension System

First of all, all Greeks (at least public workers) will increase a cut in their salaries. Salaries are one of the big factors that take up large percentage of the cost in business and government spending. Though this will arouse some violent protests from the people, there is no other way to fight off the debt crisis without a cut in wages.

With some cuts in wages, many business and governments will want to minimize the number of employees as possible to decrease the money spent. This will result in early retirement of many workers with ages over 60. This will also contribute to the high unemployment rate, however, significantly cut the unnecessary budgets.

Interestingly, the Greek government decided not to have an early retirement for its workers but to increase the retirement. The retirement age was shifted from 61 to 65. It may be that Greece government didn’t want more unemployment and more protests regarding it. I think that the Greece government is tightening the payment of wages so much that they don’t need to cut down its workforce.

Greek people will most definetly exprience the rise in taxation. Greek government said that it was going to raise all VAT’s by 10%. Increasing taxation is one of the key ways that Greece can endure the crisis.

Greeks will also exprience a cut in pension. Unplanned pension system was the main culprits for the cause of Greece’s debt crisis. The government borrowed money, unplanned, in order to fulfil its populistic policy of pension system. The system supported too many people and gave out excess amount of money. So many aged Greeks will exprience this frustrating cut in their pension.

In sum, these were the actions that Greece must implement in order to survive the debt crisis. I think that the government’s determination to get out of the deb crisis is firm, but I think that this determination is not supported by lots of Greeks. Greek people must bear in mind that if they don’t start tighenting their belts, the government’s effort in order to get out of the crisis.

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Greek Bonds are Useless Junks says Standard & Poor’s

BBC News: Click Here

According to BBC News, global stock markets tumbled after Greece’s debt was downgraded to “junk” by rating agency Standard & Poor’s over concerns that the country may default.

As uncertainty of whether Greece will get financial support from EU and IMF to clear up its looming debt increases, many rating agency such as Standard & Poor’s has rated Greek bonds as junks, rubbish.

What does it mean when a rating agency says that now Greek bonds are ‘junk’? It means that it is now very risky to invest on. It is mainly because of Greek’s apparent lack of ability to pay its bills. So there is a higher chance that an investor will lose money for investing in a country falling into the abyss of ever increasing debt.

Greece’s finance ministry said in a statement that the downgrade “does not correspond with the real data of the Greek economy.” Greek finance ministry denies that the down-rating doesn’t reflect the real Greek economy, however, this incident showed investor’s distrust toward the Greek economy.

If Greece does not take action to reduce debt and get help from the EU and IMF, it may default.

What’s default and what happens if a country defaults?

Lets look into what the definition of default is. Default is simply announcing that you cannot pay the debt in the due date. It doesn’t mean that the government will go bankrupt and the debt wouldn’t go away. The debt will always be there and the investors/lenders will demand you to repay the debt whenever possible.

What are the consequences of a country defaulting? There are several effects to this. First of all, the currency of the country becomes a rubbish or a paper tower (or no better than a paper tower). Foreign investors will have distrust against the currency of the defaulted country and the value of the currency will drop significantly. As the value of the currency goes down, it makes the imported goods insanely expensive, which will lead to inflation and shortage of necessary goods. If a country has high food dependency on importing, many people will starve to death as there are simply shortage of food due to expensive importing.

People will loose confidence and the recession or more like disintegration of economy will be in a vicious circle. So by this stage, there is ultimately nothing a country can do to recover. So Greece should get help from EU and IMF quickly by giving them confidence that they can pay back the borrowed money.

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Limitations of GDP (Gross Domestic Products)

Many economists rely on GDP (Gross Domestic Products) to analyze and compare economies. However, there are several limitations of GDP as all macroeconomic statistics do.

One of the limitations is that ‘nominal’ GDPs do not take into account that there are inflations and deflations. So let’s say that there was 10% inflation and the GDP increased 10%. Some could say that GDP has increased by 10% and that is economic growth. However, it these people didn’t take into account that in fact inflation has caused this increase in GDP. So this is one of the limitation of ‘nominal’ GDP. There is another GDP called ‘real’ GDP that takes inflation/deflation out of the GDP and tries to measure the ‘true’ GDP of an economy.

The second limitation is that GDP does not measure negative externalities. For example, the CO2 emission produced by economic activity would not be considered in measuring GDP. Also, depletion of some resources are not considered either. So, this limitation is greatly criticized by ecological economists.

Another limitation is that GDP’s could change due to change in exchange rate to US dollar. Notice how GDP is calculated in USD. So GDPs of foreign countries would change due to their change in currency value. For example, Japan’s recent GDP would rose due to their strong yen. So, change in currency values could change the GDP. However, this is not the problem of United States because the country uses USD.

There is one last limitation to GDP. It is that GDP’s do not measure black markets and illegal economic transactions. For example, if some drug dealer sells $1 million dollar of drugs to some country this will not be counted in the GDP. Some people will say that these kind of economic activities would comprise only a meager proportion of GDP, however, United States, for example, has 10~20% of illegal black markets to its GDP.

In sum, these were the limitations of GDP. Despite these limitations, GDP is considered to be one of the best methods of measuring/comparing economies.

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