A2 Economics - F585 June 2013

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Doesn't a competitive banking sector mean low interest rates. As far as I know, this will increase spending and encourage burrowing to invest.

Posted from TSR Mobile

This is what I thought too. Because in the boom times in this country, all the banks had really low interest rates because they were so competitive to the point of almost being unprofitable. That's why we have free current accounts and they rip you off with pointless insurance policies or when you use your overdraft.

Maybe both could be correct? But if interest rates are high, then yes more people will save, but why would anyone borrow to invest? High interest rates are used to slow down economic growth (

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Reply 361

Robb_D

Original post by will2348

I think either high or low interest rates can increase competitiveness high interest rates encourage people to save and according to the Harrod-Domar model high levels of savings is needed to fund high levels of investment. I think that's right anyway.

Reply 362

Leake95

Suppose the last essay is based around sustainable development has anyone got any essay plans around the topic?

Reply 363

mrsmeagol

Original post by will2348

thats true but in a boom, if interest rates are low then it would be inflationary so interest rates are usually increased to reduce the inflationary pressure, and in a recession interest rates are set low to encourage consumption (like we are in a recession now in the UK and the rates are at at 0.5% to encourage borrowing and spending)

Reply 364

mrsmeagol

Original post by zubhav

Doesn't a competitive banking sector mean low interest rates. As far as I know, this will increase spending and encourage burrowing to invest.

Posted from TSR Mobile

having low interest rates wouldnt be competitive as there would be no incentive for foreign investors to put money in estonian banks, hot money would flow out. I agree that it would increase spending etc but it would be mostly domestic firms investing and you cant really class that as competition if you know what i mean.

That said, i think it works both ways

Reply 365

Sarangtaec

Original post by jordan6278

what would be policies to enhance cultural viability....

for ecological balance you could have tax on pollution, tradeable permits
Coherent society you could have progressive taxation, increase education, NMW...
Welfare..would that just be like spending on health and education, to increase the quality of life of individuals..

I think I'd put something like increase tourism industry because it enhances Estonia's cultural identity as well as providing jobs and stimulating AD. Although that's all I have LOL >_<

Reply 366

Sarangtaec

Can someone explain what's the difference between fiscal and monetary convergence?

Is it that Fiscal convergence involves the budget deficit/debt levels whereas monetary convergence is stable exchange rates, stable low inflation and interest rates??

Also, what diagrams do you think I should revise? I haven't really thought about them except the standard AD/AS, D/S, Tax/subsidies, Tariffs and Negative externalities... and I can't see myself using any of them LOL

Reply 367

Commercial Paper

Original post by mrsmeagol

But doesn't a competitive banking sector mean the banks compete with each other, as in, offer lower interest rates than each other to attract people to borrow from them so the bank can earn interest? That's always been my understanding of the definition, thus increasing consumption and investment.

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Reply 368

Ollie Warwick

Original post by will2348

This is exactly my understanding.

Reply 369

lucybrown92

Comment on whether Latvia should join then euros single currency(10)

Any help please guys?

Reply 370

mrsmeagol

Original post by Sarangtaec

trade diversion and trade creation diagrams also

Reply 371

Sarangtaec

Original post by lucybrown92

Comment on whether Latvia should join then euros single currency(10)

Any help please guys?

I'd just write the advantages and disadvantages of joining the eurozone so:
Advantages:
- Reduced transaction costs stimulate trade and investment
- Price transparency increases business and consumer confidence so encourages investment
- No fluctuations in exchange rates also stimulate trade and FDI
- Could help stabilise and improve macroeconomic performance due to monetary and fiscal convergence from Maastricht Critera which promotes price stability and growth hence further multiplier effects created.
- Firms are open to wider markets which increases international competitiveness and efficiency in production, improving economic welfare as downward pressure on prices increase consumer surplus

Disadvantages:
- Loss of domestic monetary policy
- Problems from lack of economic convergence
- Contributions to future bailouts which reduce opportunity cost for government on the welfare state and infrastructure, decreases economic welfare, labour mobility, productivity and growth, etc.
- Eurozone problems
- Increased competition could force firms out of business as small domestic firms are unable to compete with larger ones who benefit from economies of scale
- More trade may make countries over reliant on imports which causes internal trade deficits and more vulnerable to external shocks which expose structural weaknesses in economies

Any more...?

Reply 372

mrsmeagol

Original post by will2348

i'm a bit confused now, i've been told they compete on attracting more savings which gets used to fund investment lol. both lead to increased investment though, but if a question like that comes up in the exam i'm not sure which way they compete on

Reply 373

mrsmeagol

Original post by lucybrown92

Comment on whether Latvia should join then euros single currency(10)

Any help please guys?

basically give 3 advantages of single currency and 3 disadvantages and then give 'depends on' factors

Reply 374

Hunarench95

Original post by zubhav

Doesn't a competitive banking sector mean low interest rates. As far as I know, this will increase spending and encourage burrowing to invest.

Posted from TSR Mobile

It's more along the lines of having a banking sector in place. I'm fairly sure this sought of question would refer to one of the CEE economies - which under Soviet rule, did not have any savings institutions and therefore, when it underwent economic liberalisation did not having the savings required for investment. From this, we can conclude that without FDI, the high levels of growth seen in Latvia and Estonia would have been unlikely.

(Competitive in this instance means - efficient (non corrupt), reliable, easily accessible, widely used, trusted etc

(edited 10 years ago)

Reply 375

Student8

if there was a question on advantages of a single market - you would talk about trade creation, trade diversion, gains from trade but would you mention single currency ?

Reply 376

KaranbirBandesha

Can someone please sent me the APT toolkit, or a link to it or something, i've got the tutor2u one but just wanted to see what the APT one was saying

Reply 377

Student8

Original post by mrsmeagol

basically give 3 advantages of single currency and 3 disadvantages and then give 'depends on' factors

what would the depends on factors be?

Reply 378

hannah695

Someone please help with this question! How likely is Estonia going to achieve sustainable development or Assess the likely future success of Estonia's sustainable development strategy. I'm really stuck on how to answer questions regarding the future success. I'd appreciate some help and your thoughts :smile: