What's it: Absolute advantage refers to the ability to produce goods or services more efficiently than others. As a result, those with this advantage can produce at a lower absolute cost.Absolute advantage is important for explaining why
International economics
Central Bank Intervenes in the Foreign Exchange Market: Calming the Currency Chaos
The central bank intervenes in the foreign exchange market to maintain a steady exchange rate. This plays a critical role in fostering a healthy economy, impacting everything from international trade to inflation. But how exactly does a central bank
Financial Contagion: How Crises Spread Across Borders + Factors, Mitigation
Financial contagion isn't a disease, but it can spread just as quickly. Imagine a financial crisis erupting in one country, then seemingly leaping across borders to destabilize economies far and wide. This phenomenon, known as financial contagion, is
Exports: Boosting Sales, Driving Growth + Determinants, Impacts
What's it? Exporting means sending domestic goods and services to foreign markets for sale. In return, we receive foreign currency, say US dollars. Thus, exports have implications for the demand for domestic output and the exchange
Imports: Determinants, Benefits, Drawbacks, Impact on Global Trade
What's it: Import means purchasing goods and services from international trade partners. For example, Japanese car manufacturers ship and sell their products to the United States market. So, from an American perspective, they are importing cars.
Passive Exports: The Low-Effort Option for New Exporters
Passive exports offer a low-key entry point for businesses seeking to tap into the global marketplace. Unlike their active counterparts who actively seek foreign buyers, passive exporters wait for unsolicited orders from abroad. This approach
Passive Crawling Peg: The Inflation-Fighting Exchange Rate System (Pros, Cons)
Looking for a way to understand exchange rates and economic stability? The passive crawling peg might be the answer. This system helps countries combat inflation and maintain a competitive edge in the global market. Let's break down how it works and
Flexible Exchange Rates: Freedom & Fluctuations (Determinants, Pros, Cons)
Flexible exchange rates, also known as floating exchange rates, are a system where a country's currency value is determined by the forces of supply and demand in the foreign exchange market rather than by a central bank. Unlike fixed exchange rates,
Fixed Parity with Crawling Bands: Gradual Exit Strategy for Stable Exchange Rates
Fixed parity with crawling bands offers a nuanced approach to exchange rates, bridging the gap between the stability of a fixed peg and the flexibility of a floating currency. Unlike a completely fixed exchange rate, which can limit a central bank's
Managed Floating Exchange Rate: Balancing Freedom with Stability (Pros, Cons)
A managed floating exchange rate, also known as a dirty float, is a system where governments allow market forces to influence the exchange rate, but they reserve the right to intervene occasionally in the foreign exchange market. This intervention
Floating Exchange Rate System: Meaning, Pros, Cons
The floating exchange rate system is an exchange rate system in which the government let the domestic currency to fluctuate in response to demand and supply in the foreign exchange market. This system is the opposite of a fixed exchange rate system.
Flexible Peg System: Balancing the Exchange Rate Stability & Adjustment
A flexible peg offers a middle ground in the world of exchange rates. Imagine a tether for your boat that allows some movement but keeps it anchored in place. That's the essence of a flexible peg system for a country's currency. In this system, the