Exchange Rate Regimes Essay Example | Topics and Well Written Essays - 2250 words

Exchange Rate Regimes - Essay Example The impact of the inherent volatility and unpredictability of exchange rates on macroeconomic conditions is central to the debate about fixed and flexible exchange rates. Real exchange rates are defined as nominal rates adjusted for price levels. Since prices for individual countries, when expressed in a common currency, are subject to the variability of exchange rates, bilateral real exchange rates based on individual-country price levels may be infected with measurement errors. The use of one reference country, such as the USA, gives rise to asymmetries. By definition, the exchange rate is a relative price of two assets and, like other asset prices, is determined in a forward-looking manner in which expectations concerning the future course of events play a key role. Consequently, exchange rates are very sensitive to the receipt of new information. The large and sustained changes in nominal and real exchange rates were among the most significant developments in the world economy in the 1980s. For example, in the first half of the decade, the US dollar appreciated by about 40 per cent against most other major currencies and then, in the second half of the decade, declined, reversing all the previous appreciation. These changes gave rise to international pressures associated with rapidly changing competitiveness of exports; intervention by central banks in foreign exchange markets; and intense debate regarding the extent to which these exchange rate changes interact with current account imbalances. Some economists feel that conventional measures of economic growth based on the output of goods and services (gross national product) do not satisfactorily reflect economic welfare, arguing that they ignore factors such as pollution and the negative externalities from congestion.

Microeconomics Essay Example | Topics and Well Written Essays - 500 words - 1

Microeconomics - Essay Example It is well known that when there is a draught there will be water shortage, and when there is water shortage there will be spells of draught. The effects of draught can be linked with meteorological, hydrological, or agricultural aspects and it is a major influence on the social and economic activities of a given region. The role of water in natural calamities is paramount. Heavy downpours cause flood, and scarcity of rain lead to drought. Continued spells of draught results in shortage of water in the region. These two phenomena are beyond human control and their aftermaths have long lasting effects on the economy of a nation. Drought can be attributed to proximity to equator, geographic position, and the lack of greenbelt in a region. When a nation is dependent on agriculture for their economic growth, unexpected seasonal changes hamper their future prospects. During drought there is scarcity of water and continuous heat wave, which damages crop and livestock. Deforestation and reduced greenbelt are also conducive to drought and desertification. Thus, shortage of water can be construed as the one of the major reasons fo r drought. Water is the most abundant natural resource. Yet, the planet is running out of freshwater sources. The rapid increase in world population and recurrence of drought further aggravate the situation. It is estimated that by 2025 two-thirds of world’s population could live in countries with severe water shortage. (Icenhower, June 2006). Though drought is an imminent danger, people tend to consider it as a normal part of the climatic condition. With expanding deserts, deforestation, and growing droughts, compounded with increasing demand of freshwater for human consumption, everyone should be concerned about the potential worldwide calamity caused by diminishing water supply. Due to the random nature of its