Rowel Dela Cruz

XII- SWAN

ECONOMIC PROBLEM

*RECESSION

*INFLATION

*Balance account payment/ current account deficit

*EXCHANGE RATE VOLATILITY

*DEVELOPMENT ECONOMICS

Definition in Wikipedia

Recession

is a business cycle contraction when there is a general decline in economic

activity.[1][2] Recessions generally occur when there is a widespread drop in spending (an
adverse demand shock). This may be triggered by various events, such as a financial crisis, an
external trade shock, an adverse supply shock or the bursting of an economic bubble.
INFLATION

is a sustained increase in the general price level of goods and services in an economy over a
period of time.[1][2][3][4] When the general price level rises, each unit of currency buys fewer
goods and services; consequently, inflation reflects a reduction in the purchasing power per unit
of money – a loss of real value in the medium of exchange and unit of account within the
economy
Balance account payment/ current account deficit

is one of the two components of its balance of payments, the other being the capital
account(also known as the financial account). The current account consists of the balance of
trade, net primary income or factor income(earnings on foreign investments minus payments
made to foreign investors) and net cash transfers, that have taken place over a given period of
time. The current account balance is one of two major measures of a country's foreign trade (the
other being the net capital outflow). A current account surplus indicates that the value of a
country's net foreign assets (i.e. assets less liabilities) grew over the period in question, and a
current account deficit indicates that it shrank. Both government and private payments are
included in the calculation. It is called the current account because goods and servicesare
generally consumed in the current period.
Exchange rate volatility

The increasing volatility of exchange rates after the fall of the Bretton Woods agreements
has been a constant source of concern for both policymakers and academics. Does exchange-
rate risk dangerously increase transaction costs and reduce gains to international trade? This
column uses recent research to argue that there is indeed a negative impact of exchange-rate
volatility on firms’ exporting behaviour, magnified for financially vulnerable firms and dampened
by financial development. Thus, emerging countries should be careful when relaxing their
exchange-rate regime.

Development Economics

The problem of economic development,' as Lucas (1988) states it, is the problem of
accounting for the observed diversity in levels and rates of growth of per capita income across
countries and across time. We study conditions under which capital mobility and labor mobility
(two seemingly income-equalizing forces) may interact with cross-country differences in income
tax rates and income tax principles (two seemingly income-diverging forces) to generate such
diversity. As a corollary, we also examine when countries with different initial endowments may
finally converge in their income levels.

DEFINITION IN TECHNICAL INTERNET

Recession
A recession is a period of negative economic growth – a decline in the size of the
economy. It exacerbates problems of inequality and unemployment. A problem of
recession is that it can create a negative spiral. When demand falls, firms lay off
workers. The unemployed have less money to spend causing further falls in
demand.

Inflation
High inflation can be a serious problem if prices rise faster than wages and
nominal interest rates. In periods of rapidly rising prices, people with savings will
see a decline in their real wealth. If prices rise faster than wages, then people’s
spending power will decline. Also, rapidly rising prices creates confusion and
uncertainty and can cause firms to cut back on investment and spending.

Countries which have experienced hyperinflation, have seen it as a very

traumatic period because all the economic certainty is washed away, leaving
people without any certainty. Hyper inflation can cause not just economic turmoil
but political turmoil as people lose confidence in the economic situation of the
economy.
Balance of payments/current account deficit
A current account deficit on the balance of payments means an economy is
importing more goods and services than it is exporting. To finance this current
account deficit, they need a surplus on the financial/capital account. For many
modern economies, a small current account deficit is not a problem. However,
some developing economies have experienced a balance of payments crisis –
where the large deficit has to be financed by borrowing, and this situation usually
leads to a rapid devaluation of the currency. But, this devaluation increases the
price of imports, reduces living standards and causes inflation.
Exchange rate volatility
In some cases, the exchange rate can cause economic problems. For example,
countries in the Euro were not able to change the value of their currency against
other Eurozone members. Because countries like Greece and Portugal had
higher inflation rates, they became uncompetitive. Exports fell, and they
developed a large current account deficit. The overvalued exchange rate caused
a fall in economic growth.

On the other hand, a rapid devaluation can cause different problems. For
example, when the price of oil fell, oil exporting countries saw a decline in export
revenues, leading to a fall in the value of the currency. A rapid devaluation
causes the price of imports to rise and causes both higher inflation and lower
growth. A difficult problem for policymakers to deal with.

Development economics

Developing economies face similar economic problems, but any issue is

magnified by low GDP and high levels of poverty. For example, unemployment in
a developing economy is more serious because there is unlikely to be any
government insurance to give a minimum standard of living.

Poverty cycle. Some developing economies may be stuck in a poverty trap. Low
growth and low saving ratios lead to low levels of investment and therefore low
economic growth. This low growth and poverty cause the low savings and
investment to be continued.
Self Understanding
RECESSION
It is about the problem in unemployment it happen when the firms produce
less so that the effect of this many people can’t be given a job or it was be
leading in rising unemployment.

INFLATION
It is about continued increasing of prices in overall level of goods and
services this is one of the economic problem because when the price of all goods
is too high there’s a possibility that people will be short when it comes in
financial.

Balance of payments/current account deficit

It is about the problem in importing and exporting of goods, it happen when a

country is importing more than exporting the cause of this there’s a possibility
that some of goods will become high price there’s a inflation happen all good that
is imported in a country it becomes high because of the tariffs.

Exchange rate volatility

It is refers to the foreign exchange of money, it becomes problem because

Just like the Philippines and US Country when US exchange dollar into peso the
value will become lower because Philippines has a high Inflation rate it means
that if country has a high inflation rate the currency value became lower.

Development Economics
This problem is also reflected by Low GDP and high levels of poverty
because just like the government they are very serious when it comes in life
insurance of every people, every individual are automatically reduce their salary
because of the insurance and other taxes instead of giving their salary in whole
amount and make it saved the money will goes to other expenses and taxes It
will leads to poverty because they don’t have savings.