Author Archives: karimfoda

When inflation is running wild, what should governments do to the interest rates?

My answer on Quora: It depends on the source of inflation. Interest rates impact borrowing/savings decisions and can also send a signal about the seriousness of the central bank (whose mandate typically includes some kind of price stability). If inflation shoots up because of a supply shock, then there may not be much interest rates […]

Will social and/or class inequality ever change?

My answer on Quora: If we were to define class inequality as income inequality, then history tells us that it is indeed likely to change. The reasons for those changes is where the real story is. Branko Milanovic in his book Global Inequality presents two key factors that can reduce high levels of inequality: malign and benign factors. Malign factors lowered income inequality in the […]

What are the pros of having a world currency?

My answer on Quora: Let’s define a world currency as a widely used currency for both international transactions and official reserves. An alternative interpretation would be a single currency for the whole world (see here for more on that). Direct benefits include very little exchange rate risk in international transactions, importing goods using your own […]

What are economic structural factors?

My answer on Quora: The structural factors of an economy are those that do not change with the economic cycle. There are structural factors and there are cyclical factors. Think of a trend vs. variations around that trend. Structural factors relate to the supply-side of the economy and cyclical factors relate to the demand-side. Structural factors include laws (like […]

Is population the number one contributor to a country’s long-term economic growth?

My answer on Quora: Population is important, but productivity is most important for long-term economic growth. Throughout most of history before the Industrial Revolution, an economy could only grow about as fast as its population. The Industrial Revolution and the new technologies brought into the production process allowed firms to produce much more than they were ever capable […]

Why would a government fix an exchange rate?

My answer on Quora: A Central Bank may decide to fix the exchange rate of its currency relative to another currency to (1) anchor expectations and provide stability, (2) reduce fluctuations in import prices for local consumers and producers, and (3) reduce exchange rate risk in foreign financial transactions. Fixing the exchange rate comes at […]

How can innovation help improve the economy?

My answer on Quora: The kind of innovation that helps improve the economy could do so by improving the efficiency of production, the quality of goods and services, and the availability (access) of goods and services. Before saying a quick word about those three areas, it is important to note that innovation by itself is […]