It is a known fact that
capital and investment might move to profitable locations in case of higher
taxes and in a globalised world production might too get shifted to lower wage
locations.
Nonetheless, lower taxes might increase
capital inflows and appreciate the dollar which would also reduce the domestic
and international price level by lowering taxes and the borrowing cost and
would increase real wages and demand.
Higher savings due to higher real wages and
higher real interest rate would reduce nominal interest rate and interest rate
expectations, probably to zero.
Lower prices, lower
interest rate and a strong exchange rate are also expansionary interms of
domestic demand and imports/exports.
A strong exchange rate and lower import prices
could also make the economy competitive and increase real wages and demand.
Assembling of low price imports into furnished
exports has increased the Chinese competitiveness.
A strong currency also
means cheaper imports and lower inflation and wage expectations and increased
competitiveness.
However, it has been a
tradition in economics to incentivize supply by lowering the borrowing cost and
real wages which has backfired in terms of demand, there is little incentive to
save and invest due to lower real interest rate and consume too because real
wages have been cut below productivity.
If the transmission of
lower cost to lower price and higher real wages don’t happen demand and growth
would not pick…
No comments:
Post a Comment