Currency Crisis & Inflation in Argentina
Inflation is the increase in the prices of goods and services. Simply, inflation means continuously fall in the value of money due to too much supply of money in the market. Inflation affects a nation’s domestic (internal) market by repelling consumers to buy goods and services therefore this effects businesses as they are not getting money so they close down. This leads to unemployment. Inflation affects a nation’s exchange rate as it usually will depreciate their currency in relation to the currencies of their trading partners. 2.
The Argentinean government adopted the Keynesian approach as their economic policy in the 1880-1886 period. This is clear because the Keynesian approach adopts an active government influence on the economy which is similar to the Argentinean approach. It says “funds were used to construct railroads and public works”, this shows the Keynesian approach the Argentinean’s were implementing. 3. The political stability affects the economic activity in a country. Political stability means a government that can be relied on by the people from now until next year. A fraudulent election” signals that political parties were in strong conflict with each other in the election of Roca’s brother-in-law. This would mean that there would be conflict when it would come to decision making and policy changes. This damaged the economy as it could not implement the best policies which would have helped recover their economy. 4. Firstly, fiscal policy is the way in which a government adjusts its levels of spending in order to monitor and influence a nation’s economy.
It is linked with monetary policy where a central bank influences a nation’s money supply. These combined are very important in achieving an economy’s goals. 5. When a country’s debt crisis spreads to other countries the other countries governments have to come up with a rescue package that will rescue their financial institutions. This is seen when the British central bank had to step in with a bailout fund for the House of Baring which protected not only Britain but the European markets. 6.
The pros of defaulting are that the country won’t have to go into a deeper hole of debt by getting other countries or the ECB to bail them out with their funds which will help the country get back on track. For investors, this is good news. They get to purchase property at bargain prices. The cons of defaulting are that the country’s credit rating is destroyed. Lenders have to raise their interest rates and become less generous to new borrowers in order to make up for the fact that they are losing money. This means that a default rate affects anyone who wants to get a loan by making it more expensive or even impossible.
