Economic diversification is key to the economy of UAE, most recently, UAE rates the most diversified economy in the GCC countries, what do we mean by diversification and what are the key sectors that are key for diversification in the UAE?
In economics, diversification is defined as a process by which a country generates income from different sectors that have no direct relations. The UAE’s key diversification sectors include oil, manufacturing, agriculture, financial, tourism, aviation, and real estate.
State some benefits of diversification
The key benefits of diversification include the increased trade and regional integration. It also reduces the exposure of a country to economic shocks such as recession and spiraling inflation. Finally, diversification enhances higher capital and labor productivity, hence increasing the rate of economic growth.
Why do we conduct economic policy (Monetary or fiscal)? In other words, what are the main objectives of macroeconomic policy?
First, monetary and fiscal policies are instituted to achieve full employment and price stability within an economy. Second, these policies enhance sustainable economic growth and maintain the balance of payment equilibrium.
What is the difference between Real interest rate and Nominal interest rates?
The real interest rate is the lending interest rate that an investor expects after the inflation adjustments are considered. On the other hand, the nominal interest rate is the percentage increase of money that a borrower pays a lender.
Explain the Fractional Reserve System?
Fractional Reserve System (FRS) is a monetary policy that requires banks to hold a fixed fraction (percentage) of bank deposits as cash reserves. The banks are then required to use the remaining percentage to create new deposits. This results in credit multiplier effects that create additional cash.
Discuss the any of the 3 monetary policy instruments and how they work?
The Central Bank (CB) lends money to other banks at the most affordable interest rate. This rate is called the Minimum rediscount Rate. This move affects credit, savings, and investment regimes. The Central Bank sells or buys Treasury bills and securities from financial institutions and the public. This is an example of the Open Markets Operations (OMP) instrument. The purchase and selling of these securities increases or reduce the supply of reserves. In the end, it affects the economic supply of money. Lastly, in the Direct Credit Control (DCC) instrument, the Central Bank sets credit ceilings for commercial banks on different economic sectors. This directs investments into the selected economic sectors, thereby stimulating economic growth.
What are the impacts of expansionary policy on inflation, on GD , on money supply, on interest rates?
The expansionary monetary policy reduces interest rates and increases the money supply in the economy. This leads to increased inflation and the GDP rise.
What are the impacts of a contractionary policy on the economy of UAE?
Contractionary monetary policy leads to high-interest rates and reduces the money supply. This causes deflationary trends in a country. It also reduces the rate of economic growth.
What are the main tools of fiscal policy? Which one is more important in the UAE? Give an example of how fiscal policy was used in the UAE recently
The fiscal policy tools include taxes and government spending. Government spending is the most important concern in the UAE. From year 2011 to 2013, zero-based budgeting was introduced to ensure efficient government spending.
What do we mean when we say “Government Spending is no Free Lunch?”
“Government spending is no free lunch” means that the government expenditure on public projects comes at a price. For instance, when there is increased government spending, somebody is being taxed heavily to support government projects.
What is the fiscal policy multiplier? How does the value of the fiscal policy multiplier affect the outcome of fiscal policy?
The change in government spending affects the level of national income. The ratio between these two is called the fiscal policy multiplier. It affects the outcome of the fiscal policy by determining the extent to which the policy is capable of influencing the aggregate demand.
What do we mean by Economic Integration between countries and state 3 or 4 types of economic integration?
Economic integration is an economic arrangement where different countries unify their economic policies through partial or full elimination of trade barriers. Examples of economic integration are Free Trade Areas (FTA), Customs Unions, and Economic Unions.
What are the potential economic problems that could arise form economic integration between different countries?
Potential problems are economic challenges (global economic and financial crisis), politics, and preferential treatment. In addition, the currency and application of standardized procedures are also among the potential problems.
In your opinion, what could be key to the success of an economic integration of two or more countries?
The key success factors include political leadership and commitment, levels of economic competition, and development among the states. In addition, the economic integration benefits to individual member states also determine this success.