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Sunday, 4 December 2011

Negative Externality

There is a great video for those of you who are unsure about negative externalities conducted by my favourite person when I was studying my A-Levels, Paj Holden! To watch the video, please click here.

Please also look at my post on negative externalities as this will also help you.


·     One of the factors that affect economic growth (see here), speculation is when the buying and selling activities of firms and individuals (known as speculators) affects the price of goods and commodities around the world.

·     Speculation can also influence the price of world currencies.

·     Before the crisis in 2007, the value of the pound rose significantly because interest rates were high prompting speculators to buy the pound because rewards for saving were greater.

·     Speculation can affect economic growth because of something known as the ‘speculative bubble’, relating to asset prices. Click on this link here for a more detailed analysis. Rapid growth of assets prices such as housing (e.g. 2007), commodities (gold, silver..) and shares/bonds can lead to a bubble because people speculate that the price will continue to rise so they buy more of these assets. When the price is above the real value of the asset, people will start to sell and the bubble bursts, leading to a collapses in business and consumer confidence and ultimately a recession.