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.
Sunday 4 December 2011
Speculation
·
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.
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