In a world which is increasingly becoming focused around economics, a basic understanding of the subject has become essential in order to stay up-to-date with current events.
How many times have you heard a phrase like “
Gross Domestic Product (GDP) is the total market value of all final goods and services produced in a country in a given year. This includes total consumer, investment and government spending, the value of exports, minus the value of imports. Real GDP is calculated taking into account price changes, which removes the effects of inflation.
Real GDP growth is indicative of overall growth in the economy.
Fiscal policy refers to the decisions taken by the government regarding taxation and government spending. Modifying taxes has a direct impact on how income is distributed and therefore spent. For example, If the government increases taxes on personal incomes, this leaves less disposable income to be spent by consumers on goods and services, while it would give the government more money to spend on national projects or investments for example. The government could also choose to subsidize certain products (meaning increased government spending), which would eventually lead to increased consumer spending due to a decrease in prices. However, since the economy is much more complex in reality, fiscal policies take a lot of time for their actual effects to appear.
This refers to the Central Bank’s policy which regulates the money supply and interest rates in order to control inflation and stabilize the local currency. By impacting the effective cost of money, the central bank can affect the amount of money that is spent by consumers and businesses.
In an attempt to curb inflation rates in
The consumer price index measures inflation by monitoring the change of prices in a fixed basket of products and services which includes housing, electricity, food, and transportation.
In the first few months of 2006, the CPI in
Foreign Exchange Rate
Since the year 2000, foreign currency reserves in
2002 the Egyptian pound was devalued. To face this devaluation, the Egyptian Central Bank started implementing a managed float policy. This meant that the value of the pound would be determined through the forces of supply and demand up to a certain limit. Since the adoption of this policy, the pound has been steadily gaining in value versus the dollar.
Foreign currency reserves have also been increasing since 2003 (mainly earned through trade surpluses from oil and gas, tourism and foreign direct investments [FDIs]) due to balance of payment surpluses. The growth in these reserves has allowed
Balance of Payments
The balance of payments (BoP) is a measure of the payments in financial capital that flow in and out of a country. If more money flows in than out, the country has a positive balance of payments and vice versa. The BoP comprises:
- Current Account – made up of goods and services
- Capital Account – Non-financial assets.
- Financial Account – Financial assets such as stocks, bonds and FDIs
A budget surplus or deficit is the amount by which government income either exceeds or doesn’t cover its spending over a certain period of time. Achieving a budget surplus is not always necessary, however maintaining a budget deficit could be tricky if not managed properly. Maintaining a budget deficit means that the government has to be using appropriate debt instruments to finance its deficit–debt instruments that don’t carry very high interest rates and take up a large proportion of the GDP (debts with high interest rates would direct government spending away from productive purposes and increasingly towards financing the that debt).
Minister of Finance, Youssef Boutros Ghali, has forecasted that the deficit would decrease to 5.7% of the GDP during FY07, but would eventually increase again to 7% the next year. Meanwhile,