Question

"Are there any hidden assumptions or price rigidities in the country or countries that might inhibit market force indicators from revealing the true economic health of the country, thereby either preventing government policy actions from correcting the problems or otherwise making them ineffective and counterproductive?"

What are they referring to when they say "hidden assumptions or price rigidities," are these elements within the marked force indicators that would prove them wrong?

Answer 1

What are they referring to when they say "hidden assumptions or price rigidities," are these elements within the marked force indicators that would prove them wrong?

Answer

Hidden assumptions that may have an influence on revealing the true economic health of a country include the level of labor in the countries. Most of wages in an economy are controlled by the market economy, and this indicates the growth of the economy. Additionally, foreign investments levels are quite low. Information concerning the political climate of the countries is not illustrated fully. According to some research , political risks for a country significantly influence the level of foreign direct investment. Therefore, such information becomes critical in conducting a country risk analysis. Additionally, competition in the market economies has not been identified. This is key in promoting and strengthening market. Financial analysts use competition to determine how an economy is actively growing. Taxation levels for the different countries have not been provided, and this is likely to influence the decision of a company in investing in either of the countries. Further, foreign investors will use a country’s policies towards foreign investors to establish the need of investment .

The influence of regulatory control by the government seems to be hidden. Currently, government regulation has a huge influence in determining the level of investment by a foreign company. The effect of government regulation in the financial market may be undermined by several factors. Governments may try to regulate the market through price ceilings and floors. This is usually aimed at limiting inflation and protecting producers’ income. However, these policies may be curtailed by private investors with major shareholding such that they can dictate prices to the government. Corruption is another factor limiting the implementation of government policies in the financial market.