Microeconomic Phenomenon In Daily Life - Term Paper Example

Microeconomic Phenomenon in Daily Life Within actual economic environment, elements of microeconomic phenomenon can be identified upon thorough analysis of a given context. In the essay, evaluation of Egyptian economic system reveals certain phenomenon of the micro-economic sector, especially after the recently staged Egyptian Revolution. In January 25, 2011, Egyptians took to the streets in protest of dysfunctional political and economic systems in their nation. The youth took the forefront in revealing economic predicaments that had riddled their lives for a long time. In the process, members of the public engaged in confrontations with military personnel in a struggle which resulted in overthrow of Egyptian president Mubarak. The revolution period ushered in adoption of a new government system and new economic policies for Egyptian people. Immediately after the revolution, macroeconomic aspects of productivity had significantly reduced (Fraser 39). The military regime that took over tried to restore economic sanity through measures which would take longer to yield the desired effect than expected. In this regard, Egyptian economic environment witnessed profound microeconomic predicaments in the period after revolution. One indication of this micro-economic effect features within the inflation rate in Egyptian financial systems. Prior to inception of revolution, Egyptian inflation rate stood at 10.7% (Fraser 42). This figure was reflected in evaluation reports projected by Egyptian central bank in December 2010. In fact, this double-digit inflation rate remains as the primary cause of revolution ideologies in the North African nation. Only three months after start of the revolution, inflation rate jumped to 11.5%. Citizens started feeling the pinch of the high inflation in from climbing food prices. On the contrary, economic growth fell at 3%. This one digit value means that growth in economy could not offset the increasing inflation rate. Consequently, food prices increased. Egyptian urban population could no longer afford basic food items like fruits and vegetables. In this context, widespread protests lead to negative influence on the supply-demand chain (Fraser 56). The centralized grain supply market received direct effect because of fluctuation in workforce patterns within production and distribution channels. As a result, approximately 40% of Egyptian urban population was affected directly by the rising food prices in the city. Inflation effects are attributed to effects of revolution on Egyptian financial markets. In this context, Egyptian currency dropped substantially after the revolution to unprecedented low levels in the nation’s history. Egyptian net reserves for foreign currency featured at $ 30 billion in March 2011. This value represents a significant decrease since its reserves in January was approximately $33 billion (Fraser 57). Based on theoretical effects of decreased dollar reserves within a nation’s economic system, Egyptian pound suffered a setback in value. Like most nations across the globe, Egyptian central bank has no mandate to depreciate the US dollar value. In this case, the only option to achieve a desired micro-economic trend would be to reduce purchasing power of affected currency. In the first attempt to improve the situation, Egyptian central bank purchased more pounds into their reserve stocks. These efforts fell into dead ends after dollar reserves hindered this tactical move. As a contingency plan, Egyptian central bank deliberately left deposit rates as 8.25%, while lending at a 9.75% for approximately 12 hours every week (Fraser 87). In practical application, these low interest rates were supposed to improve Egyptian currency value in order to reverse negative trends within the financial markets. Immediately after the revolution, foreign investors under sponsorship of the European Union staged a world economic summit in Alexandria. The summit aimed at addressing economic effect of revolution and increasing inflation, which posed threats to foreign investment assets within Egyptian economic system. Prior to revolution, Egypt featured at number 8 in the top African nations posing as attractive foreign investment destinations. In this period, financial markets benefited from foreign direct investment injected to improve Egyptian oil industry (Fraser 63). However, negative changes on currency value scared off additional investment funds directed towards Egyptian companies. In the past, brokerage firms adopted new changes that would create shifts in the required margin calls for share trading. Prior to revolution, the laws required investors to pay additional margins whenever clients’ total debt hit the 70% mark of share value. However, the new laws mandated investors to make payment of additional margin fee only after client’s debt reached 80% of the total share value (Fraser 69). The national monetary policy structured these modifications in order to offset effects of weakening Egyptian pounds. As a result, these moves discouraged foreign investors. With respect to the value of Egyptian pound, decrease in currency strength transformed into other sectors of macro-economy within the nation’s population. Only three weeks after inception of the revolution, Egyptian urban population faced unprecedented challenges in rent payments and general purchase practices. Egyptian pound went through numerous fluctuation stages prior to its stability one year after the protests. In this case, real estate investors feared economic effects that would result from the fluctuating currency. As a result, most economic transactions demanded the use of foreign currency, especially the US dollars. As insinuated earlier, US dollars within any economic environments are not prone to manipulations. In this case, Egyptian financial institutions decreased the purchasing power of their pound, while maintaining the internationally purchasing power of US currency. Exchange rate of Egyptian pound at international platforms continued experiencing a downward trend (Fraser 85). Two months after the first day of the protest, Egyptian pound was becoming worthless both at domestic and international markets. Consequently, Egyptians had to dig deeper into their pockets to carter for expenses, especially during travels and stays at other foreign nations. In conclusion, the above analysis served as an illustration of natural micro-economic phenomenon on practical settings. It is evident that micro-economic models can be employed in analyzing different situations in actual economic problems. Egyptian case reflected the manner in which micro-economic elements o inflation and currency exchange rate influence different aspects in a nation’s economic system. At this juncture, one can appreciate the fact that theoretical models in course work receive application in developing comprehensive analysis of real world economic predicaments. Work Cited Fraser, Alan. Egypt since the Revolution: Economic Impacts of Currency Imbalance. Pittsburgh: Routledge, 2013. Print. Read More