On 10 December the economic conference was held in UCL and some Bellerbys students found it particularly interesting to visit. One of the presentations was made by Dr. Linda Yueh who was investigating the global economy and the engines of growth of countries nowadays.
In her presentation "Global Economic Outlook: Engines of growth", Dr. Yueh discussed several issues of modern economy that we found really important.
As can be seen from this graph, the recession in the period between July 2008 and March 2009 mostly affected high income countries that managed to start recovering far later than developing countries. However, it is evident that the speed of recovery was almost equal in all the countries covered by the research. Moreover, if to compare the patterns of developing countries before and after July 2008, it was Chinese economy that made their economic growth slower before the crisis, nonetheless, it was Chinese economy that caused the most part of development afterwards.
It is remarkable that according to the World Bank data, high income countries have entered the stage of new recession, whereas developing countries are continuing to grow. Yet, it is quite difficult to predict whether these trends are going to continue in the future or not.
By Galeeva Dariya and Zaytseva Alina.
Friday, 16 December 2011
Friday, 11 November 2011
No 211: What's been happening and what's going to happen
HI there folks!
I know that some of you have been visiting over the past few months, and that it seems like this blog has taken a rather long holiday.
I was very busy getting ready for the Maths exam from hell in October, and since then I have had a lot of other things to be getting on with.
I do plan for this blog to continue, but unfortunately I cannot carry on doing it all myself.
I'd love it if some of you wanted to write something for the blog. Please let me know if you are interested at.....
I know that some of you have been visiting over the past few months, and that it seems like this blog has taken a rather long holiday.
I was very busy getting ready for the Maths exam from hell in October, and since then I have had a lot of other things to be getting on with.
I do plan for this blog to continue, but unfortunately I cannot carry on doing it all myself.
I'd love it if some of you wanted to write something for the blog. Please let me know if you are interested at.....
sirspottiswoode@gmail.com
Saturday, 25 June 2011
Wednesday, 22 June 2011
No 210: Govt spending v Govt Borrowing
EITHER of these topics could be in the exam tomorrow. However, be careful, they are not exactly the same.
Also be careful not to mix up the base rate of interest and the rate government pays on bonds.
The rate on bonds affects the amount of interest govt will have to pay back in the future. It does not affect the other interest rates in the economy, particularly those for households and firms. It might though affect the attractiveness for banks of lending to govts or to businesses/consumers. It could affect the exchange rate too, as described next.
If the govt wants to borrow a lot more, possible lenders become worried since they are more concerned about the govt's ability to pay back its debts. In order to attract them, the govt offers a higher rate of interest (called the yield) on its bonds.
This might attract foreign investors if the bonds are thought by them to be a good mixture of reward compared to risk. In such a case demand for the currency would increase, causing an appreciation.
However, at the moment no-one wants to buy Greek govt bonds, even though, for example, the yields on 2 year bonds are 28.24%!!!
Think about yourself for a moment: are the reasons you spend money the same as the reasons why you might need to borrow money? For example, are you likely to borrow money just to buy food? Are you likely to need to spend money every day? Are you likely to need to borrow money every day?
In other words, governments need to borrow money to spend only on certain things, and only at certain times.
We know that govt borrowing is necessary when G > T. Therefore a govt will need to borrow if there is a sudden increase in G and/or a sudden fall in T. What could cause such situations to happen?
In a question about the effects of government borrowing, you can refer to some arguments about the effectivess of government spending. I would say, "some economists argue that since govt spending for demand mangement is ineffective, therefore they should not borrow money to finance this" and give some reasons for it.
But what you are really looking for are the effects of the borrowing itself. These could be:
- higher interest payments mean govt has to reduce other areas of spending or raise taxes (as we have seen with Cameron's spending cuts);
- possible need for bail-out (ECB and/or IMF) which would lead to even tighter fiscal policy;
- reduced confidence in the govt's ability to manage the economy sucessfully, particularly affecting future government borrowing;
- inflationary risk if govt increases money supply to pay borrowing or deliberately causes inflationary pressures to reduce the real cost of borrowing;
- financial crowding out;
- an unacceptable burden of debt passed on to future generations.
Also be careful not to mix up the base rate of interest and the rate government pays on bonds.
The first is the rate offered by govt to buyers of govt debt. The second is the rate govt lends to banks.
If the govt wants to borrow a lot more, possible lenders become worried since they are more concerned about the govt's ability to pay back its debts. In order to attract them, the govt offers a higher rate of interest (called the yield) on its bonds.
This might attract foreign investors if the bonds are thought by them to be a good mixture of reward compared to risk. In such a case demand for the currency would increase, causing an appreciation.
However, at the moment no-one wants to buy Greek govt bonds, even though, for example, the yields on 2 year bonds are 28.24%!!!
Tuesday, 21 June 2011
No 209: tutor2u prediction of key areas for Module 4
THIS morning tutor2u contains a prediction of possible contexts that could turn up in the exam:
This link connects to the tutor2u post, which also contains links to presentations about the above topics and exam advice.
tutor2umodule4advice
On exam advice, this is what they say about ending your essay:
A conclusion is essential and should not just repeat earlier points.
A supported final judgement is a criterion in the Level 5 mark band (i.e. to get 22+)
Leave yourself 4-5 minutes for a final judgement of 5-6 lines. This is time proportionately well spent. Try to incorporate a new idea, e.g. how a policy may impact on different parties; how the policy may have different short v long run effects.
- The consequences for the UK economy should the US economy experience a double-dip recession
- The economic consequences for the UK of natural disasters such as flood, drought, tsunami (external shocks) and economics of global price volatility
- The fast-changing role of the Chinese economy and its implications for the UK
- The impact on the UK economy of major instability of the euro
- The impact on the UK economy of the newer membership of the EU
This link connects to the tutor2u post, which also contains links to presentations about the above topics and exam advice.
tutor2umodule4advice
On exam advice, this is what they say about ending your essay:
A conclusion is essential and should not just repeat earlier points.
A supported final judgement is a criterion in the Level 5 mark band (i.e. to get 22+)
Leave yourself 4-5 minutes for a final judgement of 5-6 lines. This is time proportionately well spent. Try to incorporate a new idea, e.g. how a policy may impact on different parties; how the policy may have different short v long run effects.
Sunday, 19 June 2011
No 208: A useful TV programme
IF you need a break from revising, there is a useful TV programme being shown tomorrow (Monday 20th) on BBC2 at 9 o'clock.
It is now available on BBC iplayer:
http://www.bbc.co.uk/iplayer/episode/b0125v5h/Made_in_Britain_Episode_1/
Episode 1
It is now available on BBC iplayer:
http://www.bbc.co.uk/iplayer/episode/b0125v5h/Made_in_Britain_Episode_1/
"Made in Britain"
Episode 1
Who says we don't make anything any more? In the first of a three-part series on how Britain pays its way in the world, Evan Davis busts the myths that we were wrong to let so much of our manufacturing go abroad, and that we have become a nation of shopkeepers, bankers and estate agents.
As he flies in the world's most revolutionary jet and drives one of the world's fastest supercars, he discovers Britain still makes a lot it can be proud of. But post crash, he asks is it enough to meet the country's bills.
As he flies in the world's most revolutionary jet and drives one of the world's fastest supercars, he discovers Britain still makes a lot it can be proud of. But post crash, he asks is it enough to meet the country's bills.
Friday, 17 June 2011
No 207: A few ideas about Module 4
ONE of my students has just e-mailed me to ask whether I have any ideas about topics for the Module 4 exam. I thought it might be useful for all of you to see my reply:
Dear (student),
A number of us teachers think that issues relating to government borrowing and budget deficit (what the newspapers call "sovereign debt") may come up. It might be a good idea to read about what is happening at the moment with regard to Greece and its debts.
In addition, Mr Bowen thinks the topic of "rebalancing" may come up. This means the shifting of an economy from one area to another in order to improve its performance: e.g. from relying on domestic demand to expanding exports, from one particular industrial specialisation to another, from producing goods to producing services, etc..
As always though, these are just guesses so don't neglect other areas of the syllabus. On Monday I am going to send everyone a list of the key areas of Module 4 compared to Module 2 so you can check you have covered all the main areas in your revision.
I hope the Module 3 exam went ok today. If you have time to write back, I'd like to hear about your thoughts regarding the exam.
Please e-mail me if you have further questions and please come along to lunch next Friday!
In addition, Mr Bowen thinks the topic of "rebalancing" may come up. This means the shifting of an economy from one area to another in order to improve its performance: e.g. from relying on domestic demand to expanding exports, from one particular industrial specialisation to another, from producing goods to producing services, etc..
As always though, these are just guesses so don't neglect other areas of the syllabus. On Monday I am going to send everyone a list of the key areas of Module 4 compared to Module 2 so you can check you have covered all the main areas in your revision.
I hope the Module 3 exam went ok today. If you have time to write back, I'd like to hear about your thoughts regarding the exam.
Please e-mail me if you have further questions and please come along to lunch next Friday!
Best wishes,
Mr Spottiswoode
In addition here are some pictures that might help you....
Thursday, 16 June 2011
No 206: Some last minute stories of interest
HI there! Hope your revision is going well!
Here are some last minute stories before the exams that might be worth reading.
1) Chancellor announces new banking regulations and sale of bank shares
New regulations are going to be introduced to force banks to "ring fence" (separate) the retail and invstment parts of their organisation. The government is also planning to sell the shares in Northern Rock that were bought during the Credit Crunch, thereby privatising it.
http://www.bbc.co.uk/news/business-13770746
http://www.bbc.co.uk/news/business-13783765
2) MS fine
Microsoft has been fined £178 million by the US courts for using a patented piece of code in its Microsoft Word software.
http://uk.news.yahoo.com/microsoft-must-pay-copyright-cash-084855404.html
3) Worlds most valuable currency
It's called the "bitcoin". Have you heard of it?
http://uk.finance.yahoo.com/news/The-world-most-valuable-yahoofinanceuk-945291950.html
4) China inflation
Inflation in China is set to rise to 6% next month. This is first time since China has been the second largest economy in the world that it has experienced sustained infaltionary pressure. How will this effect the global economy?
http://uk.news.yahoo.com/china-inflation-may-top-6-percent-june-expert-044616876.html
Here are some last minute stories before the exams that might be worth reading.
1) Chancellor announces new banking regulations and sale of bank shares
New regulations are going to be introduced to force banks to "ring fence" (separate) the retail and invstment parts of their organisation. The government is also planning to sell the shares in Northern Rock that were bought during the Credit Crunch, thereby privatising it.
http://www.bbc.co.uk/news/business-13770746
http://www.bbc.co.uk/news/business-13783765
2) MS fine
Microsoft has been fined £178 million by the US courts for using a patented piece of code in its Microsoft Word software.
http://uk.news.yahoo.com/microsoft-must-pay-copyright-cash-084855404.html
3) Worlds most valuable currency
It's called the "bitcoin". Have you heard of it?
http://uk.finance.yahoo.com/news/The-world-most-valuable-yahoofinanceuk-945291950.html
4) China inflation
Inflation in China is set to rise to 6% next month. This is first time since China has been the second largest economy in the world that it has experienced sustained infaltionary pressure. How will this effect the global economy?
http://uk.news.yahoo.com/china-inflation-may-top-6-percent-june-expert-044616876.html
Wednesday, 8 June 2011
Thursday, 26 May 2011
No 204: Key issues and stats for macroeconomics
THE table below summarises the important economic indicators and the most important current issues about them.
Now | B4 | Current Issue(s) | |
Economic Growth | 0.5% (Q1 2011) | -0.5% (Q4 2010) | 2011 total growth forecast to be 1.4% - is this sign of a recovery? |
Inflation | 4.5% (CPI April) | 4.0% (CPI March) | Should interest rates be raised to control inflation, or will this endanger recovery? |
Unemployment | 7.7% (Q1 2011) | 7.8% (Q4 2010) | Will government job cuts be replaced by private sector jobs? 20% of 16-25 year olds are unemployed. |
Current Account | -2.9% (of GDP Q4 2010) | -2.4% (of GDP Q3 2010) | Can exports (low exchange rate / manufacturing) help lead the recovery? |
No 203: Some very useful last minute resources
HERE are two very useful resources for you to look at before the Module 2 exam tomorrow, both from tutor2u.
This links to a post which talks about how important it is to provide some context in your answer. That is, to connect your general economic analysis with some current events in the UK economy.
Advice on use of context
As you should all know, the basic economic background in the UK at the moment is that we are just about starting a recovery after a very deep recession, although it is uncertain how quickly the situation will improve.
The next link below is about tutor2u's prediction for the exam. They think that inflation may feature in the exam tomorrow, since it has not in recent exams and the rate of inflation is very high at the moment.
What you should revise about inflation
Good luck tomorrow and remember......
This links to a post which talks about how important it is to provide some context in your answer. That is, to connect your general economic analysis with some current events in the UK economy.
Advice on use of context
As you should all know, the basic economic background in the UK at the moment is that we are just about starting a recovery after a very deep recession, although it is uncertain how quickly the situation will improve.
The next link below is about tutor2u's prediction for the exam. They think that inflation may feature in the exam tomorrow, since it has not in recent exams and the rate of inflation is very high at the moment.
What you should revise about inflation
Good luck tomorrow and remember......
Monday, 23 May 2011
No 202: Revision notes on unemployment
THIS links to a post on Tutor2u which briefly summarises all the main information on unemployment for both the AS and A2 exams:
tutor2u unemployment notes
Hope you enjoy! Hope you're enjoying revision and exams......
If you need some relief, watch this video:
http://uk.news.yahoo.com/diet-coke-and-mentos-stunt-goes-wrong.html
tutor2u unemployment notes
Hope you enjoy! Hope you're enjoying revision and exams......
If you need some relief, watch this video:
http://uk.news.yahoo.com/diet-coke-and-mentos-stunt-goes-wrong.html
Thursday, 19 May 2011
No 201: Slight fall in unemployment (of one type)
UK unemployment (labour force survey measure) has fallen by 36,000 to 2,46 million.
This is over the 1st quarter of 2011. The percentage rate of unemployment is now 7.7%, down from the previous figure of 7.8%.
However, the rate of unemployment among 16-24 year olds is still very high - 20%.
Also, there was a rise in the Claimant count by 12,400 in April up to 1.47 million. This is explained by a movement of people from economically inactive categories such as those on sickness benefit and income support, on to unemployment benefit.
This is over the 1st quarter of 2011. The percentage rate of unemployment is now 7.7%, down from the previous figure of 7.8%.
However, the rate of unemployment among 16-24 year olds is still very high - 20%.
Also, there was a rise in the Claimant count by 12,400 in April up to 1.47 million. This is explained by a movement of people from economically inactive categories such as those on sickness benefit and income support, on to unemployment benefit.
Wednesday, 18 May 2011
No 200!!!!!!!!!!!!!!!!!!! Oh dear, inflation
CPI inflation rose to 4.5% in April, compared to 4% in March. This was a surprisingly big increase.
(Note: this means prices were 4.5% higher in April 2011 compared to April 2010.)
The rise is blamed on increasing transport costs and rising prices for alcohol and tobacco. In his letter of explanation for the continued failure of inflation to meet the Bank of England target, Mervyn King said it was also due to the "increase in VAT to 20% in January, higher energy prices and increases in import prices".
On the other hand, RPI inflation fell a little from 5.3% to 5.2%, indicating some weakness in the housing market.
Read more about it here: http://www.bbc.co.uk/news/business-13421614
(Note: this means prices were 4.5% higher in April 2011 compared to April 2010.)
The rise is blamed on increasing transport costs and rising prices for alcohol and tobacco. In his letter of explanation for the continued failure of inflation to meet the Bank of England target, Mervyn King said it was also due to the "increase in VAT to 20% in January, higher energy prices and increases in import prices".
On the other hand, RPI inflation fell a little from 5.3% to 5.2%, indicating some weakness in the housing market.
Read more about it here: http://www.bbc.co.uk/news/business-13421614
Tuesday, 17 May 2011
No 199: Useful revision presentations from Tutor2u
HERE are links to the Tutor2u revision presentations.
First, this link will take you to AS Micro (Module 1):
http://www.tutor2u.net/blog/index.php/economics/comments/as-micro-revision-resources-collated/
Second, this link will take you to AS Macro (Module 2):
http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-revision-resources-collated/
First, this link will take you to AS Micro (Module 1):
http://www.tutor2u.net/blog/index.php/economics/comments/as-micro-revision-resources-collated/
Second, this link will take you to AS Macro (Module 2):
http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-revision-resources-collated/
Monday, 9 May 2011
No 198: Are you the 10,00th?
WE are very near to having the 10,000th visitor.
If you are the 10,000th, contact me or or the blog with some evidence of this - like a screenshot - and I'll organise some kind of prize!
If you are the 10,000th, contact me or or the blog with some evidence of this - like a screenshot - and I'll organise some kind of prize!
Friday, 22 April 2011
No 197: ESSENTIAL Presentation about the UK Economy
THIS links to a tutor2u presentation about the current UK economic situation:
http://www.tutor2u.net/economics/presentations/ukeconomymay2011/player.html
This presentation has 75 slides (!) but don't be scared - it really is all worth looking through.
http://www.tutor2u.net/economics/presentations/ukeconomymay2011/player.html
This presentation has 75 slides (!) but don't be scared - it really is all worth looking through.
Tuesday, 22 March 2011
Sunday, 13 March 2011
No 194: Spot of Economics' Economics News
EXCITING news! At great expense, Spot of Economics has started a TV news station......
GoAnimate.com: Economics news 1st march by spottygao
Like it? Create your own at GoAnimate.com. It's free and fun!
Deadly Tsunami Stops Japanese Economy
http://www.guardian.co.uk/world/2011/mar/13/japan-economy-recession-earthquake-tsunami
Report Argues for Big Changes in Public Sector Pensions
http://www.telegraph.co.uk/comment/columnists/alasdair-palmer/8378195/The-pensions-gravy-train-in-the-public-sector-has-to-be-derailed.html
European Union Holds Crisis Meeting Over National Debt
http://www.bbc.co.uk/news/business-12711183
Mervyn King Makes Attack on Banks
http://www.qfinance.com/blogs/ian-fraser/2011/03/07/boe-govenor-mervyn-king-and-the-case-for-reforming-britains-banks
Chinese Inflation Increases Again
http://www.telegraph.co.uk/finance/economics/8375605/Chinas-inflation-rises-to-4.9pc-in-February.html
World Has Most Billionaires Ever, According to New Report
http://www.forbes.com/wealth/billionaires
http://blogs.forbes.com/luisakroll/2011/03/09/the-worlds-billionaires-2011-inside-the-list/
GoAnimate.com: Economics news 1st march by spottygao
Like it? Create your own at GoAnimate.com. It's free and fun!
Deadly Tsunami Stops Japanese Economy
http://www.guardian.co.uk/world/2011/mar/13/japan-economy-recession-earthquake-tsunami
Report Argues for Big Changes in Public Sector Pensions
http://www.telegraph.co.uk/comment/columnists/alasdair-palmer/8378195/The-pensions-gravy-train-in-the-public-sector-has-to-be-derailed.html
European Union Holds Crisis Meeting Over National Debt
http://www.bbc.co.uk/news/business-12711183
Mervyn King Makes Attack on Banks
http://www.qfinance.com/blogs/ian-fraser/2011/03/07/boe-govenor-mervyn-king-and-the-case-for-reforming-britains-banks
Chinese Inflation Increases Again
http://www.telegraph.co.uk/finance/economics/8375605/Chinas-inflation-rises-to-4.9pc-in-February.html
World Has Most Billionaires Ever, According to New Report
http://www.forbes.com/wealth/billionaires
http://blogs.forbes.com/luisakroll/2011/03/09/the-worlds-billionaires-2011-inside-the-list/
No 193: Internet Buttons - Improved!
SOME of you know that I have used a website called "Internet Buttons" to, well, make some internet buttons leading to websites you need to check out.
To get there, go to www.internetbuttons.org . Then log in with Username: bellerbys / Password: bellerbys
You should then see something like this:
The buttons are colour coded according to the type of site they link to.
BLUE is for Economics and Business News.
GREEN is for Economics Blogs.
YELLOW is for Comment Articles by well-known economics writers. Reading these is now essential for A2 students.
ORANGE is for sites with Economics Revision Materials.
If there is another site you use and like, you can add a button too!
To get there, go to www.internetbuttons.org . Then log in with Username: bellerbys / Password: bellerbys
You should then see something like this:
The buttons are colour coded according to the type of site they link to.
BLUE is for Economics and Business News.
GREEN is for Economics Blogs.
YELLOW is for Comment Articles by well-known economics writers. Reading these is now essential for A2 students.
ORANGE is for sites with Economics Revision Materials.
If there is another site you use and like, you can add a button too!
Friday, 11 March 2011
No 192: Some suggested reading from Other Teachers
SOME of the teachers in the Economics Department suggested to me that the following articles would be very useful for you to read.
Firstly Mr Bowen passed on this very interesting interview with Mervyn King, the Governor of the Bank of England. He gives his views on the Credit Crunch, and what he thinks about the current economic situation. He also does not seem to like the Banks much!
Notice the picture of Merv on the left - let me know if you can think of a good title for it!
http://www.telegraph.co.uk/finance/economics/8362959/Mervyn-King-interview-We-prevented-a-Great-Depression...-but-people-have-the-right-to-be-angry.html
Next, Mr Gray has suggested this article written by the Nobel Prize winning economist, Paul Krugman. In it he presents a moderate Keynesian view criticising the effect of austerity measures on economic recovery. It's very readable and very relevant!
As you can see, the person who wrote the title to this picture on the right, doesn't quite agree with Mr Krugman's views......
http://www.nytimes.com/2011/03/04/opinion/04krugman.html?_r=2
Firstly Mr Bowen passed on this very interesting interview with Mervyn King, the Governor of the Bank of England. He gives his views on the Credit Crunch, and what he thinks about the current economic situation. He also does not seem to like the Banks much!
Notice the picture of Merv on the left - let me know if you can think of a good title for it!
http://www.telegraph.co.uk/finance/economics/8362959/Mervyn-King-interview-We-prevented-a-Great-Depression...-but-people-have-the-right-to-be-angry.html
Next, Mr Gray has suggested this article written by the Nobel Prize winning economist, Paul Krugman. In it he presents a moderate Keynesian view criticising the effect of austerity measures on economic recovery. It's very readable and very relevant!
As you can see, the person who wrote the title to this picture on the right, doesn't quite agree with Mr Krugman's views......
http://www.nytimes.com/2011/03/04/opinion/04krugman.html?_r=2
Thursday, 10 March 2011
No 191: AS Summary for Government Spending as a Part of AD
THIS is the summary I wrote for AS students about G.
Notice that this is a good topic to bring in some information about the arguments between Keynesian and Free Market economists.
Government Spending as a Part of Aggregate Demand
We studied the component of AD that measures government demand for goods and services, known as government spending (G). This contributes somewhere between 15 and 20% to UK Aggregate Demand.
Various factors influence the amount of G in the economy. These include the demand for merit and public goods, the current stage of the economic cycle, the amount of tax revenue, and technological progress in merit and public goods.
However, another extremely important factor is the economic and political ideology of the government. Free market economists believe that government spending is wasteful, inefficient, and can endanger the economy by too much borrowing. Government interventionists believe a relatively high level of government spending is necessary to correct market failures (especially inequality) and that government spending is the only way to boost the economy in a recession.
This idea (called demand management) was first suggested by the great economist John Maynard Keynes. He said that governments should borrow and spend more in a recession to help the economy. In a boom, they should spend less and try to save money (to be used during a recession).
However, free market critics argue that it is too difficult for governments to correctly decide how much and when to increase or cut spending, and therefore demand management may in fact make the situation worse. They also argue that while many governments during the Credit Crunch spent and borrowed more, very few saved money during the good times. Hence many countries have a huge amount of government debt now, which can cause many problems.
But, for many Keynesian economists, government spending is the most important part of AD, particularly in a recession. Furthermore, the effect of government spending is increased by the multiplier effect. In other words, an increase in G will lead to larger change in the national income of the country.
However, free market economists respond to this by arguing that because government spending is so wasteful, little of it actually gets to households, meaning that the value of the multiplier is in fact quite low.
In summary, this was yet another exciting class on Mr Spottiswoode’s economic course.
Wednesday, 9 March 2011
No 190: UK Trade in Goods and Services 1955-2010
THIS graph shows the UK balances for trade in goods, services, and goods and services put together.
There should be some clear trends you can see here.....
There should be some clear trends you can see here.....
Sunday, 6 March 2011
No 189: Very expensive luxuries!!!
THE picture below shows the most expensive handbag in the world, costing £2.35 million pounds.
It is covered with 4517 diamonds. It took 10 workers four months to make.
The handbag is produced by the House of Mouawad, a jewellry company from Dubai.
One of their previous products was a bra which cost £7 milllion!
(for more about the handbag click here)
The next picture shows an I phone, which has an actual Tyrannosaurus Rex tooth inside its cover - from over 65 million years ago (would have been hard to have got good network coverage back then.....)
However, this product "only" costs $65,000.
In other words, you could buy the handbag above or, for the same money, 59 T Rex Iphones.
As long as enough dinosaur teeth were available....
(to read more about the T Rex phone click here)
It is covered with 4517 diamonds. It took 10 workers four months to make.
The handbag is produced by the House of Mouawad, a jewellry company from Dubai.
One of their previous products was a bra which cost £7 milllion!
(for more about the handbag click here)
The next picture shows an I phone, which has an actual Tyrannosaurus Rex tooth inside its cover - from over 65 million years ago (would have been hard to have got good network coverage back then.....)
However, this product "only" costs $65,000.
In other words, you could buy the handbag above or, for the same money, 59 T Rex Iphones.
As long as enough dinosaur teeth were available....
(to read more about the T Rex phone click here)
No 188: Pound Dollar Exchange Rate 1976-2010
FROM timetric via tutor2u, comes the first of a series of useful interactive graphs I will be posting in the next few weeks.
In recent homework, the answers to the graph question from Data Response have, to be honest, not been very good, so one way to use this graph is to practice for the exam by picking out key features.
Another use is to use your knowledge of UK economic history and to see what was happening to the £ / $ exchange rate during those periods.
In recent homework, the answers to the graph question from Data Response have, to be honest, not been very good, so one way to use this graph is to practice for the exam by picking out key features.
Another use is to use your knowledge of UK economic history and to see what was happening to the £ / $ exchange rate during those periods.
Friday, 4 March 2011
No 187: AS Summary of Investment
DOES exactly what it says on the tin!
Investment as a Part of AD
We studied the component of AD that measures firms’ demand for capital goods, called investment. It forms about 15% of UK AD.
There are a number of factors that influence it, including interest rates, business confidence, depreciation of capital goods, future sales and demand, the expected rate of return, changes in costs, indirect taxes and subsidies, and technological changes in capital goods.
It could be argued that investment is the most important part of AD, since as well as leading to actual economic growth, it can also increase potential economic growth. We can show the former by a shift in the AD curve increasing Real GDP from Y1 to Y2, and the latter by a shift out in the PPF curve.
However, investment is also the most volatile part of AD. This is because businesses quickly cut investment in a downturn, both due to falling profits (reducing money available for investment) and less need to increase productive capacity. On the other hand, in a recovery it increases quickly, due to rising profit and more need to expand production to meet increasing consumer demand.
In summary, this was yet another exciting class on Mr Spottiswoode’s economic course.
Investment as a Part of AD
We studied the component of AD that measures firms’ demand for capital goods, called investment. It forms about 15% of UK AD.
There are a number of factors that influence it, including interest rates, business confidence, depreciation of capital goods, future sales and demand, the expected rate of return, changes in costs, indirect taxes and subsidies, and technological changes in capital goods.
It could be argued that investment is the most important part of AD, since as well as leading to actual economic growth, it can also increase potential economic growth. We can show the former by a shift in the AD curve increasing Real GDP from Y1 to Y2, and the latter by a shift out in the PPF curve.
However, investment is also the most volatile part of AD. This is because businesses quickly cut investment in a downturn, both due to falling profits (reducing money available for investment) and less need to increase productive capacity. On the other hand, in a recovery it increases quickly, due to rising profit and more need to expand production to meet increasing consumer demand.
In summary, this was yet another exciting class on Mr Spottiswoode’s economic course.
No 186: Mr Bowen's Weekly Questions (2)
HERE they are, especially useful for micro topics this week.
(Not sure who Green Lung Free Rider is...)
All information is taken from The Daily Telegraph.
I've kept Mr Bowen's original typing style!
1.WHAT IS IPR?
2. HOW IMPORTANT ARE THE CREATIVE INDUSTRIES IN THE UK AS A PROPRTION OF GDP?
3.WHY DOES JEREMY WARNER THINK THE GOVERNMENT HAS GOT THIS IPR REFORM OF COPYRIGHT LAW COMPLETELY WRONG?
4.WHY DOES THE LEADER ARTICLE THINK THAT THE UK GOVERNMENT HAS BEEN TOO OBLIGING TO NEWS INTERNATIONAL?
5. WHY WAS THE INDUSTRY SECRETARY[THE USUAL MINISTER FOR MERGER REFERRALS] NOT INVOLVED? DOES THIS MATTER?
6.IN WHAT WAYS WERE THE USUAL PROCEDURES FOR EVALUATING MERGERS COMPLETELY IGNORED.?
7.WHY DOES THE PROSOED MERGER CAUSE WORRIES FOR OTHER MEDIA GROUPS?
8.WHAT IS PREDATORY PRICING?
9. WHAT IS A PRICE WAR?
10. HOW COULD MURDOCH USE THESE CONCEPTS TO ELIMINATE THE COMPETITION?
11. WHAT IS PRICE FIXING? HOW DOES IT OPERATE FOR E BOOKS? IS THIS A PROBLEM?
(Not sure who Green Lung Free Rider is...)
All information is taken from The Daily Telegraph.
I've kept Mr Bowen's original typing style!
1.WHAT IS IPR?
2. HOW IMPORTANT ARE THE CREATIVE INDUSTRIES IN THE UK AS A PROPRTION OF GDP?
3.WHY DOES JEREMY WARNER THINK THE GOVERNMENT HAS GOT THIS IPR REFORM OF COPYRIGHT LAW COMPLETELY WRONG?
4.WHY DOES THE LEADER ARTICLE THINK THAT THE UK GOVERNMENT HAS BEEN TOO OBLIGING TO NEWS INTERNATIONAL?
5. WHY WAS THE INDUSTRY SECRETARY[THE USUAL MINISTER FOR MERGER REFERRALS] NOT INVOLVED? DOES THIS MATTER?
6.IN WHAT WAYS WERE THE USUAL PROCEDURES FOR EVALUATING MERGERS COMPLETELY IGNORED.?
7.WHY DOES THE PROSOED MERGER CAUSE WORRIES FOR OTHER MEDIA GROUPS?
8.WHAT IS PREDATORY PRICING?
9. WHAT IS A PRICE WAR?
10. HOW COULD MURDOCH USE THESE CONCEPTS TO ELIMINATE THE COMPETITION?
11. WHAT IS PRICE FIXING? HOW DOES IT OPERATE FOR E BOOKS? IS THIS A PROBLEM?
Wednesday, 2 March 2011
No 185: Summary of PED
FOR AS classes, I have been giving them short summaries as we finish each important topic.
Here is the summary about Price Elasticity of Demand.
Price Elasticity of Demand
We studied the measurement of how much a change in price will then lead to a change in the quantity demanded, called price elasticity of demand.
We calculate the percentage changes in Qd and in P, and then use them in a formula to calculate a PED value. All PED values are negative, due to the negative (or inverse) relationship between price and demand, called the law of demand.
If a change in price leads to no change in demand, the PED value is 0, and this is called perfectly inelastic demand. If a change in price leads to a lesser change in demand, the PED value is between 0 and -1, and this is called inelastic demand. If a change in price leads to the same amount of change in demand, the PED value is 1, and this is called unit elastic demand. If a change in price leads to a larger change in demand, the PED value is more than -1, and this is called elastic demand. Differently sloped demand curves can also be drawn to show different PED values.
The PED of a particular product is affected by a number of factors. Firstly, the width of definition of the product needs to be decided (for example, are we discussing milk sold at Bellerbys Brighton, milk sold in the UK, all of the milk sold in the world….?). This is important to decide because it also helps us to decide the number of substitutes for the product. Next, we decide if the product is a necessity or a luxury, how addictive it is, and what percentage of income it takes to buy it. Putting all that information together, we can then say if we think the product will have elastic or inelastic demand, and predict a possible PED value for it.
Knowing the PED value of a product is especially important for firms, who can know whether it is better for them to have a higher or lower price. Firms with inelastic demand will gain more revenue from a higher price, while those with elastic demand get more revenue from a lower price.
In summary, this was yet another exciting class on Mr Spottiswoode’s economic course.
Here is the summary about Price Elasticity of Demand.
Price Elasticity of Demand
We studied the measurement of how much a change in price will then lead to a change in the quantity demanded, called price elasticity of demand.
We calculate the percentage changes in Qd and in P, and then use them in a formula to calculate a PED value. All PED values are negative, due to the negative (or inverse) relationship between price and demand, called the law of demand.
If a change in price leads to no change in demand, the PED value is 0, and this is called perfectly inelastic demand. If a change in price leads to a lesser change in demand, the PED value is between 0 and -1, and this is called inelastic demand. If a change in price leads to the same amount of change in demand, the PED value is 1, and this is called unit elastic demand. If a change in price leads to a larger change in demand, the PED value is more than -1, and this is called elastic demand. Differently sloped demand curves can also be drawn to show different PED values.
The PED of a particular product is affected by a number of factors. Firstly, the width of definition of the product needs to be decided (for example, are we discussing milk sold at Bellerbys Brighton, milk sold in the UK, all of the milk sold in the world….?). This is important to decide because it also helps us to decide the number of substitutes for the product. Next, we decide if the product is a necessity or a luxury, how addictive it is, and what percentage of income it takes to buy it. Putting all that information together, we can then say if we think the product will have elastic or inelastic demand, and predict a possible PED value for it.
Knowing the PED value of a product is especially important for firms, who can know whether it is better for them to have a higher or lower price. Firms with inelastic demand will gain more revenue from a higher price, while those with elastic demand get more revenue from a lower price.
In summary, this was yet another exciting class on Mr Spottiswoode’s economic course.
Sunday, 27 February 2011
No 184: Mr Bowen's Weekly Questions (1)
AS you will know if you are in Mr (or Captain?) Bowen's class, he produces a very helpful list of weekly questions relating to those issues you should really be reading and thinking about.
Here is the list for last week. It would be an excellent idea to spend some time testing what you already know, and filling in the gaps in your knowledge if necessary.
10. What is happening with Barclays Bank's profits and UK tax payments?
Here is the list for last week. It would be an excellent idea to spend some time testing what you already know, and filling in the gaps in your knowledge if necessary.
- Why does inflation pose a great threat to global growth?
- Is there anything governments could or should about this threat?
- Why does the world economy need "rebalancing"?
- What is the PFI? Evaluate its recent performance.
- Why has the IMF lowered its growth forecast for the global economy?
- Why is the MPC split over the future of UK interest rates?
- Argue as a dove then argue as a hawk. Present both arguments and try to resolve them.
- "The history of the UK economy since the war seems to indicate that devaluation and inflation have been the policy options that have been mostly unsuccessful. Yet we seem to be doing the same." Comment on this view.
- What is causing the current high level of inflation?
10. What is happening with Barclays Bank's profits and UK tax payments?
No 183: The Provinces of China Compared to Countries
THIS infographic from "The Economist" compares Chinese provinces with similar countries, in terms of GDP, GDP per capita, population and trade.
(To see a similar map about the USA see Post 37).
(To see a similar map about the USA see Post 37).
Thursday, 24 February 2011
No 182: World Economic News
HERE ARE the latest economic news stories from some of your countries.
Please email me or add a comment if your country is not included here and you find a story of interest to us.
You can also try to answer some of the questions at the end of this post, if you like!
Russian Inflation Problems
Import tariffs on food have been removed, and there is a good chance that the central bank interest rate will be increased, in order to fight inflation. Government spending will also be tightly controlled this year.
The rate of inflation was 8.4% in 2010, but 2.4% just in January alone (which would work out as an annualised rate of more than 25% if repeated throughout 2011). The government inflation target is 7%.
http://www.bbc.co.uk/news/business-12560719
Strong Growth in Hong Kong in 2010
The Hong Kong economy grew by 6.8% in 2010. Much of this was due to the expanding property market, and particularly from people from other areas of China investing their money into Hong Kong.
However, this has raised fears that there is a speculative bubble that might burst with disastrous results not just for Hong Kong but also the rest of China. Increased property prices are also affecting the general price level, leading to fears about rising inflation.
The Hong Kong government is trying to cool down the property market by making sure there is a supply of new land and new houses for sale - difficult in such an crowded place! Other measures include a 20% tax if owners sell a property within 2 years of buying it, and restrictions that stop buyers of luxury properties borrowing more than 50% of the sale price.
http://www.bbc.co.uk/news/business-12548766
Vietnam Government Raises Interest Rates
The Vietnamese government is taking measures to fight inflation, which is currently 12%. The base rate of interest has gone up from 11% to 12%.
There are further fears of increased inflation since electricity prices are due to rise 15% on March 1. There are also criticisms that government itself has contributed to inflation through its devaluation of the currency of 8.5% earlier this month. This was done because of Vietnam's 2010 trade deficit of over $12 billion.
http://www.bloomberg.com/news/2011-02-22/vietnam-premier-to-push-central-bank-to-fight-inflation.html
Bad News and Bad News in Japan
In a surprising development, Japan has posted its first trade deficit in 2 years.
http://www.bbc.co.uk/news/business-12548277
Also this week, Moodys - an agency which rates how safe it thinks different countries' government bonds are - downgraded Japanese government bonds from AA to AA-. This is due to worries about government borrowing and spending. Japan has the world's 2nd highest government debt to GDP ratio, with 196%.
http://www.bbc.co.uk/news/business-12533405
QUESTIONS FOR EXTRA ANALYSIS
1. Why is the Russian government especially worried about the food supply at the moment?
2. Find out more about the Russian government's inflation target: how long has it been 7%? Is there any room for error? What happens if the central bank fail to achieve the target?
3. Find evidence to support the view that the Hong Kong property market is a bubble dangerously close to bursting. Find evidence against this view.
4. Do you think the Hong Kong government's measure will work?
5. Who decides prices of utilities such as electricity in Vietnam?
6. What are the possible positive effects for Vietnam of its currency devaluation?
7. What contributed to Japan's recent trade deficit? Why was it a surprise?
8. Why has government spending and borrowing recently increased again in Japan?
9. From the stories above, what seem to be the common economic problems affecting different countries at the moment?
Please email me or add a comment if your country is not included here and you find a story of interest to us.
You can also try to answer some of the questions at the end of this post, if you like!
Russian Inflation Problems
Import tariffs on food have been removed, and there is a good chance that the central bank interest rate will be increased, in order to fight inflation. Government spending will also be tightly controlled this year.
The rate of inflation was 8.4% in 2010, but 2.4% just in January alone (which would work out as an annualised rate of more than 25% if repeated throughout 2011). The government inflation target is 7%.
http://www.bbc.co.uk/news/business-12560719
Strong Growth in Hong Kong in 2010
The Hong Kong economy grew by 6.8% in 2010. Much of this was due to the expanding property market, and particularly from people from other areas of China investing their money into Hong Kong.
However, this has raised fears that there is a speculative bubble that might burst with disastrous results not just for Hong Kong but also the rest of China. Increased property prices are also affecting the general price level, leading to fears about rising inflation.
The Hong Kong government is trying to cool down the property market by making sure there is a supply of new land and new houses for sale - difficult in such an crowded place! Other measures include a 20% tax if owners sell a property within 2 years of buying it, and restrictions that stop buyers of luxury properties borrowing more than 50% of the sale price.
http://www.bbc.co.uk/news/business-12548766
Vietnam Government Raises Interest Rates
The Vietnamese government is taking measures to fight inflation, which is currently 12%. The base rate of interest has gone up from 11% to 12%.
There are further fears of increased inflation since electricity prices are due to rise 15% on March 1. There are also criticisms that government itself has contributed to inflation through its devaluation of the currency of 8.5% earlier this month. This was done because of Vietnam's 2010 trade deficit of over $12 billion.
http://www.bloomberg.com/news/2011-02-22/vietnam-premier-to-push-central-bank-to-fight-inflation.html
Bad News and Bad News in Japan
In a surprising development, Japan has posted its first trade deficit in 2 years.
http://www.bbc.co.uk/news/business-12548277
Also this week, Moodys - an agency which rates how safe it thinks different countries' government bonds are - downgraded Japanese government bonds from AA to AA-. This is due to worries about government borrowing and spending. Japan has the world's 2nd highest government debt to GDP ratio, with 196%.
http://www.bbc.co.uk/news/business-12533405
QUESTIONS FOR EXTRA ANALYSIS
1. Why is the Russian government especially worried about the food supply at the moment?
2. Find out more about the Russian government's inflation target: how long has it been 7%? Is there any room for error? What happens if the central bank fail to achieve the target?
3. Find evidence to support the view that the Hong Kong property market is a bubble dangerously close to bursting. Find evidence against this view.
4. Do you think the Hong Kong government's measure will work?
5. Who decides prices of utilities such as electricity in Vietnam?
6. What are the possible positive effects for Vietnam of its currency devaluation?
7. What contributed to Japan's recent trade deficit? Why was it a surprise?
8. Why has government spending and borrowing recently increased again in Japan?
9. From the stories above, what seem to be the common economic problems affecting different countries at the moment?
Wednesday, 23 February 2011
Tuesday, 22 February 2011
No 180: BBC TV Show About Ireland
LAST NIGHT'S BBC Panaroma show was about the crash of the Irish economy.
The 30 minute show is really worth watching if you have the time. It details how the bubble in the property market burst leading to economic disaster.
Especially interesting is the interview with an Irish property speculator who refuses to apologise for his behaviour (like most Irish politicians). Mind you, he does personally owe 154 million euros due to the property market crash....
Here is the link to the programme on the BBC I Player:
http://www.bbc.co.uk/iplayer/episode/b00z0fyd/Panorama_How_to_Blow_a_Fortune/
Be quick though, it's only available to watch for 12 months!!!
The 30 minute show is really worth watching if you have the time. It details how the bubble in the property market burst leading to economic disaster.
Especially interesting is the interview with an Irish property speculator who refuses to apologise for his behaviour (like most Irish politicians). Mind you, he does personally owe 154 million euros due to the property market crash....
Here is the link to the programme on the BBC I Player:
http://www.bbc.co.uk/iplayer/episode/b00z0fyd/Panorama_How_to_Blow_a_Fortune/
Be quick though, it's only available to watch for 12 months!!!
Monday, 7 February 2011
No 179: Name the famous economists
BELOW is a screenshot from a quiz about famous economists that can be found here.
Notice the 3 minute time limit.
That means that even Googlers will have to be quick in order to answer in time!
Let us know how long you take to complete it......
Notice the 3 minute time limit.
That means that even Googlers will have to be quick in order to answer in time!
Let us know how long you take to complete it......
Thursday, 3 February 2011
No 177: The first economist and the first economic question
ACCORDING to a book I am currently reading - Dr. Strangelove's Game: A Brief History of Economic Genius - the first person who can be clearly recognised as an economic thinker was Sir William Petty (1623-1687). (This links to a Wikipedia article about him.)
Not the best looking man who ever lived, he was called a "bumptious and somewhat unpleasant man."
One reason why he was so important is that he seems to be the first person to have tred to put a monetary value on everything, with what he called "political arithmatiek". This included human life.
In measuring the value of the labour working on his vast lands in Ireland, he valued the worth of each working man at twenty times his annual income.
Doing this was an important development in the history of human thought. Firstly, it made it "possible to calculate the loss to a nation by deaths, especially in times of war and plague" (Dr Strangelove's Game p.21). In addition, a money value for everything "gave a common denominator against which everything could be measured" (p.22).
The true monetary value of a human life is a question economists are trying to answer even now, centuries later.
Some people are very uncomfortable with the idea of trying to do this.
However, if we believe that governments should take all costs and benefits into account before deciding whether or not to spend money on a project, the possible loss of human life must be included. For example, when deciding to build a road, the possible costs of traffic accidents need to be calculated.
This links to a very simplistic yet fun way of calculating your own worth. As you can see, I have tried it:
(If you try it, you need to make sure you click "scan" at the end to see the results.)
The maximum value of $10 would be achieved, according to the site, if you were a male, 33 years old, from Luxembourg, with a perfect body.
When I tried this again, with all the information the same except being a Mrs. Spottiswoode, instead of Mr, my value had fallen to $4.43. So it seems that a British woman is worth about a third less than a British man.........
Of course, this is fairly primative stuff. It's really just to stimulate discussion I think, so please don't take it too seriously!
However, there are of course serious issues here.
For instance, this article talks about how the Environmental Protection Agency (EPA) of the USA, in 2008 reduced its calculation of the value of an American human life from $7.8 million down to $6.9 million.
Critics of this decision speculated that the agency made the change so the Bush government could avoid tougher regulations on air pollution, water pollution, greenhouse gas emissions, and other environmental problems.
This article talks about valuing a year of human life. Doing this is important in assessing whether medical insurance companies should offer to pay for the cost of a new medical treatment or piece of equipment. Previously, insurance companies calculated that to make a treatment worth its cost, it must guarantee one year of "quality life" for $50,000 or less. However, economists from Stanford University have written a report arguing it should go up to $129,000.
It seems then that the issue of the value of human life is as controversial now as it was in Sir William Petty's time.
It also seems that we still very far away from agreeing what that value should be.
Not the best looking man who ever lived, he was called a "bumptious and somewhat unpleasant man."
One reason why he was so important is that he seems to be the first person to have tred to put a monetary value on everything, with what he called "political arithmatiek". This included human life.
In measuring the value of the labour working on his vast lands in Ireland, he valued the worth of each working man at twenty times his annual income.
Doing this was an important development in the history of human thought. Firstly, it made it "possible to calculate the loss to a nation by deaths, especially in times of war and plague" (Dr Strangelove's Game p.21). In addition, a money value for everything "gave a common denominator against which everything could be measured" (p.22).
The true monetary value of a human life is a question economists are trying to answer even now, centuries later.
Some people are very uncomfortable with the idea of trying to do this.
However, if we believe that governments should take all costs and benefits into account before deciding whether or not to spend money on a project, the possible loss of human life must be included. For example, when deciding to build a road, the possible costs of traffic accidents need to be calculated.
This links to a very simplistic yet fun way of calculating your own worth. As you can see, I have tried it:
(If you try it, you need to make sure you click "scan" at the end to see the results.)
The maximum value of $10 would be achieved, according to the site, if you were a male, 33 years old, from Luxembourg, with a perfect body.
When I tried this again, with all the information the same except being a Mrs. Spottiswoode, instead of Mr, my value had fallen to $4.43. So it seems that a British woman is worth about a third less than a British man.........
Of course, this is fairly primative stuff. It's really just to stimulate discussion I think, so please don't take it too seriously!
However, there are of course serious issues here.
For instance, this article talks about how the Environmental Protection Agency (EPA) of the USA, in 2008 reduced its calculation of the value of an American human life from $7.8 million down to $6.9 million.
Critics of this decision speculated that the agency made the change so the Bush government could avoid tougher regulations on air pollution, water pollution, greenhouse gas emissions, and other environmental problems.
This article talks about valuing a year of human life. Doing this is important in assessing whether medical insurance companies should offer to pay for the cost of a new medical treatment or piece of equipment. Previously, insurance companies calculated that to make a treatment worth its cost, it must guarantee one year of "quality life" for $50,000 or less. However, economists from Stanford University have written a report arguing it should go up to $129,000.
This suggest that by placing too low a value on human life, insurance companies have been avoiding paying for medical treatment that they should have been providing.
It also seems that we still very far away from agreeing what that value should be.
Sunday, 30 January 2011
No 176: Competition!!!!!!
IT'S been a long time since this blog had its last competition, so I thought it was time for a new one. The competition will be an .......................
Here's the story. Last year, a student started talking about
It took me a while to realise that they meant "incumbent firms" (firms that are already in a particular market when other firms are trying to enter it).
We all thought this was very funny, so when we got to our next topic, this is how I titled the Powerpoint:
ECONOMICS VEGETABLES COMPETITION
Here's the story. Last year, a student started talking about
CUCUMBER FIRMS
It took me a while to realise that they meant "incumbent firms" (firms that are already in a particular market when other firms are trying to enter it).
We all thought this was very funny, so when we got to our next topic, this is how I titled the Powerpoint:
TRADE ONIONS
So, to enter the competition, please post suggestions about other economics vegetables.
An interesting book about Economics will be the prize for whoever I think has the funniest suggestion.
An interesting book about Economics will be the prize for whoever I think has the funniest suggestion.
Sunday, 23 January 2011
No 175: About Loose and Tight Policy
AS YOU will know if you took the Module 2 exam on Wednesday, the first question in it asked about "loose" monetary policy.
It occured to me that the terms "tight" and "loose" may not be that familiar to you, since they don't always appear in textbooks.
But then I remembered all of you are of course doing lots of Economics reading, so have looked at this week's Economist........
This extremely relevant article (which you should read and all my students will be reading) starts:
The monetary tap works mainly by controlling credit in the economy through manipulation of interest rates.
The fiscal tap works by alterations in taxation, government spending, and any borrowing it requires.
Both taps influence the amount of demand that flows through the economy, which in turn affects the amount of goods and services produced, and therefore also the levels of profit, wages and jobs.
Here, the government (or in the UK, more accurately the Bank of England) has loosened the Monetary Policy tap. Lower interest rates encourage households and firms to take out credit and then spend it, increasing the flow of demand in the economy.
Here, fiscal policy has been loosened. Taxes have been cut, and/or government spending has been increased. This gives people more money, therefore adding to the flow of demand.
During the Credit Crunch, various factors - lack of bank lending, falling wealth, plunging confidence, lack of profits - all led to the total (or aggregate) level of demand being at an extremely low level.
So, it is generally agreed that the right government action in this situation to use both loose monetary and fiscal policy. It is hoped that the economy can recover from recession by the government causing demand to increase in the economy.
This is the current situation in the UK. The government has decided to tighten fiscal policy.
In its original (Keynesian) form, the idea was that loose fiscal policy in bad times would be paid for with money the government had saved up in the good times. Few governments do that now, meaning that money must be borrowed to pay for it.
However, at certain point, too much government debt endangers the ability of governments to borrow money in the future. This would be a disaster, since government would be unable to pay even for its most essential services such as health care and education.
Therefore, it was decided to tighten the fiscal policy tap. But some economists fear that fiscal policy has been tightened too early, and that this will damage the recovery.
If a recovery becomes a boom, a government will tighten monetary policy also. This is to avoid demand overflowing. If there is demand which is not realised (that is, there are not enough goods and services for everyone who want them), prices shoot up.
The resulting inflation is seen by many economists as an economic problem which can be even worse than unemployment.
There is increasing inflation in the UK at the moment, and this is worrying. However, the cause is not too much demand in the economy. Instead, it is due to rising prices of essential commodities such as food and oil, as well as a rise in VAT (part of the tightening in fiscal policy).
The government could decide to tighten the monetary policy tap to combat this.
However, the fear is that the economy is not strong enough to continue to recover by itself with both tight monetary and tight fiscal policy.
As with most economic policy decisions, it is not so much the policy you use as the time that you decide to use it.
It occured to me that the terms "tight" and "loose" may not be that familiar to you, since they don't always appear in textbooks.
But then I remembered all of you are of course doing lots of Economics reading, so have looked at this week's Economist........
This extremely relevant article (which you should read and all my students will be reading) starts:
THE script for 2011 had been well rehearsed. The Treasury’s fierce fiscal retrenchment would undoubtedly hurt the economic recovery. But the Bank of England would add balm by maintaining an extraordinarily loose monetary stance. Just three weeks into the new year, however, surging inflation has disrupted the story. The worry is that this could endanger the recovery by forcing a premature tightening in monetary policy.
So exactly what do these terms "loose" and "tight" refer to, and in which situation can they be used appopriately to describe government policy?
The first thing to say is that "loose" policy is also often referred to as "expansionary" policy, and that "tight" policy is often called "deflationary" policy.
The second basic concept is that loose and tight as terms can be used to refer either to monetary policy or fiscal policy.
The monetary tap works mainly by controlling credit in the economy through manipulation of interest rates.
The fiscal tap works by alterations in taxation, government spending, and any borrowing it requires.
Both taps influence the amount of demand that flows through the economy, which in turn affects the amount of goods and services produced, and therefore also the levels of profit, wages and jobs.
Here, the government (or in the UK, more accurately the Bank of England) has loosened the Monetary Policy tap. Lower interest rates encourage households and firms to take out credit and then spend it, increasing the flow of demand in the economy.
Here, fiscal policy has been loosened. Taxes have been cut, and/or government spending has been increased. This gives people more money, therefore adding to the flow of demand.
During the Credit Crunch, various factors - lack of bank lending, falling wealth, plunging confidence, lack of profits - all led to the total (or aggregate) level of demand being at an extremely low level.
So, it is generally agreed that the right government action in this situation to use both loose monetary and fiscal policy. It is hoped that the economy can recover from recession by the government causing demand to increase in the economy.
This is the current situation in the UK. The government has decided to tighten fiscal policy.
In its original (Keynesian) form, the idea was that loose fiscal policy in bad times would be paid for with money the government had saved up in the good times. Few governments do that now, meaning that money must be borrowed to pay for it.
However, at certain point, too much government debt endangers the ability of governments to borrow money in the future. This would be a disaster, since government would be unable to pay even for its most essential services such as health care and education.
Therefore, it was decided to tighten the fiscal policy tap. But some economists fear that fiscal policy has been tightened too early, and that this will damage the recovery.
If a recovery becomes a boom, a government will tighten monetary policy also. This is to avoid demand overflowing. If there is demand which is not realised (that is, there are not enough goods and services for everyone who want them), prices shoot up.
The resulting inflation is seen by many economists as an economic problem which can be even worse than unemployment.
There is increasing inflation in the UK at the moment, and this is worrying. However, the cause is not too much demand in the economy. Instead, it is due to rising prices of essential commodities such as food and oil, as well as a rise in VAT (part of the tightening in fiscal policy).
The government could decide to tighten the monetary policy tap to combat this.
However, the fear is that the economy is not strong enough to continue to recover by itself with both tight monetary and tight fiscal policy.
As with most economic policy decisions, it is not so much the policy you use as the time that you decide to use it.
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