Unit 2 Macro: Focus on China - Inflation
The super-charged growth in China has brought about a rise in inflationary pressures and is a good example of the possible conflicts between rapid economic expansion and rising costs and prices. The Chinese government’s inflation target is 4% but inflation is a growing worry for the Chinese government – after some mild deflation in 2009 there has been acceleration in the consumer price index. Agricultural prices have been a key driver of inflation with food costs up 12% in the year to March 2011.
For many commentators high inflation in China is a symptom of an over-heating economy with an unsustainable credit and property boom. Another factor behind high inflation is that Wages are rising fast in China – many economists believe that China has hit a point in its development at which demand for labour starts to grow faster than supply, creating labour shortages and pushing up salaries. This is known as a Lewis Turning Point.
read more...»Inflation - what’s up, what’s down and what’s going to happen next
Just as the Monetary Policy Committee have been saying for a while, inflation is starting to fall back towards their target. The fall to 4.2% in December is rather sharper than expected, and is the biggest monthly fall since April 2009. With further falls almost certain in the next few months as the VAT rise and energy price hikes roll out of the 12-month figures, analysts have commented today that this will leave the opportunity for the MPC to inject further rounds of QE into the economy with less fear of triggering too much demand-pull inflation.
read more...»Prospects for the UK Economy in 2012 - PowerPoint download
Geoff has kindly made available for download his presentation made to students at Dulwich College recently in which he analyses the prospects for the UK Economy in 2012. A Slideshare-streamed version is also provided below.
read more...»Rising prices and falling real incomes
The CPI headline inflation rate has fallen to 4.8%. This BBC chart shows recent changes in the rate of increase of the general price levels using CPI and RPI indicators.
read more...»The True Cost of Christmas
It’s here! PNC Wealth Management, have produced their 28th annual index of the true cost of Christmas, calculating the cost of giving of all the gifts in the Twelve Days of Christmas, and then the change in the price compared to last year, to give the annual rate of inflation for Christmas. This year they have an animated train ride that takes you through a snowy landscape, with various games on the way - the maids a-milking one is brilliant! The journey, and the links to information about how the index has fluctuated over the years and where on earth they find the prices of swans a-swimming or lords a-leaping needs a bit of investigation before you introduce it to a class, but is worth it and great fun for a Christmas lesson.
Top 10 resources on inflation on YouTube
What follows is a list of the ten video clips I use when teaching inflation as a topic.
They are a mixed bunch. Some are useful for class use, others work as pointers to a series of video clips from one producer. What I’ve tried to avoid, however, are links to the teach yourself Economics resources (though obviously they have their place) that are out there.
read more...»Unit 4 Macro: UK Inflation Charts
I am teaching the background to consumer / retail price inflation in the UK this week and making use of a selection of up to the minute data charts. Here they are as a downloadable powerpoint file for colleagues who might find them useful on whiteboards or as handouts for annotation and discussion.
http://dl.dropbox.com/u/4368634/Economics/Inflation_Charts_A2.pptx
Unit 1: Rice market intervention
A good example to discuss of government intervention into agricultural markets - in this case Thailand’s government have intervened in the market to buy unmilled rice at 15,000 Thai baht per metric tonne, which is a 50% premium on the current market rate. A good discussion of the possible impacts can be found, with a discussion of the economic rationale/consequences of it, here.
Will Jean-Claude Trichet be missed?
JCT is no longer president of the European Central Bank and he leaves, after eight years at its helm, with as many detractors as there are supporters. The ECB is widely perceived as being ‘genetically’ close to the German
Bundesbank following the neo-classical school where inflation is the route of all problems and so needs to be controlled no matter the cost.
A2 Micro: Concentration Ratio for the US Smartphone Market
We´re going to be looking at this part of the syllabus very soon and the two graphics below from here and here look at how the US market for smartphone operating systems is split between the major firms and also how global market share for mobiles as well as smartphones is split.
read more...»King on QE2
The Govenor, Mervyn King, explains how he hopes that by injecting 75 billion of newly printed cash into the economy Aggregate Demand will be stimulated enough to avoid a double dip. See video below and the full article here.
read more...»Fat tax: Denmark
Earlier this year, the Royal Economics Society had the Young Economist of the Year competition with one of the titles being to debate the use of a Fat Tax. This week, Denmark have announced exactly such a tax on some of its foods! Read more here.
Supporting article on the Danish fat tax from Time Magazine
And this feature on the efficiency and equity arguments surrounding the fat tax from Steve Sexton writing in the Freakonomics blog.
Fuel for Thought
When teaching elasticities, fuel always seems to have been a favourite example of a good with very inelastic demand in response to price changes. However, this AA research adds further to the evidence that suggests that even fuel has now reached it’s limit in terms of quantity demanded remaining firm at it’s market price.
read more...»Ali G and demerit goods
When discussing demerit goods, it is always good to be able to show a few examples. In these youtube clips, Ali G interviews a police superintendent about offensive weapons and a US federal agent about illegal drugs.
read more...»3 for 2 no more
The book world was shaken this month when it emerged that Waterstone’s, the UK’s largest book chain, is going to ditch its decade-old 3-for-2 offer. Good for A2 micro when discussing firms’ strategies for growth and profit. Read more here.
Unit 2 Macro: Homework Assignment on Consumer Spending
I have attached below an example of a homework assignment for my Unit 2 macro economic group which focuses on some of the main drivers of consumer demand for goods and services. It is available for free download as a pdf file. Discussion in class will centre on income, wealth, interest rates, confidence and expectations as key determinants. This is a particularly important stage of the economic cycle and there are many influences constraining household demand as we head towards the end of 2011.
Unit 1 Micro: Homework Assignment on Market Prices
I have attached below a homework assignment for my Unit 1 AS Micro students on market prices. The assignment focuses on the global markets for coffee and also for steel and is attached below as a pdf file for download if teaching colleagues might like to use and adapt it!
China - helping or hindering economic development in Africa?
If Africa was a physical battleground between east & west during the cold war of the 20th Century, it can arguably be seen today as the ideological 21st Century battleground between the difference approaches to promoting economic development: the western aid model versus the Chinese trade model. Is the Sino-Africa relationship mutually beneficial? I certainly don’t claim to have a comprehensive answer to this but it has been interesting talking to Africans on my journey so far about their perception of this, particularly in Zambia…
read more...»AS and A2 Macro: Exchange Rates and “Safe Haven” Currencies
This article from the WSJ highlights one determinant of exchange rates that we may not be too familiar with, whether or not a particular currency is regarded as a “safe haven” i.e. if a particluar investor fears that a currency will not hold its immediate or future value, then said investor may choose to exchange it for one which is more likely to.
read more...»Economics Resources: Best of Today Podcasts
A hat tip to my fellow blogger Graham Carter for suggesting this handy resource. The BBC web site maintains a regularly-updated selection of podcasts drawing on some of the best stories covered by the Today programme. Here is the link. Dip in once in a while to see if there is an audio-resource connected to relevant business, economic and financial news stories.
Unit 4 Macro: Dangers of High Inflation
The annual rate of inflation in the UK has overshot its 2 per cent target in 51 of the past 60 months and this has led some economists to believe that the Bank of England has been adopting a tacit policy of allowing inflation to stay above target by keeping official monetary policy interest rates at 0.5% since the Spring of 2009. The Governor of the Bank of England Mervyn King has expressed his concern about “uncomfortably high rates of inflation” but the Bank’s Monetary Policy Committee has yet to reverse the steep falls in interest rates that came in the wake of the global financial crisis in 2008-09.
Although modest but persistently higher inflation might be helpful in reducing the real value of outstanding government debt there are also underlying dangers in allowing above-target inflation for a considerable length of time. This blog will look at these.
read more...»AS Macro Key Term: Demand Pull Inflation
Demand pull inflation occurs when aggregate demand and output is growing at an unsustainable rate leading to increased pressure on scarce resources and a positive output gap. When there is excess demand in the economy, producers are able to raise their prices and achieve bigger profit margins because they know that demand is running ahead of supply. Typically, demand-pull inflation becomes a threat when an economy has experienced a strong boom with GDP rising faster than the long run trend growth of potential GDP. Demand-pull inflation is likely when there is full employment of resources and aggregate demand is increasing at a time when SRAS is inelastic.
read more...»AS Macro Key Term: Inflation
Inflation is a sustained increase in the general price level leading to a fall in the purchasing power of money. The rate of inflation is measured by the annual percentage change in consumer prices.
read more...»China set to become exporter of inflation
A few years back we talked of the China Effect - where the rapid transformation of the Chinese economy and the huge growth of high volume low labour-cost manufacturing was acting as a supply-side cause of lower prices in the world economy. A decade or more of this may be coming to an end as the Chinese economy risks experiencing several more years of higher inflation and slower economic growth.
This article from the Telegraph “China inflation threat underestimated” reports on research from economists at Legal & General Investment Management that pinpoints of some of the inflationary impulses in the Chinese economy - notably the surge in credit, higher food and other commodity prices and the rapid rise in wage costs in urban areas as cities find the pool of cheap labour from the countryside is not running behind demand and creating labour shortages. This piece from the Economist provides a super chart on what has happened to Chinese wage costs in recent times. China’s tricky wage dynamics Despite recent increases - wages in Chinese manufacturing in 2008 were still only about 4 per cent of those in the USA.
If the Chinese authorities are truly serious about controlling inflation we can expect further tightening of monetary policy in the coming months driving the Yuan higher and curbing the rate of growth of real GDP. China has a new growth target of 8% per annum. Might this prove to be an over-estimate if the over-heating economy enters a clear slowdown phase?
BBC News: China grew at a robust 9.7%, as inflation hits highs
Al Jazeera: China’s inflation continues to rise
AS Macro Key Term: Aggregate Supply Shock
Supply-side shocks are unexpected events affecting costs and prices in different countries. An aggregate supply shock is either an inflation shock or a shock to a country’s potential national output.
read more...»AS Macro Key Term: Inflationary Pressure
Inflationary pressures refers to the demand and supply-side pressures that can cause a rise in the general price level. Demand-pull inflationary pressure is greatest when actual GDP exceeds potential GDP causing a positive output gap. Cost-push inflationary pressure can arise from increases in unit wage costs, rising import prices and an increase in the prices of raw materials, fuel and components used in production.
read more...»AS Macro Key Term: Relative deflation
The term “relative deflation” is generally used to describe an economy with an inflation rate, which has not necessarily descended into negative territory, but is markedly lower than comparable economies. Over time, a low relative rate of inflation can lead to an improvement in price competitiveness in international markets, assuming that there has not been a compensating change in the exchange rate between two countries.
In our data example shown below we track consumer price inflation in Ireland, Spain and Germany. For most of the period shown, the annual rate of inflation in Germany was substantially lower than two of her partners in the European single currency area - this is an example of relative deflation.
read more...»Timetric: Weights in the UK Consumer Price Index
The consumer price index is a weighted index measuring changes in the cost of living for households in the UK. The weights used in the CPI calculation change over time reflecting movements in spending patterns on different goods and services. Our Timetric chart today tracks movements in a selection of key items used in the CPI measure.
read more...»Tuesday Talks! The Smell of Money
A fascinating half-hour broadcast on Radio 4 yesterday really grabbed my attention - The Smell of Money looks at the growing prevalence of the cashless society, and its implications for modern economies. A lovely accompanying article on the impact of forged money can be found here.
As a short extension activity that could follow on from using these resources, students could consider the following question (one of my favourite mock interview questions):
Suppose that aliens on Mars have found a way of forging our money so that it is completely indistinguishable from ‘official’ currency. They then come to Earth on a shopping spree, and take their purchased goods back with them to Mars. Who pays the cost of the shopping spree?
Theory Thursdays! Interesting indices
Most students will now have met indices in some shape or form in their A-level course, probably in relation to the Consumer Price Index. This extension activity helps students to develop their understanding of the construction of indices in general. As a starting point, you may want to ask your students to contribute towards the latest Economist Big Mac Index, which looks at the price of a Big Mac in various cities around the world in order to work out whether exchange rates are over- or under- valued as well as the cost of living in various countries. The Economist has asked people around the world to go into their local McDonald’s and then post the price of a Big Mac onto their online forum - you can do this here.
read more...»
