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Yesterday’s Conservative party conference threw up some lovely economic policy proposals for students and teachers to get stuck into. They certainly grabbed the headlines today with David Cameron’s proposals to increase the personal allowance and 40p tax thresholds. Sky News have some decent coverage which can be used to spark a good discussion.
In Economics, saving offers something of a puzzle. From some viewpoints, savings are a leakage from the circular flow of income, reducing multiplier effects. And if we all saved - in a determined effort to repay our debts (which sounds like a great idea) – the level of aggregate demand (AD) and economic activity would take a serious hit. This is the famous paradox of thrift.
Yet economies do need saving as a fund for business investment. The Harrod-Domar model is used in development economics to explain an economy's growth rate in terms of the level of saving and productivity of capital (see above). But many economies have a savings gap.
Yet I’ve been reading that adults in developing countries are half as likely to have an account at a formal financial institution as those in the rich world. Only 18% of people in the Middle East and north Africa do, compared with 89% in high-income countries. This makes saving even harder. So economists would like the world’s poorest to save more. That would help them to pay for big or unexpected expenses, such as school fees or medical treatment. It could also boost investment and thus accelerate economic growth.read more...»
Here is a link to a video report produced by the IMF as part of their annual assessment of the UK economy. Overall, the IMF is considerably more optimistic than it was in 2013 about prospects for near term recovery of output and continued reductions in unemployment.
Risks to macro stability are also considered, namely weak productivity growth and high housing pricesread more...»
The Russian central bank has raised their main policy interest rate by 0.5% to a new level of 8% in a bid to control inflationary pressures in the Russian economy.read more...»
Three years on from the riots and deep economic, financial and political crisis, is the reforming Greek economy turning a corner and improving outcomes for the key macroeconomic indicators. Professor Paul Collier labelled Greece as a "sub-merging economy" a little while ago but there are now some positive signs reflected in this highly relevant news report from the Financial Times. I have added some key macro data on Greece and other troubled Euro Area countries using data from the IMF World Economic Outlook.
Guardian: Greece forges template for economic recovery as tourists pour in: http://www.theguardian.com/world/2014/jul/03/greec...
BBC video: Pain in paradise for struggling Greeks: http://www.bbc.co.uk/news/world-europe-28012089read more...»
An important landmark for the UK economy? Britain’s economy is finally larger than it was before the financial crisis six years ago. FT economics editor Chris Giles analyses the data and warns that continuing weak productivity means output growth will be slower than before the crisis - an excellent analysis of the key macro indicators suitable for all A level economics students.
I have added some charts on the UK drawn from the latest IMF world economic outlook.read more...»
Violence is obviously the worst element of conflict, but the economic devastation can also be huge. Economists should be reflexively anti-war. Jeffrey Sachs discusses the waste of war on Project Syndicate. You can use the topic of war to introduce economic ideas like opportunity cost, fiscal stimulus and supply side shocks.
I was reading about sanctions and trying to think how they affect economies. They are obviously intended to reduce the benefits of specialisation and international trade for their target. And like almost all trade restrictions, they hurt the economies implementing such policies too.read more...»
An interesting piece in the Economist about the current state of the output gap – the difference between an economy’s actual output and its potential output.
Paul Ormerod argues that this value is almost impossible to estimate, so it is a pretty useless concept. Others think trying to estimate the size of the gap is valid, and knowing how much spare capacity the economy has could be a crucial guide to economic policy makers.
What are the thoughts of economists who have been looking at recent OECD data?read more...»
Question six for the RES competition in 2014 is bound to produce a large number of answers. Labour migration is an important economic, social and political issue and many students will have clear views on the issue. So what will make an essay stand out from the crowd?read more...»
This question gives students a superb opportunity to explore the debate surrounding economic growth in in the leading advanced nations of the global economy. It ties in well with research into the effects of globalisation and the legacy from the financial crisis. I have put together some reading and short video clips that might be relevant to the discussion:
Secular stagnation: (or .... growth pessimism!)
"Secular stagnation refers to the idea that the normal, self-restorative properties of the economy might not be sufficient to allow sustained full employment along with financial stability without extraordinary expansionary policies. The idea was put forth first by Alvin Hansen in the late 1930s." (Source: http://www.washingtonpost.com/blogs/wonkblog/wp/20...)
One common interpretation is that - if we are in an age of secular stagnation - and this is an idea that might just be wrong! Maintaining demand often requires extensive periods of ultra loose monetary policy which in turn can create fresh bubbles in property and equity markets.
Is the secular stagnation argument too pessimistic? Can advanced economies rev up the engine of growth once more perhaps by using structural reforms to boost their competitiveness and drive new investment?read more...»
Trams have been experiencing a revival in a number of towns and cities in the past few decades. Edinburgh is the latest city to invest in trams, and hopes they will boost local economy. But do the benefits outweigh costs? Manchester, Sheffield, Blackpool, Nottingham, Newcastle and Croydon have all installed trams / light rail and others are considering investment.
The Edinburgh trams at running (at last) but the jury will remain out for a long time about their net impact on economic activity, traffic congestion and the broader health of Edinburgh and the local environs.read more...»
Guinea has agreed a huge new capital investment framework with a number of transnational partners including Rio Tinto and Chinalco to develop one of the world's biggest iron ore assets. This is a project that may double the country's GDP not least because as well as mining the iron ore, there is a proposal to seek funding to construct a 650km railway and a deep-water port to transport the rocks and minerals.
It is one of those examples that comes along every once in a while that prompts both students and teachers to re-visit the economics of large scale foreign direct investment projects. Is this nation building of the old style? Or is the proposed investment framework one that could be genuinely transformative for one of the world's poorest countries?
- Forecast of 45,000 new jobs created across the entire project
- State of Guinea will retain 15% of any proceeds from the mine
- In exchange, the joint venture with Rio Tinto / Chinalco will enjoy eight years' tax free operations in the country
- Production at the Simandou mine is expected to start within five years
- It will be Africa's biggest mine
Worries are growing about some of the countries in the Euro zone slipping back into double dip recession. By convention, a recession is when national output (GDP) has fallen for two successive quarters. But this is far from being news. In a substantial number of economies, output is lower than it was not just two quarters ago, but three whole years ago, at the start of 2011.
The quarterly numbers have wobbled around up and down over this period, but they are now unequivocally below the 2011 figure in Greece, Ireland, Italy, Portugal and Spain. No surprises there. But the list goes on to include Finland, the Netherlands and the Czech Republic.read more...»
In remarks made when launching the new quarterly inflation report (May 2014), the Governor of the Bank of England, Mark Carney, has signaled that policy interest rates set by the MPC are likely to remain at historically low levels for some time to come. The first rise in rates is probably less than a year away and some economists have penciled in early New Year 2015 for a rate hike. But what are some of the arguments for raising interest rates now?read more...»
The prospects of significant wage increases for typical UK workers are bleak, according to Professors David Blanchflower and Stephen Machin writing in the Spring 2014 issue of CentrePiece magazine from the London School of Economics.
It is quite clear that the economy is still well below full employment and there is a large amount of slack in the labour market, they say. There is little evidence of widespread skill shortages, which would push up wages; and public sector pay freezes with continuing redundancies continue to push down on workers’ bargaining power.read more...»
In recent months the external value of the pound has been rising quite strongly. Indeed it has outperformed a cluster of other countries even though we have seen a rise in the UK's current account deficit on the balance of payments. Stephanie Flanders, chief market strategist at JPMorgan Asset Management, talks to the Financial Times about the sterling's out-performance and what impact the strong pound is likely to have on the UK economy.read more...»
The BBC's Robert Peston looks at the broader issue of heavy debt in the UK economy and whether it is holding back economic growth.read more...»
This is a revealing perspective on the challenges facing China in producing enough food to feed the hundreds of millions of Chinese squeezed into their ever growing cities.
China's policy makers are trying to increase the size of farms to exploit economies of scale and get their farmers to focus on cash crops. But the reality is that China will have to import a huge amount of food in the years to come - this creates big opportunities for farmers in China's trading partners.read more...»
Here is an extract from a recent speech by Charlie Bean at the Bank of England - the full speech can be found here: www.bankofengland.co.uk/publications/Docume...
For the economic recovery to be both sustained and sustainable we really want to see three things happenread more...»
One of the most significant roles of a modern government is to ensure that the economy performs to its full capacity. The government has to consider the performance indicators like inflation, unemployment and economic growth and devise policies to achieve their aims. In this session we will consider the options that fall into the fiscal and monetary policyread more...»
In this session from our macro revision workshop, we are focus on the performance of the UK economy over recent years and see how economic growth appears to follow a cyclical patternread more...»
Falling unemployment, declining inflation and stronger growth – we are seeing a better picture for the UK in 2014? But can it last?
After several years of weak expansion, the UK economy is enjoying a relatively strong cyclical recovery. Can the UK continued to experience a recovery in output, jobs and investment? Will the recovery be balanced and sustainable? How resilient is the UK? What are some of the major threats to growth in 2014 and beyond? This revision presentation hopefully provides some context.read more...»
A revision presentation used at the workshop in Dubai on aspects of supply-side competitiveness in the UK economyread more...»
The nominal exchange rate is a key adjustment tool to help countries avoid traumatic balance of payments crises. And when a country is in a crisis, external adjustment is delayed and more difficult under a pegged exchange rate regime. These are the central findings of research by Atish Ghosh and colleagues, to be presented at the Royal Economic Society’s 2014 annual conference.read more...»
American economist Hyman Minsky was an interesting character who pops up around the edges of many of the things I read. The BBC posted an article about him that I recommend, with the provocative title Did Hyman Minsky find the secret behind financial crashes?
I’ve just summarised what the article describes as 5 key ideas that he presented in his work.read more...»
The UK’s official inflation benchmark, the Consumer Prices Index, slid to 1.7 per cent in February – the lowest for more than four years. What are some of the main factors causing inflation to fall below target?read more...»
A significant 5 year rail infrastructure investment plan adds weight to the belief that capital spending will be a major driver of the next phase of the UK economic recovery. Network Rail is state owned, a not-for-profit business whose commercial returns are reinvested into the rail network.read more...»
Britain’s current account deficit for 2013 as a whole (4.4% of GDP) was greater than in any other developed economy and the widening current account gap is raising fresh concerns about whether the UK's economic recovery is balanced and sustainable.read more...»
There seems little that is stopping the surge in London house prices at the moment but do you think the rapid acceleration of prices is good for either London or the wider UK economy?read more...»
Here is a good example of an inward investment project likely to create a strong multiplier effect for the economy of East Yorkshire.read more...»
I thought it worthwhile sharing my resources which I have been collecting for students (and teachers alike). I have been promoting them on Twitter (@Economics_KSF) through scoop.it but for those of you not on there, the link for the scoop.it boards are here:read more...»
Showing critical awareness of economic statistics is an important skill for all economists.
A hat-tip to Fiona Quiddington for this article on youth unemployment from the Telegraph which analyses youth unemployment figures with a more critical eye.read more...»
The government wants more new homes to be built, so too do hard-pressed home-buyers facing a continued problem of low property affordability. But cautious construction companies are reluctant to press ahead favouring share buy-backs (returning money to their shareholders) and only a limited expansion of new building.read more...»
Here is a revealing quote from a special study published in March 2014
"Simply put, too much of the city’s essential infrastructure remains stuck in the 20th Century—a problem for a city positioning itself to compete with other global cities in today’s 21st Century economy."
Which city do you think this report was referring to?read more...»
For years the government has tried to lift research and development spending as a share of national income - but seemingly to no avail. The latest data finds that the UK is spending less on R&D than any other EU country. What might this mean for the supply-side competitiveness of the economy?
The data finds thatread more...»
There’s been lots of media coverage of a recent anniversary: it was five years ago in March 2009 that the Bank of England took the dramatic step of cutting interest rates to their lowest level in more 300 years. And there they have stayed - with some predicting they will stay low for a while longer yet.
How about a quick bit of analysis (why the Bank took the move) and then some evaluation? I’m suggesting an evaluation based on a recent Guardian article. Has it been a good move? Well – it depends – on who you are, for a start.read more...»
Here is a revision presentation for an AS Macro topic - economic growthread more...»
Here is a revision presentation for an AS Macro topic - the multiplier effect, the accelerator effect and Keynesian economicsread more...»
Here is a revision presentation for an AS Macro topic - the economic cycleread more...»
Here is a revision presentation for an AS Macro topic - macroeconomic equilibriumread more...»
Most of the commentary on the UK’s economic recovery focuses on consumers. Are they taking on too much debt again to finance their spending? Is there a bubble in house prices, as people get excited about bricks and mortar again? Certainly, in terms of its sheer size, spending by consumers is by far the biggest component of GDP, making up around 60 per cent of total domestic expenditure.read more...»
Here is a revision presentation for an AS Macro topic - aggregate supplyread more...»
In this independent research assignment, Year 12 Economist Doug Feagin considers some of the factors influencing the macroeconomic performance of Mexico - a fascinating country and one of the MINT cluster of countries discussed by Jim O'Neill in his recent programmes for the BBC.read more...»
Here is a revision presentation for an AS Macro topic - aggregate demandread more...»
Here is a revision presentation for an AS Macro topic - the circular flow and macroeconomic objectivesread more...»
A selection of video resources for students and teachers interested in Keynesian economicsread more...»
A selection of video resources for students and teachers interested in Keynesian economicsread more...»
Robert Peston looks at the astonishing investment in urban infrastructure in China in recent years - 30 new airports, 26,000 miles of motorways and a new skyscraper every five days have been built in China in the last five years - required viewing for those interested in a key aspect of Chinese economic growth and development. Link to How China Ruled the World (BBC World)read more...»
He might have only had his feet under the Governor's desk for 8 months but BOE Governor Carney has announced changes to the role of the MPC for a second time as forward guidance has been overhauled.
Norway has for many years recorded an enviable macroeconomic performance. It regularly tops the international rankings for the Human Development Index (HDI) and it has one of the highest figures for GNI per capita (PPP) among developed nations. It records huge current account surpluses in excess of 10% of GDP each year and strong growth and surging revenues from oil and gas production have given the Norwegian government a fiscal position that many other countries would die for! Unemployment is the lowest of any European country.
That said there are some signs that the economy is suffering from an over-dependence on oil and gas - it is at risk of the Dutch Disease?
The Dutch Disease is the idea that economic growth from exploiting and exporting natural resources can crowd out investment in other sectors, in part due to a strengthening exchange rate which causes a sharp rise in relative unit labour costs. High wages are also seen as a factor behind a trend decline in the average hours worked and a rise in the drop-out rate from high school education.
Manufacturing wages in Norway have climbed by more than 150 per cent since 1997 against just 50 per cent in the US and Germany They are now 60-70 per cent higher than the weighted average of Norway’s trading partners, meaning “that for every hour worked here we need to be 60 per cent more productive”. (FT, 7 Feb 2014)read more...»