Here is a streamed (and downloadable) presentation on policies to cut unemployment in the UK economy.read more...»
The credit crunch is widely regarded to have started during 2007 and is certainly not over yet! Indeed the period of severe constraints on credit availability and rising borrowing costs most notably for smaller businesses has now lasted longer than the Second World War. It represents a major barrier to sustained and hopefully more robust economic recovery. This short streamed presentation looks at the importance of the credit squeeze on the UK economy.
A number of new government policy initiatives have been introduced but doubts persist about their effectiveness. Underneath the surface new forms of business finance are taking shape including peer to peer lending and the rise of retail bonds issued by a number of businesses.read more...»
In this short Financial Times video, Vicky Redwood the Chief UK Economist of Capital Economics looks at why economic recovery in the UK has been slower than in the USA since the end of the last recession.read more...»
The European Union has just released some new figures on the spread of hourly labour costs among the member nations of the European Union. Labour costs are made up of wages & salaries and non-wage costs such as employers' social contributions e.g. national insurance payments in the UK. Students who have covered aggregate supply and demand theory might be able to consider why changes in labour costs can have an effect on key macroeconomic indicators such as inflation, demand, exports and growth.
Hourly labour costs are different from unit labour costs - the latter takes into account the productivity of people employed. For example, a 5% rise in hourly labour costs will leave unit labour costs unchanged if productivity rises by 5% over the same time period.read more...»
Capital investment spending in the UK has remained below 15% of GDP for four years and there are few strong signs that investment in Britain will rebound strongly in the near term. No other country inside the Group of 7 (G7) had experienced investment below 15% of GDP in any single year in the last thirty - it is clear that investment in the UK remains stuck in the doldrums and this may have damaging consequences for short term recovery and long-term competitiveness and growth.
It is now over four years since the Bank of England cut their policy interest rate to 0.5%. The Bank along with other central banks has seemingly moved away from changes in interest rates to policies aimed at manipulating the base supply of money in the economy / financial system. Others are focusing on managing the exchange rate. Monetary policy has undergone big changes in recent years as this revision note explains.read more...»
When is the right moment to start tightening monetary policy by gradually raising interest rates? Some macro economists believe that in the UK, the Monetary Policy Committee has already delayed the first upwards nudge in policy interest rates for too long with the result that inflation has remained persistently above target for most of the last five years. Others argue that fundamental economic weakness makes the recovery fragile and vulnerable and that raising interest rates now is the wrong option.
Check out some key macro charts here
An increase of one percentage point in the interest rate that a firm faces during a financial crisis increases its chances of failure by more than five percentage points. Young firms, firms with high bank dependency and firms that don’t export are particularly vulnerable to changes in their debt-servicing costs.
These are among the findings of research by Alessandra Guariglia, Marina-Eliza Spaliara and Serafeim Tsoukas, to be presented at the Royal Economic Society’s 2013 annual conference. The study looks at a large data set of mainly private-held firms in the UK tracked over several years.
Economic commentators love their acronyms and abbreviations - they come in handy when reaching character capacity limits on a tweet and also for students fighting the exam clock to complete a timed essay. Two new ones have come to my attention in recent days. What does ZIRP and PLOG mean to you?read more...»
This 10-question revision quiz looks at the basics of aggregate demand.
This 10-question revision quiz looks at the concepts of the multiplier and accelerator.
A revision blog and online test on the interaction between aggregate demand and aggregate supplyread more...»
Updated revision notes on aggregate demand and a short revision quiz to test your understanding!read more...»
Updated revision notes and short online tests to check your understanding on macroeconomic objectives - plus a selection of news article links for extension reading.read more...»
- The circular flowis a basic way of understanding how
different parts of the economic system fit together
- The circular flow of income shows
connections between different sectors
- It shows flows of goods and services and factors
of production between firms and households
- The circular flow shows how national income or
Gross Domestic Product is calculated
Businesses produce goods and services and in the process of doing so, incomes are generated for factors of production (land, labour, capital and enterprise) – for example wages and salaries going to people in work.
Leakages (withdrawals) from the circular flow
Not all income will flow from households to businesses directly. The circular flow shows that some part of household income will be:
- Put aside for future spending, i.e. savings (S) in banks accounts and other
types of deposit
- Paid to the government in taxation (T) e.g. income tax and national insurance
- Spent on foreign-made goods and services, i.e. imports (M) which flow into the economy
Withdrawals are increases in savings, taxes or imports so reducing the circular flow of income and leading to a multiplied contraction of production (output).
Injections into the circular flow are additions to investment, government spending or exports so boosting the circular flow of income leading to a multiplied expansion of output.
- Capital spending by firms, i.e. investment expenditure (I) e.g. on
- The government, i.e. government expenditure (G) e.g. on the NHS or
- Overseas consumers buying UK goods and service, i.e. UK
export expenditure (X)
An economy is in equilibrium when the rate of injections = the rate of withdrawals from the circular flow.If there is an increase in the rate of injections (other factors remaining constant), then equilibrium GDP will rise
If there is a fall in the rate of leakages (other factors remaining constant), then equilibrium GDP will rise
Aggregate Demand may be stimulated by an increase in exports. Ha-Joon Chang, Author of the best seller, 23 Things They Don’t Tell You About Capitalism considers reasons in a short article for The Guardian why this hasn't happened after Sterling had fallen against other major trading economies. " Compared with ...2007, the pound has been devalued about 30% against the dollar, 50% against the yen, and 20% against the struggling euro. Yet despite the huge incentive to export created by such devaluation, Britain is still running trade deficits because it has lost the productive capacity to respond."
It may help students consider plausible policies to reduce its trade deficit, a macroeconomic goal overlooked in arguments over fiscal and monetary policies to control inflation or output. Finally it may aid evaluation, how different are the most pressing short and long term macroeconomic challengers facing UK governments.
Link to most trade figures.
It’s not often you read such a clearly set out, even-handed article on macroeconomic policy, so this relatively lengthy piece was interesting in itself as its writer appears to deal relatively equally with both sides of the big austerity debate. But you really have to take notice when the writer is the Secretary of State for Business, Innovation and Skills, Vince Cable.
The latest edition of the Economics Journal publishes some new macroeconomic research on the vexed issue of fiscal austerity. Below are some of the summaries of these research papers.read more...»
The loss of triple A status on UK government bonds has intensified the demands for a Plan B. So-called Keynesians demand an increase in both public spending and the public sector deficit.
What might Keynes himself have said about the current situation? Lacking a Ouija board, I am unable to communicate directly with the great man himself. But we can get a very strong hint from the title of the first major work which Keynes published when confronted with the 1929 financial crash. It is the Treatise on Money. His most famous work was not published until 1936, when the Great Depression was well and truly over. Its full name is the General Theory of Employment, Interest and Money.read more...»
The much anticipated surge in exports of goods and services from the UK economy has not really materialised in recent times. Hopes of an export-led recovery and contribution to re-balancing of aggregate demand have diminished somewhat. In this discussion, writers from the Economist explain why Britain is no longer one of the world's biggest goods exporters.read more...»
Having just taught the circular flow of income to my year 12 Economists, the Office for National Statistics come along with a brilliant tool I can use to revise this topic- but it would work equally well as part of an introductory lesson.
Many AS students are now embarking on their macroeconomics course. I feel that building up a good awareness of what is actually happening in the UK and other economies is a great way of adding value and context to your assignments. There are many sources of useful articles, supporting evidence, comment and analysis pieces. I'll be putting quite a few of them together on this blog page and adding to it on a regular basis.read more...»
National output declined by 0.3% in the final three months of 2012 bringing into focus the real possibility of the first ever triple dip recession for the British economy. Growth has been weakening for some time; consumers are under pressure, capital investment remains subdued and our export industries are being hit by low demand in key export markets - despite a competitive exchange rate. Overall real GDP showed no growth at all in 2012 and the level of national production of goods and services remains well below the height reached just before the recession first arrived in 2008.
The OECD estimates that the trend growth rate for the UK economy is now less than 2% per year. A new normal growth rate this low poses many questions for businesses that have perhaps been waiting for a stronger rebound in confidence and spending to happen.read more...»
Robert Nutter explains that, over recent years, the fear that the minimum wage would cause increased unemployment has not materialised, although since the start of the current economic crisis employers have expressed some concerns that employment may be affected in low paid jobs. Another concern has been the belief that a national minimum wage is inappropriate for an economy where costs and labour market conditions vary significantly between regions. The national minimum wage may perhaps provide a living wage in North-East England but certainly not in London.read more...»
Is the UK economy being held back by 'zombie' households lumbered with too much debt to go out and spend? This short Financial Times discussion video considers aspects such as the real value of property and the total level of household debt. The video tackles measures of inequality including a chart showing the gini coefficient (a broad measure of inequality) and the share of household income going to the top 1% (a narrow measure of inequality). Inequality matters for lots of economic, social and political reasons but one is the divergent savings behaviour between households. The poorest households in the UK have in recent years borrowed more and more creating a big personal debt problem - often debt provided at very high interest rates from payday loans companies and the like. Plus lending to lower income households looking to buy property but with a high risk of problems in repaying debt.
Is the UK economy being held back by 'zombie' households lumbered with too much debt to go out and spend? Angus Armstrong, director of macroeconomic research at the National Institute of Economic and Social Research, argues this problem is linked to growing inequality over the last 30 years.
Many students will be starting their AS macro course once the AS micro paper is done and dusted. For teachers about the embark on macro I have put together a small collection of UK macro charts covering some of the key indicators. This is available to download using the link below, and when you use this link you will always get the latest data.
If you would like a neat set of A3 colour UK macro charts for your classroom wall then you might be interested in clicking here for details!read more...»
The economist Robert Solow (pictured) developed the neo-classical theory of economic growth. Solow won the Nobel Prize in Economics in 1987.read more...»
An updated glossary of key terms for AS macroread more...»
As the sun rises on another year will the headwinds be favourable for Britain or are we facing up to another year of stresses and strains? Here is a brief commentary and overview of some of the key macroeconomic data for the UK economy together with some links to external articles and videos on economic prospects for Britain as we head in 2013.read more...»
The Office of National Statistics published some important data this week on the state of the UK labour market as the economy struggles to sustain a decent recovery. They released information showing that the number of underemployed workers i.e. those who want to work more hours, has risen by an estimated 1 million (or 47.3%) since the start of the economic downturn in 2008 to stand at 3.05 million in 2012. Nearly two thirds of the 1 million increase took place in the 12 months between 2008 and 2009, when the economy was in recession.
From 2000 to just before the 2008/09 recession the number of people underemployed was relatively steady and since 2009 the number has been rising, although at a much slower rate than during the recession.
We thank Hannah Thomas from the ONS who has provided us with this superb info-graphic on under-employment
This will make for a terrific teaching resource in the classroom and help to deepen student understanding of differences between unemployment and under-employment.