Unit 2 Macro: China’s Trade Engine is Spluttering
New data suggests that the rapid growth of exports from China is once again slowing down. This Reuters business news video (2 minutes) provides some useful background information on the recent downturn in export and import volumes and mentions that rising imports and a shrinking trade surplus may help the Chinese to rebalance their economy and perhaps provide a demand stimulus for exporters from struggling European countries.
That said the continued weakness of many EU countries will make it difficult for Chinese exporters to maintain sales and employment. During the global recession of 2008-09 millions of workers in Chinese manufacturing industry lost their jobs prompting many to return to their rural homelands in search of work and income.
* Which industries in China are likely to be most affected by a reduction in the growth of exports?
read more...»Unit 2 Macro: Focus on China - Trade and Growth
Export demand can be an important driver of growth and development. For many years China has practiced export-led growth with exports accounting for over 40% of GDP. China ran a trade surplus with the rest of the world of around of $200 billion in 2009 – this looks huge, but is fairly modest as a share of GDP. The surplus on the balance of payment current account has diminished from over 10% of GDP in 2007 to less than 6% in each of 2010 and 2011. But China still has a structural trade / BoP surplus.
read more...»Unit 2 Macro: Focus on China - Per Capita Incomes
Per capita incomes in China are rising though still low by advanced-nation levels. China ranks at 119 in terms of average incomes, according to World Bank data (per capita incomes, PPP adjusted). But China is now the biggest car market in the world and there has been a huge rise in the sales of luxury goods to China (these products have a strong income elasticity of demand).
China wants to achieve a re-balancing of her growth – towards domestic consumption and away from exports. Another key aim of the plans for the next 5 years is a surge in market-driven entrepreneurial activity. Plus a continued shift towards higher-value, high-knowledge manufactured products.
read more...»Unit 2 Macro: Exporting to the Booming Chinese Economy
Before you read this blog please have a look at another blog written by our good friend Mark Johnston from New Zealand. Students of China and the US economy will find it fascinating!
There are good grounds for no longer calling China an emerging economy - it has arrived! The multiple significance of the rapidly-growing Chinese economy is plain for all to see but for Britain, only a small percentage of our exports of goods and services go there and this must change if Britain is to fully engage with and benefit from the rising might of the Chinese consumer. This article from the Daily Mirror provides a non-technical but clear explanation of the growing purchasing power of newly wealth Chinese, thousands of whom are flocking to western shopping malls to buy premium brands. Chinese foreign exchange reserves are also being used to buy up real assets - last week we heard that a Chinese sovereign wealth fund is set to buy nearly 9% of Thames Water.
read more...»Unit 2 Macro: Look Upwards to Find the next Downturn
Correlation does not necessarily imply causation but analysts at Barclays Capital are worried that a surge in skyscraper construction in China and India might be a forward indicator of another burst of financial and economic distress. This report in the Independent covers their findings:
“Clusters of building activity usually coincide with periods of easy credit, excessive optimism and rising land prices, which often occur before market corrections.”
* India is scheduled to complete 14 new skyscrapers taller than 240 meters (787 feet) over the next five years from the current two
* China will increase the number of skyscrapers to 141, from the current 75, by 2017
* London’s Shard is expected to be completed in 2012 – at 1,017ft, it will be the tallest building in Western Europe
News video from the BBC: Skyscrapers ‘linked with impending financial crashes’
Guardian news video: Huaxi: the village that towers above China
Newsnight on rebalancing the UK economy
Last night’s edition of Newsnight should be required viewing for all AS and A level economists - and it is a huge shame that it is only available on i-player for another 7 days. Introduced on the shock news that even Tesco is vulnerable to the downturn, it included reports from Andrew Verity looking at whether the British economy will ever wean itself off shopping and the City, and an excellent (and all-female!) discussion including Deborah Meaden and the FT’s Gillian Tett. Try challenging your students to watch and listen to this while noting down every aspect of the syllabus which is mentioned or referred to - that will keep them busy!
There was also a debate between Employment Minister Chris Grayling and disability campaigner Sue Marsh about the government’s welfare reforms, defeated in the House of Lords the night before, and finally Tokyo correspondent Roland Buerk looking at Japanese economic stagnation of the late 1980s and 90s, to consider whether it was a “lost decade” and what could be learnt from it.
Unit 4 Macro: Economics of Fiscal Deficit Reduction
How far, how fast and in what way should the UK government seek to cut the annual budget deficit and improve the state of public sector finances? These questions continue to be at the centre of a fierce debate among economists.
read more...»Unit 4 Macro: Competitive Advantage in Trade (Some Videos)
Here is a selection of short video clips that I use when teaching competitive advantage in markets and when introducing the factors that determine the competitiveness of UK producers in global markets. The focus here is on the UK economy but I will add some more videos to the blog as I work my way through this teaching topic.
read more...»Unit 2 Macro: Factors Driving Business Investment
Profit-seeking businesses will go ahead with an investment if they believe that it will - over its projected lifetime - yield a real rate of return greater than if the money had been invested in the next best alternative way. Opportunity cost is a useful idea to use here. Private sector businesses usually focus on these objectives when investing in new capital inputs:
read more...»Hopes and Fears 2012
With consumption being such a large component (approximately 2/3rds) of aggregate demand, it is important to understand the role that consumer confidence plays when decisions are made upon major spending commitments.
read more...»Changing Consumer Behaviour - falling incomes
What links rising VAT and energy prices, higher unemployment, loss of bonuses, a reduction in overtime and more part-time working?
read more...»Where is the UK Economy? National Output
The first of an occasional series - putting economic data into context. First we focus on the level of real national output in the UK in the aftermath of the recession and with recovery appearently grinding to a halt.
UK GDP remains well below the peak of national output at the end of the last cycle in the early months of 2008. During the recession, national output fell by a cumulative 7 per cent. Since then there has been a slow and uncertain recovery and the Bank of England has recently slashed their growth forecasts for the remainder of 2011 and for 2012. Growth of less than 1 per cent will cause unemployment to rise and will damage business and consumer confidence (animal spirits) and further undermine planned capital investment spending.
There is a real danger than UK trend economic growth (the estimated annual growth of potential GDP) will continue to edge lower affecting living standards and any chance of the government meeting its medium term deficit reduction targets.
Bank of England: Bank of England finds risk of crisis biggest since 2008
Unit 2 Macro: Video Clips on Unemployment
I blogged last week about unemployment and made available some updated charts on unemployment for the UK and a range of other countries. Here are some short video news clips on aspects of unemployment that I have been using when teaching unemployment to AS and A2 groups. These clips provide a window on the human and social cost of high rates of unemployment and are especially useful in reinforcing the causes of unemployment and evaluation of policies likely to be most effective in bringing jobless rates down over time.
read more...»Unit 1 Micro: Costs and Benefits of a Super Sewer for London
Thames Water has plans for a super sewer running 20 miles from Hammersmith to Beckton but the plan has come up against intense opposition from many local resident groups. It is a good example to use of cost-benefit analysis in action with a project that will directly affect millions of people living and working in the capital. There is an almost unending list of stakeholders involved in the debate.
read more...»Unit 2 Macro: Analysing Government Spending Cuts
It is rare that a day would go by without you being able to find a news article on issues that affect the macro-economy; a good tip is to constantly think like an economist and analyse these issues as you may do in the exam.
read more...»Unit 2 Macro: Positive and Negative Multiplier Effects
An initial change in aggregate demand can have a much greater final impact on equilibrium national income. This is known as the multiplier effect. It comes about because injections of new demand for goods and services into the circular flow of income can stimulate further rounds of spending – in other words “one person’s spending is another’s income”. Put another way, spending becomes someone else’s income. This can lead to a bigger eventual effect on output and employment.
Here are three recent news videos covering aspects of the multiplier effect at work:
read more...»Unit 2 Macro: Can Exports Drive a Recovery?
UK overseas trade is in the news today with the release of a batch of figures showing a record level of UK exports - see BBC news - UK trade deficit cut by higher exports
read more...»Unit 4 Macro: Unit Labour Costs and Inflation
Over many years the rate of change of unit labour costs (ULCs) has been a decent reliable indicator of inflationary pressures in the UK economy. Times when wage costs adjusted for productivity have grown quickly have often coincided with a rise in the annual rate of inflation - little wonder when payroll costs are a sizeable chunk of operating expenses for many businesses.
But in the last couple of years we have seen a growing disconnect between unit labour cost inflation and the published figures for CPI.
read more...»Unit 2 Macro: UK suffers a weak recovery
AS macro students will be studying the economic cycle and following the struggles of many countries to sustain a recovery in demand, output and jobs after the 2008-09 recession. The well respected independent forecasting body, the National Institute (NIESR) has produced new data suggesting that the UK recovery is on course to be “the weakest of any since the end of the First World War”, with gross domestic product still 4pc below its pre-recession peak. The risks of a second recession (a double dip) look to be rising week by week especially when one looks at the consumer and business confidence data.
Here is a link to the NIESR report and also to BBC news coverage of their findings.
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: Consumer Spending Charts for the UK
As a follow up to my homework assignment I have attached below in a powerpoint file a set of data charts used as handouts and a prompt for discussion in our AS macro lessons on consumer spending.
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!
