Q&A: Does a positive output gap always mean rising inflation?

Tags: inflation, aqa, spare capacity, output gap, inflationary pressure, deflationary pressure
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Q&A: What is hedging?

Hedging is the process of protecting oneself against risk.

Posted to A2 Micro -

•AS Micro -

•Economics Q&A -

•Q&A - Markets -

•Business Economics -

Tags: prices, price, risk, profit, oil, hedging
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Q&A: Current and Capital Account

Q: Please explain the difference between the current and the capital account

Posted to A2 Macro -

•Economics Q&A -

•Q&A - Macro -

•Balance of Payments -

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Q&A: AD and Inflationary Pressures

A student asks: Will a rise in AD will only cause cost-push inflation if there is a positive output gap?

Posted to AS Macro -

•Economics Q&A -

•Q&A - Macro -

•Aggregate Demand -

•Aggregate Supply -

•Inflation -

Tags: inflation, demand, prices, supply, gdp, price, costs, profit, output gap, cost-push
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Q&A: What is the productivity gap?

The productivity gap is a phrase to describe a sustained difference in measured output per worker (or GDP per person employed) between one country and another.

Posted to AS Macro -

•Economics Q&A -

•Q&A - Macro -

•Aggregate Supply -

•Economic Growth -

•UK Economy -

•Supply-side policies -

Tags: demand, gdp, competition, production, investment, productivity, capacity, management, efficiency, skills
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Q&A: Demerit Goods and Negative Production Externalities

Sunday, May 31, 2009

Question: I was wondering what the difference between a demerit good and a good that has negative externalities in production was?

Posted to AS Micro -

•Economics Q&A -

•Market Failure -

•Externalities -

•Information Failure -

•Merit Goods -

Tags: supply, costs, production, externalities, demerit good, social cost, spillover, social benefit
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Q&A: How the PFF might be used in assessing a country’s economic performance

Saturday, May 02, 2009

A production possibility frontier (PPF) is a boundary which shows the combinations of two or more goods and services that can be produced whilst using all available factor resources efficiently.

Posted to Economics Q&A -

•Q&A - Markets -

•Introductory Economics -

Tags: q&a;revision
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Q&A: Changes in pattern of national output

Tuesday, April 28, 2009

A student posts this question:

Sectoral contribution to the national income and employment have changed over a period. Explain in context of structural changes in economy.

Thanks for just posting an exam question! How imaginative! Briefly here are my thoughts:

Posted to AS Macro -

•Economics Q&A -

•Q&A - Macro -

•Economic Growth -

•Development Economics -

Tags: unemployment, demand, employment, gdp, production, manufacturing, trade
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Q&A: Why do cartels often collapse?

Tuesday, April 14, 2009

Recent business history both here in the UK and in international markets is littered with examples of cartel-behaviour by businesses that seem to have come unstuck. Just type price-fixing into Google news and see what comes up! Even on the day I am writing this blog answer, the FT reports that three cargo airlines have agreed to pay fines totalling $214m for their roles in a global conspiracy to fix prices for air freight. Bloomberg reports that a former sales executive at Hitachi Displays Ltd. has been charged with participating in a global conspiracy to fix prices for liquid crystal displays sold to Dell Inc. And in Ireland, a former director of a Dublin car company has been given a 15-month suspended prison sentence and fined €160,000 after pleading guilty to charges of price-fixing.

Posted to A2 Micro -

•AS Micro -

•Economics Q&A -

•Q&A - Markets -

•Business Economics -

•Monopoly -

•Oligopoly -

•Competition Policy -

•Market Failure -

•Market Equilibrium and Price -

•Price Mechanism in Action -

Tags: competition, production, capacity, incentives, cartel, oft, price fixing, collusion
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Q&A: Are there countries not in recession this year?

Monday, April 13, 2009

The simple answer is yes! Although the world economy is forecast to experience a recession this year (Deutsche Bank have pencilled in a 1.9% contraction in global GDP for 2009 and the G7 nations will see output slump by 4.5%), there will always be countries at different stages of the business cycle and those who for one reason or another manage to avoid the worst of the fall out from the global financial and economic crisis. Using forecasts for 2009 from the economics team at Deutsche Bank here are some of the countries expected to avoid a full-blown recession:

Posted to A2 Macro -

•AS Macro -

•Economics Q&A -

•Q&A - Macro -

•Emerging Economies -

•Brazil Economy -

•China Economy -

•Indian economy -

•Russia Economy -

•Credit Crunch -

•Economic Growth -

•GCSE Economics -

•Global Economy -

•Recession Watch! -

•UK Economy -

Tags: recession, gdp, trade, slowdown
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Q&A: What is a scrappage subsidy and will it work in the UK?

Tuesday, April 07, 2009

A scrappage subsidy is a “pay-to-scrap” scheme where a government offers a financial incentive to car buyers if they scrap a car that has reached a specified age and in its place they are offered a payment towards the cost of a new vehicle. Germany and France both offer scrappage subsidies to consumers and there is a growing number of voices from inside the UK business community and motor vehicle industry clamouring for one to be launched in the UK. The Retail Motor Industry Federation and the Society of Motor Manufacturers and Traders (SMMT) are at the head of the queue lobbying for a scrappage scheme to be introduced as soon as possible.

Posted to AS Macro -

•AS Micro -

•Economics Q&A -

•Q&A - Markets -

•Aggregate Demand -

•Consumer Spending -

•Subsidies -

•Manufacturing Industry -

•Market Equilibrium and Price -

•Nature of Demand -

•Transport Economics -

•UK Economy -

Tags: demand, supply, costs, manufacturing, capacity, incentives, subsidy, scrappage, vehicles
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Q&A: What is fiscal retrenchment?

Fiscal retrenchment is a term that you are going to hear a lot more about in the coming years. In short it means that a government has to introduce deflationary fiscal measures designed to reduce the amount of borrowing and debt that has been run up during the downturn and economic/financial crisis.

Posted to A2 Macro -

•AS Macro -

•Economics Q&A -

•Q&A - Macro -

•UK Economy -

•Fiscal Policy -

Tags: downturn, debt, borrowing, budget deficit, ireland
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Q&A: Which indirect taxes give the government to most revenue?

Sunday, April 05, 2009

More revision notes on indirect taxes can be found here

Which indirect taxes give the government to most revenue?

For the UK government value added tax provides the biggest source of revenue. In November 2008, VAT was cut from 17.5% to 15% on a temporary basis in a move by the government designed to stimulate consumer spending – the decision was said to be worth around £12 billion of lost tax revenue for the UK Treasury.

There are many other indirect taxes and our chart below highlights six of them. As you can see the flow of tax revenue from indirect taxes on tobacco provides a very important source of money for the UK government. Together these six indirect taxes add nearly £20 billion annually into the government’s coffers.

In a recession where consumer spending is falling and where there is a chance of a period of persistent price deflation, the UK government will see a fall in revenue from indirect taxes.

Posted to AS Micro -

•Economics Q&A -

•Q&A - Markets -

•Indirect Taxes -

•Market Equilibrium and Price -

•Nature of Supply -

•Fiscal Policy -

Tags: price, vat, indirect tax, duty
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Q&A: What is a positive sum game?

Saturday, April 04, 2009

A positive sum game refers to the outcome of a decision or a policy or a negotiation involving at least one agent. And in this outcome a positive sum game occurs when no one wins at someone else’s expense - indeed the sum of positives and negatives (wins and losses) is positive.

A good example of this are the mutually beneficial gains from trade in goods and services between nations. If businesses or (more generally) countries can find a terms of trade in which both parties benefit then specialisation and trade can lead to an overall improvement in the economic welfare of both countries.

Many environmental campaigners believe that countries should do more to recognise the benefits of cooperation in designing policies and incentives to mitigate the impact of climate change. Surely there are positive sum games from agreement on strategies to lower C02 emissions for example by promoting innovation and the diffusion of technological change?

At a micro economic level positive sum games might be discussed in the context of negotiations between employees and employers or businesses in an oligopoly recognising their mutual interdependence and agreeing to cooperate in ways such as joint research projects (legal under EU competition law). Joint ventures are good examples of businesses understanding the power of collabborrative ventures.

A good recent example of this is the joint venture agreed by O2 and Vodafone to build and share new network sites together. They will share the masts, antennas, cabinets and power supply, as well as consolidate their existing G and 3G masts.

Posted to Economics Q&A -

•Q&A - Macro -

•Q&A - Markets -

Tags: supply, competition, trade, incentives, positive sum game, zero sum game
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Q&A: What is the difference between a depression and a recession?

Thursday, April 02, 2009

This is a good question and you wont be surprised to hear that economists have different views on the distinction between the two! My answer is that the difference is a matter of degree both about the duration of an economic downturn and also the severity.

Posted to A2 Macro -

•AS Macro -

•Economics Q&A -

•Q&A - Macro -

•Credit Crunch -

•UK Economy -

Tags: recession, unemployment, downturn, confidence, depression
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Q&A: Full employment and inflation

Wednesday, April 01, 2009

When the economy is at full employment, what measure is most effective in reducing inflation in the short run?

This question hints at the possible trade-off between two macroeconomic objectives - namely high employment and stable prices.

Posted to A2 Macro -

•AS Macro -

•Economics Q&A -

•Q&A - Macro -

•Inflation -

•Unemployment -

Tags: unemployment, inflation, employment, capacity, full employment
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Q&A: What is the Easterlin Paradox?

The Easterlin Paradox concerns whether we are happier and more contented as our living standards improve. In the mid 1970s Richard Easterlin drew attention to studies that showed that, although successive generations are usually more affluent that their parents or grandparents, people seemed to be no happier with their lives? It is an interesting paradox to study when you are writing about measuring economic welfare and the standard of living.

Posted to Economics Q&A -

•Behavioural Economics -

Tags: welfare, richard layard, easterlin paradox, daniel kahneman, well-being, richard easterlin
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Q&A: Will the UK economy’s PPF shift inwards because of the recession?

Tuesday, March 31, 2009

Will the UK economy’s PPF shift inwards because of the recession?

This is an interesting question and hints that a deep recession that lasts longer than we expect can have a damaging effect on the UK economy’s supply-side performance and productive potential.

Posted to A2 Macro -

•AS Macro -

•Economics Q&A -

•Q&A - Macro -

•Aggregate Supply -

•Introductory Economics -

•UK Economy -

•Unemployment -

Tags: recession, unemployment, supply, capacity, ppf
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Q&A: Government deficit and current account deficit

Monday, March 30, 2009

What is Current Account Deficit and Government Deficit and do they have any effect on Aggregate Demand or Supply

This question flags up what seems to be a frequent confusion among students - the difference between a current account deficit and a government fiscal deficit

Posted to AS Macro -

•Economics Q&A -

•Q&A - Macro -

•Balance of Payments -

•Aggregate Demand -

•Fiscal Policy -

Tags: recession, trade deficit, current account, budget deficit, infrastructure
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Q&A: What is crowding out?

Crowding out is an idea often used by fiscal conservatives to suggest that a strategy of using fiscal policy to stimulate demand during an economic recession might not be particularly effective.

Posted to A2 Macro -

•AS Macro -

•Economics Q&A -

•Q&A - Macro -

•Credit Crunch -

•Keynesian Economics -

•UK Economy -

•Fiscal Policy -

Tags: recession, expectations, borrowing, fiscal stimulus, crowding out
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Calling all Economics students

Q&A Macro
Q&A Markets
Q&A Market Failure

I expect that many of you have or are just about to head off for your revision packed Easter break before your final AS and A2 exams in early June. The Economics blogging team at Tutor2u would very much like the material found on the blog over the coming weeks to be driven by you. If you want some help with past paper questions or theory content from the syllabus then do drop us a line, we can then produce relevant material to your revision needs. We are very keen to develop the Q&A sections of the blog

If you have a revision question that we can consider blogging about please submit your form here

Good luck with your revision!

Posted to Economics Q&A -

Tags: revision, tutor2u, economics
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Q&A: What is a reserve currency?

Sunday, March 29, 2009

This question is in the news at the moment. The Chinese central bank has proposed replacing the US dollar as the world’s reserve currency with a new hybrid currency controlled by a beefed up International Monetary Fund.

Posted to A2 Macro -

•Economics Q&A -

•Q&A - Macro -

•Emerging Economies -

•European Economy -

•Exchange Rates -

•Global Economy -

•US Economy -

Tags: euro, china, dollar, foreign exchange, reserve currency
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Q&A: Is capital investment always more profitable in inflationary times?

Saturday, March 28, 2009

Is capital investment are always more profitable in inflationary times?

One way of measuring the profitability of an investment project is as a rate of return on capital employed. The real return makes an adjustment for the effects of inflation and it is the expected real return that should drive investment decisions.

Posted to Economics Q&A -

•Q&A - Macro -

•Aggregate Demand -

•Capital Investment -

Tags: prices, risk, costs, investment, capacity, profit
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Q&A: Suggest and evaluate policies that the UK government can use to tackle the recession?

Friday, March 27, 2009

Suggest and evaluate policies that the UK government can use to tackle the present recession?

This sounds a bit like a homework essay to me! So I won’t write a detailed answer to it but instead offer some links to recent blogs and other articles on this topic.

Posted to Economics Q&A -

•Q&A - Macro -

1 comment so far. Permalink

Q&A: Externalities and External Costs and Benefits

Thursday, March 26, 2009

Could you please explain the meaning of externalities in relation to marginal social cost, marginal social benefit?

Externalities are third party effects arising from production and consumption of goods and services for which no appropriate compensation is paid. Externalities occur outside of the market i.e. they affect people not directly involved in the production and/or consumption of a good or service. They are also known as spill-over effects.

Posted to AS Micro -

•Economics Q&A -

•Market Failure -

•Externalities -

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Q&A: What is a Keynesian stimulus and will it work?

Wednesday, March 25, 2009

A Keynesian–style stimulus happens when policy-makers deliberately seek to stimulate one or more of the components of aggregate demand to boost output, jobs and incomes during an economic recession.

Posted to A2 Macro -

•AS Macro -

•Economics Q&A -

•Q&A - Macro -

•Aggregate Demand -

•GCSE Economics -

•Keynesian Economics -

•Macroeconomic Policies -

•Fiscal Policy -

•UK Economy -

•Unemployment -

Tags: recession, unemployment, investment, confidence, debt, multiplier effect, borrowing, keynes, fiscal stimulus, animal spirits
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Q&A: Why is youth unemployment so high?

Tuesday, March 24, 2009

Youth unemployment rates are typically higher than for the rest of the working population. Nearly 4 people out of 10 who are unemployed are aged between 16 and 24. And as our chart shows over 100,000 young people have been out of work for over a year, a figure that has doubled since 2002 although it is much lower than it was when the UK economy was coming out of recession in the early 1990s.

Posted to A2 Macro -

•AS Macro -

•Economics Q&A -

•Q&A - Macro -

•Market Failure -

•Factor Immobility -

•UK Economy -

•Unemployment -

Tags: recession, unemployment, employment, pay
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Q&A: Is roadbuilding an effective way of reducing unemployment?

Saturday, February 28, 2009

Q&A: To what extent would a major road building project by the government be an effective way for the government to tackle unemployment?

Road to recovery or bridge to nowhere?

Road-building projects would count as capital investment spending and (if financed by borrowing) a net injection of demand into the circular flow of income and spending. The question mentions a major programme hinting at projects that together could amount to many millions of pounds.

The question also invites the student to focus on whether this is an effective way to tackle unemployment and so a good answer will go back to the main causes of people being out of work and address how a spending programme might tackle this.

Posted to A2 Macro -

•AS Macro -

•Economics Q&A -

•Q&A - Macro -