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The weekend newsletter from the Institute of Economic Affairs has this 2-minute video about the regressive impact if indirect taxation on those with the lowest incomes. The message comes very much from the free-market perspective of the IEA, which may or may not be to your taste, but serves as a very good stimulus to discussion and analysis. The data that supports their argument for a reduction in indirect tax can be found in a report titled Aggressively Regressive.
When the government still has to borrow an extra £90bn per year, in spite of all their efforts to cut spending, then the rate of interest they need to pay in order to get access to that borrowing has got to be very important. George Osborne certainly thinks so; a key reason for his deficit-reduction strategy is to retain the confidence of the bond markets, so that bond-buyers are prepared to lend to the UK at low rates. This week, that rate touched a historic low of 1.396 per cent on 10-year bonds, and as the FT report, longer term 30-year gilt yields, considered particularly reflective of the country’s inflation prospects, also dropped to a record low of 2.102 per cent.read more...»
We all know that the UK government has run up a colossal national debt - £1475bn as I type this sentence. And it’s rising fast, since the UK government also has a fiscal deficit to finance this year, which will add even more to the total stock of debt.
Yet the cost of borrowing all this money is falling to new record lows. Why? And should this influence the government’s economic policy in any way?read more...»
What does this mean? Stated simply, it means that ratings agencies – who try to judge how reliable a debtor is – have issued a warning about the Russian government. If traders in the bond market doubt Russia’s ability to pay back debts, it will make it much harder, or at least more expensive, for Russia’s government to borrow.read more...»
Japan has suffered years of persistent deflation, and needs expansionary policy to change that. But they also have the highest public debt of any of the developed countries, at just under 230%, and need contractionary policy to change that. How are they to manage such a difficult trade off?read more...»
I love a story that really can resonate with students and get them 'irked'. It struck me yesterday that reading about a recent Bristol University research paper that claims that school admission policies lead to greater inequality might strike a chord with some young people.
The study suggests that the common policy in the UK of prioritizing admission places in primary and secondary schools based upon how close a student lives to that school continues a cycle of inequality. The argument is that, wealthier people are more able to afford to move to areas with higher performing schools and so are more inclined to do so. People without that facility have less choice in where to send their children and may have to stick with local schools despite their relative poor performance. So the cycle continues ..... poorer people receive a poorer quality education and are therefore less equipped to get the necessary qualifications to earn higher wages.read more...»
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.
Ed Miliband has told his party's national policy forum that the party must change policy from their traditional approach of raising spending and taxes, saying ''Higher spending is not actually the answer to the long-term economic crisis''. Some members of the forum wanted to force a vote for an immediate increase in public spending should Labour win the next election, but proposals committing Labour to new spending on housing and school meals were withdrawn at the forum in Milton Keynes.read more...»
Just in time for the unit 2 exam, and in good time for unit 4 students, this week's Deloitte Monday Briefing looks at the reasons behind the rapid recovery of growth in the UK. The Monday Briefing always makes very good reading, and often features analysis which is written with great clarity by Ian Stewart, their Chief Economist in the UK - to subscribe and receive an email every week, visit www.deloitte.co.uk/mondaybriefing
Below, I have copied much of this week's briefing with a little additional comment to emphasise the role of monetary and fiscal policies, and to look forward in order to consider how these may be evaluated in order to assess the contribution they may make in the near future.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...»
We have considered the three key areas of macroeconomic policy – monetary policy, fiscal policy and supply-side policies.
In the longest essay questions on data response papers examiners often ask students to consider how effective these are when they are used to manage the economy. How can we judge whether the performance of the economy is improving as a result of them? In this session we will remember how to assess macroeconomic performance, think about some of the issues with measuring growth, and focus on ways to evaluate the effectiveness of different policiesread 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...»
The new annual report from the Asian Development Bank outlines what developing Asia needs to promote inclusive growth in the years ahead. Governments in the region should tackle widening inequality that is keeping millions poor, by using fiscal policy to help close income and wealth gaps and promote more inclusive growth, says the theme chapter of Asian Development Outlook 2014. The importance of equity in shaping future growth and development continues to gain momentum across the world and not just in the fast-growing Asian region.read more...»
Here's a short but fun classroom starter to stimulate discussion about how the Government Spends its money.
Based upon information from a BBC article showing how Government spending has changed since 1953, the resource asks students to separate 'blocks' representing the percentage of overall spending on each department (e.g. health, defense) into those that they think represent spending in 1953 and those that represent 2013. Having separated the blocks, students must then re-arrange the blocks into perfect squares on the printable 'mats' provided as part of the resource.
As well as stimulating discussion about how the Government spends its money and changes in its priorities, it may provide a useful hook for getting your students to remember the proportion of spending the Government places on each of its department which they can use as evidence within their exam answers.
Click on this link to download the resource.
Click on this link to go to the original BBC article.
Here is a good applied example of how fiscal policy can be used to help improve the UK's net trade position. Export finance is often a problem especially for small and medium sized businesses looking to expand beyond the domestic economy to new export markets. Improving the trade position is a key aspect of re-balancing the economy and make the recovery more sustainable.
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...»
Benjamin Franklin famously said that the only things for certain in life were death and taxes. In India, many people believe in an afterlife, and that taxes can be easily avoided. News that the Indian economy continues to slow, with an ever-widening budget deficit, has brought discussion about the country’s current tax system and collection.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...»
The 2014 Budget will take place on Wednesday 19 March. Here is a general knowledge quiz on the Budget and the current state of the UK economy that you might want to take to test your understanding! Good luck! We will be covering the budget speech and the economic background to it extensively here on the Tutor2u blog.read more...»
There is plenty of evidence for the assertion that increases in indirect tax have led to the burden of of those regressive 'stealth taxes' falling on lower income earners. However, Norman Lamont, former Chancellor of the Exchequer, was on Newsnight on Thursday night to discuss the direct tax effects of income tax He was arguing for the threshold at which the higher tax rate of 40% kicks in to be raised.read more...»
To follow up on Hugh Pym's video which explains the difference between government debt and government deficit, here is another fantastic resource. Definitions, data and descriptions of debt and deficit, chapter and verse on the structural deficit and on government borrowing. It looks like the perfect lesson resource - as its title says, all you need to know.
The BBC's Hugh Pym helps us to avoid a common exam mistake - namely confusing debt with deficit.read more...»
Gains from international trade, the history of European economic integration, fiscal and monetary policy, the launch of the €uro and the 2008 financial crisis are all clearly animated and explained in this superb video. In just over 12 minutes it explains the problems of the €urozone and the threats and challenges it still faces. Definitely one to watch for the closing stages of an A2 macro course.read more...»
Celebrations in Ireland as the credit ratings agencies no longer regard Irish government debt as ‘junk’, according to the BBC. What does this mean and why does it matter? Here are some bond market reminders and links, helping to explain how governments borrow, and at what cost.read more...»
My A2 macro students are now looking at some fascinating macro policy challenges facing a range of countries. This week they choose one from two set assignments.
The first offers them an opportunity to analyse some of the causes of high inflation in India and consider how much of a threat it is to India's continued growth and development.
A second assignment looks at Abenomics in Japan and whether it can lift the Japanese economy out of over two decades of slow growth and deflationary pressures. I am hoping that there will be some interesting insights allied to good A2 macro analysis as students crack on with their independent research.
Download the assignment sheet below and I have added in some suggestions for further reading on the two topicsread more...»
An initial change in aggregate demand can have a much greater final impact on the level of 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 stimulate further rounds of spending – in other words “one person’s spending is another’s income." This can lead to a bigger eventual effect on output and employmentread more...»
Getting out of our slump is challenging economics policy makers.read more...»
UK immigrants who arrived since 2000 are less likely to receive benefits and less likely to live in social housing than UK natives. What’s more, over the decade from 2001 to 2011, they made a considerable positive net contribution to the UK’s fiscal system, and thus helped to relieve the fiscal burden on UK-born workers.
The positive contribution is particularly evident for UK immigrants from the European Economic Area (EEA – the European Union plus three small neighbours): they contributed about 34% more in taxes than they received in benefits over the period 2001-11.
These are the central findings of a comprehensive analysis of the fiscal consequences of immigration to the UK, published today by the Centre for Research and Analysis of Migration (CReAM) at University College London.read more...»
This is an updated revision presentation on aggregate demand in the UK economy - designed for AS macro students. Revision notes on aggregate demand can be found here. Click here to take a revision quiz on aggregate demand.read more...»
Changes to key interest rates by central banks have a significant impact on economic activity during periods when the economy is expanding. Unfortunately, they seem to have virtually no effect during recessions – the time when the stimulus of monetary policy is most needed.
These are the central findings of research by Professor Silvana Tenreyro and Gregory Thwaites, published by the new Centre for Macroeconomics at the London School of Economics.read more...»
Most of us are keen to see the economy grow – as measured by GDP – and in the short run, the most likely driver of growth will be aggregate demand (AD). But which component of AD do we want to grow the most?read more...»
Are government bonds risky? This question arose a year ago, during a meeting with my bank. I wanted a low risk portfolio, but they noted that I did not want to hold UK government bonds. Whether it was the regulator who was insisting, or whether it was the way the bank was interpreting some Delphic pronouncement of the regulator, was not quite clear. But I could not be in both categories. Bonds were deemed low risk. So if I wanted to continue not to have bonds, my risk profile would have to change.read more...»
The Focus Circle is quickly becoming one of our most popular teaching & learning activities and here is a version that comes ready-made for a lesson macroeconomic policy.
In the Focus Circle, students are shown up to 4 topic areas (categories) inside. Around the Focus Circle are up to 18 words/ phrases which belong to one or more of the different categories. Students select 1 of the topic areas and decide which of the key words/ phrases belong inside the Focus Circle (words that are specifically related to that topic area).
So, is currency intervention a supply-side policy? Is "forward guidance" part of fiscal or monetary policy? Can your students define the words or phrases they select? Can they provide an example to back-up their selection.
The possibilities for an engaging and effective lesson are endless...read more...»
SOME people are never satisfied! The evidence is mounting that the UK economy is now on the path to recovery. But to those who denied the possibility of any economic revival at all under the policies of “austerity”, this is simply not good enough. It is the wrong kind of recovery, they say. Fuelled by debt-based personal spending, unsustainable house prices, another crash, the doom-mongering litany more or less writes itself.read more...»
The GDP growth figures announced last week for the second quarter of this year have sent most people away on their holidays in a cheerier mood than last year. The recent weather has certainly helped. But gloomy clouds may hover over the exclusive settings of Tuscan villas and beach houses in Martha’s Vineyard, where bien pensant commentators and so-called Keynesian economists ritually gather for the summer.read more...»
Potential defaults in the Euro zone have been in the news again. In Portugal, the ruling coalition parties and the main opposition Socialists have been unable to agree on a European Union-led bailout plan after days of talks. Yields on the country’s 10 year bonds have approached 7 per cent, compared to the 1.5 per cent in Germany. There has been some improvement this week on the news that an early general election has been avoided, but yields still remain over 6 per cent.read more...»
In its annual assessment of the U.K. economy, the IMF called on the UK to invest in skills and infrastructure and increase banking sector competition in order to foster growth and achieve a sustainable recovery.
The report can be found here and contains plenty of relevant background information on the current situation facing the UK - here is a selection of quotes from their summary
The Chancellor's review of public spending tomorrow will generate a wealth of articles and analysis - here is a nice one to start with. The BBC website has looked at how the proportion of total spending which goes to each department has changed since 2004, when government spending was last 40.5% of national income: this is the figure that the Chancellor is aiming at in 2017-8 if the government reaches its targets, and is a stark contrast to the 47.4% reached in 2009-10.
Here is a great short two minute animation that introduces us to taxation in different countries - courtesy of the cartoonist KAL from the Economistread more...»
Here is a streamed (and downloadable) presentation on policies to cut unemployment in the UK economy.read more...»
The distinguished American academic economists, Carmen Reinhardt and Ken Rogoff, have been very much in the news. Their 2009 book, This Time is Different, was a comprehensive examination of financial crises over the past 800 years. The work received many plaudits and awards. They suggested that when the ratio of public debt to GDP in a country rose above the 90-100 per cent range, the chances of a financial crisis increased sharply. And the consequence was that economic growth in the country would be adversely affected.read more...»
Introducing The Government Game - tutor2u's new Economic Simulation game that is just perfect for revising for AS & A2 Macroeconomic Policy topics!
The recent debacle in Cyprus has essentially been shrugged off by the markets. The European Central Bank vigorously asserts the crisis in the Euro zone is over. So why is there continued unease about the financial viability of countries such as Spain and Portugal, a morass into which even the French are now being dragged?
Economic theory helps us understand a bit more about why this is the case. One thing which the last few years in Europe have shown very starkly is the massive difference between debt which is denominated in nominal terms and that which is in real terms. Nobel Laureate Chris Sims makes the point clearly in his recently published Presidential Address to the American Economic Association.read more...»
How Britain escaped from the travails of the Great Depression and achieved 4% a year growth in the years from 1933 to 1937 has important lessons for today’s policy-makers, according to research by Professor Nicholas Crafts, presented at the Economic History Society’s 2013 annual conference.read more...»
Here's a 5 to 10 minute activity for your post-Easter classes on macro-economic objectives - The Angry Economist! The design is very loosely based upon the 'Angry Bird' game.
You will need up to 8 volunteers to answer the 'Angry Economist's' questions.
Each student can choose a Government policy named on-screen and then the Angry Economist randomly chooses a macro-economic objective. The student has to to apply their knowledge and understanding of their chosen policy to the macro-economic objective shown.
The screen encourages the student to analyse and evaluate their own answer.
Use this link to access the resource. Give it a go!read more...»
I know that it is April Fools Day, but the new and quite radical social welfare reforms are starting to come in to play from this week and they are genuine!
Use this link to access a document that summarises the main changes to the welfare reforms. You can use this document as a lesson activity to discuss government policies to achieve macro-economic objectives.
Are these reforms just aimed at reducing the government's debt or are they aimed at improving the unemployment situation? Are they part of a wider supply-side set of policies aimed at making the UK workforce more effective and flexible?
Could students discuss each policy's strength and weakness? Could they suggest alternative and (possibly) more effective policies.
Useful graphic from The Guardian showing Government Revenues and Spending - helps to put some perspective on some of the announcements.
Politicshome's live Blog showing that hell hath no fury like pressure groups scorned, with plenty of useful links to early comments on The Budget.
Evening Standard's coverage here, it managed to pre-empt the Chancellor's statement.
With Evening Standard-like speed, please follow this link for a short set of questions about today's Budget.
the IFS outlined some aspects of The Rapidly Changing State and showed that predicted public spending in 2017-18 will take a similar proportion of national income as it did in 2003–04. But where and how its spent are quite different. This was alluded to by Penny Brooks earlier today.
Undoubtedly, many of this week's macro lessons will focus on tomorrow's Budget. This radio piece by Evan Davis might make a good starter - seven minutes from the Today programme, in which he examines the objective of simultaneously growing the economy and shrinking public spending.