Economics Explained, by Evan
Here is a great little article on the Today programme’s website by Evan Davis, looking at the relative merits of Plan A - Austerity - vs Plan B - government spending. He takes the arguments of Jonathan Portes, director of the National Institute of Economic and Social Research, who believes that what’s required at the moment is a short term, temporary fiscal stimulus to boost output and jobs and of Roger Bootle, managing director of Capital Economics, who thinks it would be dangerous for the government to divert from its Plan A of spending cuts.
read more...»Evaluating the effect of Quantitative Easing - A Case Against?
The effect of QE on savers is examined here in this excellent video and studio discussion led by Faisal Islam, the Economics Correspondent at Channel 4 news. Those households that don’t borrow are less interested in sustained low interest rates. One significant effect of QE and the decision to keep the base rate at 0.5% is to effectively eliminate the returns to saving. Is the policy worthwhile?
read more...»Stephanie Flanders explains Quantitative Easing in 60 seconds
This has to be amongst the best 60 seconds of Economics you’ll ever see on television. The superb Stephanie Flanders takes a leaf out of the RSA playbook to explain the basic theory behind quantitative easing. Wonderful!!
read more...»The impact of interest rates
The US economy may have grown at nearly 3% in the last quarter of 2011, but the Federal Reserve announced last week that they do not expect to raise interest rates until the end of 2014. It has cut its growth forecast for 2012 from 2.5-2.9%, to 2-2.7%, and says that the economy faced “significant downside risks” and that it “expects to maintain a highly accommodative stance for monetary policy” - which I take to mean expansionary.
This article about that interest rate decision is useful for economics teachers and students as it highlights a couple of results of that announcement; firstly that the dollar’s exchange rate immediately lost value as the interest rate made the US a less attractive place to keep cash, and secondly that government benefited as the cost of its borrowing in markets for 10 years fell from 2.06% to 1.94%, as traders priced in the lower medium-term interest rate expectations.
Unit 4 Macro: Focus on India - Supply Side Issues
The rapid growth of the India economy has been helped by her economy enjoying a number of supply-side advantages. That said there remain structural supply-side weaknesses that will limit her continued competitiveness and development. This blog looks at the plusses and the minuses.
read more...»Unit 1 Micro: Can the UK Computer Games Industry Grow
Britain is one of the world’s biggest exporters of creative products - from live TV shows and music to books, arts, architecture and films the economy has built up an enviable global reputation for excellence and a growing trade surplus to aid our balance of payments.
Computer games falls squarely into this category but, according to TIGA - the trade association representing the UK’s games industry - unless there is renewed government support, the future of this sector is at risk. TIGA claims that the British games industry is suffering a significant ‘brain drain’ as talented programmers and artists leave the country to work abroad.
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 4 Macro: Money, Debt and the New World Order
“All money these days is really a form of debt from somewhere else. We know now in 2012 that our debts cannot be repaid in full.”
Philip Coggan from the Economist was on fine form at the LSE last week when he spoke to a packed audience in the new academic building on the subject of his latest book. When trust in the monetary system breaks down we are in a very difficult place and, in a wonderfully broad historical sweep Philip Coggan offered some revealing insights into what a reformed global monetary system might look like in the years ahead.
read more...»France and Flexible Employment
This article could be useful as an illustration of the EU context in relation to employment in general, and flexible employment in particular. Attracting inward FDI is arguably a significant benefit of UK membership of the EU, and one of the advantages which the UK can offer compared to, say, France is relatively flexible employment laws.
read more...»Unit 4 Macro: Russia Joins the WTO
I am using Russia’s entry to the World Trade Organisation in my teaching on international trade and development this term. It appear to be a significant moment for the global economy. Russia is the last member of the Group of 20 major economies to join, after China gained membership in 2001. Progress towards membership has been delayed by numerous geo-political issues not least the disputes with neighbouring Georgia.
Joining the WTO involves making a commitment to the rules of the international trade system - for Russia as with other new members, this will mean reduced import tariffs, the staged elimination of industrial domestic and export subsidies, and better greater access to foreign companies. Russia will also have to improve adherence to international accounting standards.
* Russia’s average bound tariff will be 7.3 percent for manufactured products (compared with 9.5 percent currently)
* Farm tariffs will be 10.8 percent (compared with 13.2 percent currently)
* Russia commits to zero export subsidies on agricultural products - to end by 2017
* Russia will privatise 100 pct of United Grain Company by 2012
* Russia will introduce duty-free and quota-free provisions for the least developed countries
* Russia will eliminate preferential tariffs for carmakers making large investments in Russian-based production by July 1, 2018
* Russia plans to introduce International Accounting Standards
How would you use a supply and demand diagram to show the impact of a fall in an import tariff?
Russian exports as a share of her GDP has actually been on a declining trend in recent years. Will movements towards trade and foreign investment liberalisation reverse this through trade creation and FDI effects? How can a stronger commitment to becoming an open economy supprot higher living standards over time? What are the risks for Russia of WTO accession?
read more...»Unit 2 Macro: Living below the Breadline
This article on the appalling depth of workless households in Liverpool is a reminder of the multiple aspects of relative poverty and economic/social exclusion.
The causes of unemployment are complex - many are structural - but it is hard to draw much if any optimism from reading this article. By some estimates over one third of households in Liverpool have no one in work and second and third generation unemployment is not uncommon. This is a must article for students to read if they want a better awareness of the human cost of non-employment. Read: Below the breadline on Liverpool’s workless estates
read more...»Petrol, tax, and the downward sloping demand curve.
Nearly every country has a tax on petrol, although the amount varies widely. And given that the landed price of petrol is quite similar (see the graph below), it can be seen what effect the tax has on quantity demanded. The results are very much in line what economic theory would predict and there are also clear implications for countries that want to reduce petrol consumption.
read more...»Inflation - what’s up, what’s down and what’s going to happen next
Just as the Monetary Policy Committee have been saying for a while, inflation is starting to fall back towards their target. The fall to 4.2% in December is rather sharper than expected, and is the biggest monthly fall since April 2009. With further falls almost certain in the next few months as the VAT rise and energy price hikes roll out of the 12-month figures, analysts have commented today that this will leave the opportunity for the MPC to inject further rounds of QE into the economy with less fear of triggering too much demand-pull inflation.
read more...»Indicators of Financial Stability
This mornng the Bank of England published a letter from the Governor to Andrew Tyrie MP, Chairman of the Treasury Select Committee which is discussing financial stability policy. The letter provides some simple indicators that might be used to help monitor financial stability.
read more...»Unit 2 Macro: Videos on Productivity
Here is a selection of short video clips that might be useful when teaching the economics of productivity as part of the AS macro course. I often start with the “Fast Hands” video clip (one minute only) because it raises all kinds of issues about division of labour and the quality of life of people who do these tasks. And the short 25 second clip on the world’s fastest hand is guaranteed to make a mark! If you have some other videos on productivity to share please leave a link in our comment slot at the bottom of the blog.
The Guardian business web site has this excellent photo stream on life inside the Nissan car factory. Follow them on Twitter
read more...»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 4 Macro: UK Bond Yields Reach Record Lows
The yields on UK government issued bonds has been falling steadily in recent months and, as we turned into January 2012, the yield on ten year government debt edged below 2% - when the UK government continues to borrow eye-wateringly large sums, why are bond yields so low?
The yield on a bond is the income received from a fixed-interest bond, calculated as a percentage of the price paid for it. So a ten year bond bought for £10,000 and paying a fixed annual interest of £600 would offer a yield of £600 / £10,000 = 6.0% per annum.
If the market price of a bond rises - for example, it rises from £10,000 to £12,000, the fixed interest remains the same (£600) but the yield will fall. £600 / £12,000 expressed as a percentage = 5%.
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...»Unit 2 Macro: Quantitative Easing in the UK
On 11th March 2009 the Bank of England started a policy of quantitative easing. QE is also called an ‘asset purchase scheme’. It was extended to a total of £275 billion in October 2011 and is likely to be expanded further during 2012.
Other central banks have introduced quantitative easing in recent year through huge purchases of government bonds. Indeed the economist Gavyn Davies, writing recently in the Financial Times has calculated that “around one half of the bonds issued to fund the budget deficits of the US, UK and eurozone since 2008 have been acquired by the Fed, BoE and ECB.”
This is a remarkable change in the conduct of monetary policy in advanced nations.
Unit 2 Macro: Revision Quiz on Monetary Policy
Here is a ten question revision multiple choice revision quiz on monetary policy designed for students taking AS macroeconomics (unit 2). The quiz has been created using the free software Zondle.
read more...»Unit 4 Macro: Exchange Rate Economics - Where next for the US Dollar?
Is the US dollar going to be knocked off its perch as the only true global currency? Professor Barry Eichengreen, the author of Exhorbitant Privelege argues that there are strong reasons to believe that the US dollars’ position in the world financial system will decline in the years ahead.
The US dollar has been for many years the world’s most powerful currencies but this power seems to be waning as other currencies rise in significance and the US economy struggles to recover from their financial and economic crisis and the fiscal challenge. Eichengreen argues that there will be three truly global currencies going forward - the dollar, the Euro and the remnimbi.
read more...»Surveys, statements and predictions for 2012
As one of many turn-of-the-year round-ups, the BBC has polled 34 ‘leading economists’ in the UK and EU to find out what they expect for the EU in 2012. Unfortunately this report of the results doesn’t give details, but says that25 of the 27 respondents expect recession to return to Europe next year, with many finding it fairly likely that the eurozone will break up, and 20% expecting that at least one member will leave during next year.
read more...»Resources on Keynes and Hayek
In this blog we are putting together a suite of web-based resources on the clash between supporters of Keynes and Hayek, a debate that have gathered momentum in recent times largely in the wake of the global financial crisis.
read more...»Unit 4 Macro: Human Capital and Economic Growth
In A2 macroeconomics the underlying causes of economic growth and development and constraints on both of these are covered in more depth. One of the concepts students might be familiar with is that of human capital.
I have always summarised the idea of human capital as being a measure of the overall quality of the human input available to produce goods and services in an economy. The ONS have published a new study on the value of human capital in the UK and they draw on a definition given by the OECD
read more...»The Eurozone Crisis Explained (again!)
A superb, relatively simple, explanation of the Eurozone debt crisis with good data on historical compliance to the ‘Stability and Growth Pact’. Plenty data for students to get their teeth into. How significant is the level of government debt?
Prospects for the UK Economy in 2012 - PowerPoint download
Geoff has kindly made available for download his presentation made to students at Dulwich College recently in which he analyses the prospects for the UK Economy in 2012. A Slideshare-streamed version is also provided below.
read more...»Unit 4 Macro: The Rise in Self Employment
One feature of the jobs market data in the UK in the last couple of years has been the surge in measured levels of self-employment (the data is collected as part of the huge Labour Force Survey)
The total number of self-employed people in the UK increased by 166,000 in the three months to the end of November to reach 4.14 million - this is the highest number of self-employed people since comparable records began in 1992.
What helps to explain the growth of self employment? Optimists might claim that it is a sign of a pick up in entrepreneurial activity in Britain as many people who have been made redundant decide to strike out on their own by starting a new business.
A more realistic explanation is that rising self employment is a sign of macroeconomic weakness. Hundreds of thousands of people have lost their jobs and a sizeable number will simply re-categorise themselves as self employed when they are quizzed as part of the Labour Force Survey. They are likely to be scouting around for jobs and are much likely to take one or more part time jobs when they can.
Part time employment was up sharply, but do not forget that the number of full-time employees fell by 188,000 in the three-month period covering August, September and October - that is more than 2,000 people per day losing their jobs.
read more...»
Unit 4 Macro: Celebrating (?) Ten Years of Euro Notes and Coins
The European Central Bank has just released a special six minute video celebrating the first ten years of the euro banknotes and coins! The new head of the ECB makes an appearance but does the video give enough time and emphasis to the structural problems and fault-lines of the system? And will the video become an interesting historical relic before we elect to use it in the classroom? Anyway…..here is the link
read more...»
