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ECB sets negative interest rates - what does this mean?

Friday, June 06, 2014

The European Central Bank implemented a negative interest rate policy yesterday. Whilst we have become very accustomed to a low base rate in the UK, the ECB policy seems extraordinary.

The policy has come about due to a continued concern over the economic situation in the Eurozone.  Growth remains weak, unemployment is high and inflation sits below the target of 2% in many of the 18 countries.  The ECB is unlikely to follow the UK (and others) strategy of quantitative easing and so is left with fewer choices.

By setting a negative interest rate, the ECB wants to discourage banks from keeping larger reserves and promote a greater level of lending (and thus stimulate economic growth).

If you want to download a short Powerpoint slideshow that explains the policy and its possible consequences then click on this link.

The Value of Drugs and Prostitution

Thursday, June 05, 2014

The Office for National Statistics (ONS) has just increased the size of the British economy by nearly £10 billion, a figure equivalent to around 0.7 per cent of the economy as a whole. George Osborn has not waved a magic wand. We have not suddenly become more productive. The reason is that, for the first time, estimates of the value added by drugs and prostitution have been included. These activities are included in an economic sector called ‘miscellaneous goods and services’, which, as an indicator of its diversity, already contains things like life assurance and post office charges.

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RES Competition: Growth, Poverty and The Environment

The first title in the list of six available to RES entrants is a challenging one! 

Promoting growth and fighting poverty should be the priority in the developing world, not reducing greenhouse gases.” Do you agree?

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OCR F585 Toolkit Available - June 2014

Sunday, June 01, 2014

Here are some selected streamed excerpts from the OCR F585 revision toolkit for the June 2014 paper:

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Transport Economics: The Return of Trams - Benefits and Costs

Trams have been experiencing a revival in a number of towns and cities in the past few decades. Edinburgh is the latest city to invest in trams, and hopes they will boost local economy. But do the benefits outweigh costs? Manchester, Sheffield, Blackpool, Nottingham, Newcastle and Croydon have all installed trams / light rail and others are considering investment. 

The Edinburgh trams at running (at last) but the jury will remain out for a long time about their net impact on economic activity, traffic congestion and the broader health of Edinburgh and the local environs.

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Unit 4 Macro: Growth, Trade and Development in Sub Saharan Africa

This blog entry will feature frequently updated revision resources on economic growth trade and development aspects for a range of sub Saharan African countries

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F585: Latvia and Iceland Compared and Contrasted

Latvia and Iceland figure prominently in the pre-release material for the F585 June 2014 paper. Both have chosen different approaches to addressing their internal and external imbalances. Latvia is now a member of the Euro Zone. Iceland has suspended her application to join the European Single Market and continues to operate with a floating currency + some residual capital controls.

These charts below track their recent economic performance focusing specifically on government debt, economic growth, unemployment, inflation and trade balances. Which country has achieved the best overall macroeconomic performance in the last few years? Which important bits of contextual information can you jot down to use - along with the pre-release material - for the exam?

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Unit 2 Macro: Sex and Drugs included in Measured UK GDP

Saturday, May 31, 2014

The Office for National Statistics has, for the first time, included estimates of the impact of prostitution and illegal drugs in the national accounts. By the ONS’ reckoning they add about £10bn to the British economy. The assumptions used in making the calculations have been the subject of some criticism. I have summarised below the assumptions behind the estimated spending / income and output effects of including prostitution:

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Unit 2 Macro: Fears for Portugal’s ‘lost’ generation

High rates of long term youth unemployment will have hugely significant economic and social costs - this short news report from Al Jazeerah news looks at the issue of youth unemployment in Portugal

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Development Economics: Mozambique eyes commodities boom

Mozambique has discovered large amounts of natural gas - can the extraction of this act as a catalyst for economic growth and development or will Mozambique be added to the long list of countries who have experienced a natural resource curse?

Manuel Chang, Mozambique's minister of finance, says economic growth is only part of the story of a country's development. He tells Javier Blas of the Financial Times how his nation plans to make the most of its vast natural resources.

Manufacturing output in the African continent accounts for less than 2% of global manufacturing production.

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Unit 3 Micro: Ban on Eurotunnel ferry service confirmed by CMA

Friday, May 30, 2014

An important judgement from the newly established Competition and Markets Authority (CMA). They believe that competition is best served by having three major cross-channel service operators - namely EuroTunnel (rail) and two ferry operators.

The CMA has ruled against EuroTunnel being able to cross-subsidise the loss-making MyFerryLink on the Dover to Calais service because in doing so, it is likely to lead to the market exit of a rival provider and ultimately cause higher prices for consumers.

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Footballs in Pakistan: An Innovation Story

I am really grateful to Bob Denham from Econ Films who has shared with us this newly launched video from the International Growth Centre. It focuses on the competitive challenges facing Pakistan's football manufacturing sector as it loses market share to countries such as China and Indonesia. Footballs in Pakistan are still made mainly by hand, stitching together hexagons and pentagons - a process that leads to a lot of waste  and higher unit costs and which then affects the profitability of businesses in what is already a low-margin sector.

Could a team of economists find better ways of cutting the patterns for footballs and then align the incentives of workers and owners? This is a fascinating short video which captures many aspects of the Unit 4 development economics course. Enjoy!

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The link between unemployment and depression

Thursday, May 29, 2014

If you are like me, teaching unemployment starts with explanation of its causes and then moves on to its impact (before discussing possible solutions).  I've always found the 'impact' aspect relatively straight-forward; it would seem students find the concept of loss of output and its consequences fairly logical.  Discussing the long-term effects can be more difficult as young adults in full-time education may not be wholly empathetic towards the outcomes of job loss.

An interesting report came out from the Nuffield Trust recently (a copy is available from this link) about the increase in the prescription of antidepressants.  The increase from 15 million items prescribed in 1995 to 40 million items in 2012 is quite large but the report shows that the biggest jump has come during the economic downturn since 2008.  The report hypothesizes on a number of causes of this increase but does suggest a link between unemployment and the increase in prescription of antidepressants.  Perhaps it isn't a quantum leap to illustrate that there is a relationship between unemployment and depression but evidence of this nature may be valuable when making a point about the impact of unemployment (and its cost to society as a whole) in the class or as part of an exam answer.

Unit 4 Macro: Ten Years of EU Membership for Poland

Wednesday, May 28, 2014

May 2014 marks the tenth anniversary of Poland's accession to the European Union. Poland was easily the largest of the ten countries that came into the EU single market a decade ago. It was an important economic and geo-political moment for a country of just under forty million inhabitants. 

The country has always traded heavily with the EU and that trade dependency has deepened over the last ten years. According to economists at HSBC, Poland is well placed to sustain strong export growth even though much of Western Europe as a whole is struggling to escape from below trend growth.

Poland has had the most stable growth of any economy in Europe in recent years. It avoided a recession in the aftermath of the Global Financial crisis - helped in part by the depreciation of the Polish Zloty. The economy is the sixth biggest in Europe and in the top twenty five countries ranked by GDP. Steady progress in lifting relative incomes per capita towards the EU28 average has helped to grow the size of the middle-class consumer sector - a big opportunity for British businesses looking to invest in the country.

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Unit 4 Macro: Guinea and Rio Tinto Agree Investment Deal that might Double GDP

Guinea has agreed a huge new capital investment framework with a number of transnational partners including Rio Tinto and Chinalco to develop one of the world's biggest iron ore assets. This is a project that may double the country's GDP not least because as well as mining the iron ore, there is a proposal to seek funding to construct a 650km railway and a deep-water port to transport the rocks and minerals. 

It is one of those examples that comes along every once in a while that prompts both students and teachers to re-visit the economics of large scale foreign direct investment projects. Is this nation building of the old style? Or is the proposed investment framework one that could be genuinely transformative for one of the world's poorest countries?

Key points:

  1. Forecast of 45,000 new jobs created across the entire project
  2. State of Guinea will retain 15% of any proceeds from the mine
  3. In exchange, the joint venture with Rio Tinto / Chinalco will enjoy eight years' tax free operations in the country
  4. Production at the Simandou mine is expected to start within five years
  5. It will be Africa's biggest mine
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Obama allies lead the way on a positive approach to climate change

The fracking debate continues apace, with the announcement by the British Geological Survey that there are over 4 billion barrels of oil in the shale rocks of the South of England. The government has proposed new rules of access to land in order to speed up the exploitation of this oil, with payments of £20,000 being made to those living above the land where fracking takes place.

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World trade and global wage inequality

Large trade surpluses in developing countries lead to higher wage inequality in both poor and rich countries, which suggests that the way to alleviate global wage inequality is to target trade imbalances. These are the central findings of research by Rosario Crinò and Paolo Epifani, published in the May 2014 issue of the Economic Journal.

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Welfare benefits and job search - evidence from Norway

Unemployment benefits can address the failures of credit markets by enabling unemployed people to spend more time searching for a new job – even in countries like Norway, which have an equitable wealth distribution and a generous welfare state. That is the central conclusion of research by Christoph Basten, Andreas Fagereng and Kjetil Telle, published in the May 2014 issue of the Economic Journal.

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QE - New evidence of the impact on bond yields

New Bank of England research adds further weight to the view that central bank asset purchases (‘quantitative easing’ or QE) can affect government and corporate bond yields. In particular, the study, which is published in the May 2014 issue of the Economic Journal, finds evidence that QE works by reducing the supply of government bonds remaining in the private sector – what are known as ‘local supply effects’.

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Unit 3 Micro Business Economics Revision Guide

Saturday, May 24, 2014

Until the 3rd of June we are making available in streamed format the Unit 3 Business economics revision companion - a superb resource for AQA and ExExcel in particular

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World of Business: Focus on Business Pricing

What do prices mean and how are they set. A recent BBC World of Business podcast explored this and other issues.

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Two cheers for the global recovery, but doubts remain in the Euro zone

Worries are growing about some of the countries in the Euro zone slipping back into double dip recession. By convention, a recession is when national output (GDP) has fallen for two successive quarters. But this is far from being news. In a substantial number of economies, output is lower than it was not just two quarters ago, but three whole years ago, at the start of 2011.

The quarterly numbers have wobbled around up and down over this period, but they are now unequivocally below the 2011 figure in Greece, Ireland, Italy, Portugal and Spain. No surprises there. But the list goes on to include Finland, the Netherlands and the Czech Republic.

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Costs, benefits and ‘discounting’ the future

Thursday, May 22, 2014

Measuring costs and benefits is a crucial part of many microeconomic models. It’s central to understanding the pricing and output decisions firms make. You can’t understand how market failure may arise from the problems presented by externalities without measuring costs and benefits.

Yet making those measurements is often tricky, especially when some of the costs or benefits arise in the future.

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Unit 4 Macro: Economic Benefits of EU Membership

European countries are on average 12% richer a decade after they join the EU than they would otherwise be -- and the UK is 24% better off since joining the EU in 1973 than it would otherwise be. Those are among the findings of research by Nauro Campos, Fabrizio Coricelli and Luigi Moretti as written about on VoxEU.org. 

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Unit 4 Macro: China accepts creative destruction

Here is a short interview in which it is argued that China will increasingly focus on the quality of growth rather than the quantity. A Chinese slowdown may affect countries that have exported to China more than China itself.

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25 Questions on the UK Economy (Exam revision)

Monday, May 19, 2014

Here is a 25 question general knowledge quiz on the UK economy - great for last minute revision! Good luck!

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The ‘trade-off’ between work and leisure – update

If you’ve looked at labour markets, you’ll understand the basic theory: workers seek to supply more labour as wage rates rise, and the returns to work mount up. However, at some point, the marginal utility of extra leisure exceeds the marginal utility of extra income.

In other words, rich people start working less, because they can afford to. And for most of human history rich people had the most leisure, but that might be changing.

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Unit 2 Macro: PPP - What $1 Buys in China

Sunday, May 18, 2014

This short World Bank info-video looks at what $1 buys in China. In China, over 98 million people live on less than 6.3 yuan ($1) per day. 

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Unit 2 Macro: AS Macro Course in a Nutshell

Here is a listing of many of the presentations linked to our Quick revision guide for AS macro - I hope they are useful for the exam in the coming week

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Development Economics: The Clean Stove Initiative

Saturday, May 17, 2014

It is a staggering statistics, but around 3 billion people in the world cook and heat their homes using open fires and simple stoves burning biomass (wood, animal dung and crop waste) and coal. Over 4 million people die prematurely from illness attributable to the household air pollution from cooking with solid fuels. And more than 50% of premature deaths among children under 5 are due to pneumonia caused by particulate matter (soot) inhaled from household air pollution. This short World Bank video looks at the subsidies available to stove manufacturers under the Clean Stove Initiative.

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Thomas Piketty on Economic Inequality

There has been huge interest in the new book by Thomas Piketty entitled "Capital in the 21st Century". This blog entry will link to some reviews, news articles and short videos on Piketty's ideas and policy prescriptions. In "Capital," French economist Thomas Piketty explores how wealth and the income derived from it magnifies the problems of inequality. At the heart of it is a simple equation R > G - the rate of return on capital is higher than the rate of economic growth. Naturally there is a fierce debate about the data and his methodology!

Recent news articles:

Bad maths in Piketty's capitalism critique? (BBC)

Are we living in the second gilded age? (Linda Yueh, BBC)

Articles on Thomas Piketty from the Guardian

Review of "Capitalism in the Twenty First Century"(The Independent)

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Unit 4 Macro: The New Pacific Alliance

Here are some resources on the newly created Pacific Alliance which - in the short run - has achieved significant tariff  reductions but which in the long run seeks to create a new economic community / single market in the region.

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Inequality in New York - Can New York bridge the income inequality gap?

Friday, May 16, 2014

A BBC news report on the widening gulf in income and wealth inequality in the United States (and New York in particular). Income inequality is now as high as it was during the worst period of the 1920s. The richest Americans now hold one fifth of all of the country's income - and the top 10% actually hold half of it.

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The Euro: How The Euro Was Saved

In this short video report, Peter Spiegel, the Financial Times's Brussels bureau chief, recounts the moments in 2011 and 2012 when the euro came closest to collapse, and how politicians and bureaucrats battled over the solutions that eventually saved the euro

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Labour Market: Food Industry Workers Protest Again Zero Hours and Low Pay

This Channel 4 news report looks at va growing protest movement among food industry workers campaigning against zero hours contracts and persistent low pay. Zero-hours contracts do not guarantee a minimum number of hours of employment. It has been estimated that 583,000 people, around 2% of the UK workforce, were employed on zero-hours contracts between October and December 2013. The actual figure is likely to be substantially higher than that.

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BREXIT or FIXIT - Trade and Welfare Effects of Leaving the European Union

With the European Parliament elections on the near horizon there is plenty of discussion about the merits and de-merits of continued UK membership of the European Union.

The Centre for Economic Performance (CEP) has just launched a new report in its series of CEP Policy Analyses: ‘Brexit or Fixit? The Trade and Welfare Effects of Leaving the European Union’ by Gianmarco Ottaviano, Joao Paulo Pessoa, Thomas Sampson and John Van Reenen. Here are their main findings:

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Unit 2 Macro: Should UK Interest Rates be Rising Now?

In remarks made when launching the new quarterly inflation report (May 2014), the Governor of the Bank of England, Mark Carney, has signaled that policy interest rates set by the MPC are likely to remain at historically low levels for some time to come. The first rise in rates is probably less than a year away and some economists have penciled in early New Year 2015 for a rate hike. But what are some of the arguments for raising interest rates now?

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Unit 4 Macro: Revision Extracts and Questions on South Korea

Here is a short revision resource on the South Korean economy that I have used in a revision lesson with my A2 macro students.

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Forget the hype- Capitalism has made the world a more equal place

Thursday, May 15, 2014

Metropolitan liberals love to be able to criticise Western society. Recently, their lives have been brightened by the extensive discussion on the rise in inequality since the 1970s, especially in the Anglo-Saxon economies. There is a danger that this essentially anti-capitalist narrative will come to dominate the media, paving the way for increased regulation and the sorts of failed statist interventions in the economy which were a consistent theme in British political economy for nearly four decades after the Second World War.

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What Ever Happened to the Phillips Curve

Tuesday, May 13, 2014

Teachers and students of the Phillips Curve will be delighted to access this updated classroom ready presentation on the Phillips Curve from Ed Dolan, Professor of Economics at Stockholm School of Economics, Riga, Latvia

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Background on Mexican Economy and Two Exam Questions

Here is a two page revision document on aspects of the Mexican economy together with with A2 macro exam questions based on the material. You can download the resource from our slideshare account

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Quick revision of Key Phrases - the ‘Usual Suspects’ revision activity

Monday, May 12, 2014

Looking for a quick activity to help test revision of some of the key economic terms needed for the up-coming exams?  Here's a nice little test of knowledge that can either be used as an in-class activity or for individual students to use to test their own revision.

Called 'The Usual Suspects', students are given one minute to identify the definitions of as many key phrases from the micro and macro curriculum as they can.  Each phrase is shown alongside 4 possible definitions (from the wider pool).  Students must identify which is the correct answer.  If an incorrect answer is given, the student has to click to remove a 'bar' to allow them to continue with the test.

60 key phrases are included with each of the two resources below, so the activity can be run several times.  Who can get the highest score in one minute!

Click on this link for the macro version of the activity.

Click on this link for the micro version of the activity.

Unit 1 Micro: Key Diagrams and Glossary

Friday, May 09, 2014

A document containing the key diagrams and terms for Unit 1 Micro is streamed below. 

You can also download this pdf document for free from our online store here

For more revision support for AS Micro, visit our dedicated AS Micro blog channel. We also have a free AS Micro revision class on our sister site Zondle and a wide collection of revision notes for AS Micro here on the tutor2u website. 

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Unit 1 Micro: Theory of Market Demand

Demand is the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period

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Economics Exam Technique: Thoughts on Improving Your Economics Papers

Here is a streamed presentation covering sone "Thoughts on Improving Your Economics Papers"

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A Different View of World Trade: Why National Accounts Can Be Exciting

Thursday, May 08, 2014

Imagine that, for some reason, you were forced to choose between having to read a long, turgid novel like Westward Ho or Middlemarch, or a book on the methodology of the national economic accounts. Most people, however reluctantly, would plump for the former. But the latter can at times be very exciting. A recent paper uses national accounts concepts to revolutionise the conventional view of world trade.

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F585: Africa Progress Report 2014

There seems to be a huge amount of relevant material in here for students preparing for their A2 F585 paper - extract 5 of the pre-release case study focuses on economic growth and development in Sub Saharan Africa. Click this link: http://africaprogresspanel.org/publications/policy...

Unit 4 Macro: Has India missed the manufacturing boat?

Wednesday, May 07, 2014

This is a timely and important short video report on the future for Indian manufacturing industry.

Onerous regulations, bureaucracy and poor infrastructure have made it difficult for large manufacturers to prosper in low cost mass manufacturing in India. And just as the South Asian nation starts to benefit from the so-called demographic dividend, manufacturers are shifting towards less labour intensive manufacturing techniques. The Financial Times visits JCB and Bharat Forge in the manufacturing hub of Pune to find out more

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Explaining Inequality in the UK

CEP Director, John Van Reenen, explains the reasons why inequality in the UK has been rising. For more films covering aspects of economic policy we recommend you take a look at the Facebook page - Click here! https://www.facebook.com/EconFilms

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Unit 1 Micro: Housing Market Failure

Tuesday, May 06, 2014

Here is an updated revision presentation covering aspects of market imperfections / market failure in the UK housing industry. 

I have also linked to a recent presentation on the economics of rent controls.

read more...»

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