IMF report on the UK Economy
The IMF reports on the health of the UK economy in its latest Article IV Consultation and argues that imbalances in the UK economy have increased the risks facing us during turbulent global times.
read more...»Revision: Evaluate to Accumulate
How to Nail High Marks on Evaluation in your AS papers - a two page revision note
Revision note:
Evaluate_to_accumulate.pdf
Revision: Labour’s Economic Record – An Evaluation
A personal evaluation of the Labour government’s macroeconomic record since 1997 in a two page word file - aimed at AS and A2 economists - together with a five page document containing ten supporting data charts
Revision note:
Labour_Economic_Record.pdf
Supporting charts
UK_Economy_Supporting_Charts.pdf
More on inflation
The Economist is running with a leader on inflationary woes today.
read more...»John Kay on perceptions of inflation
Trust John Kay to make plenty of sense of the furore over whether the official inflation numbers are accurate in telling us what is happening to consumer prices
read more...»Revision: Floating Exchange Rates
Since 1992 the UK has operated with a floating exchange rate – the external value of the currency has been left to market forces i.e. the supply and demand for sterling in the global foreign exchange markets. In a pure floating system, there is official target for the exchange rate and there is no need for intervention in the currency market by the central bank. The two page revision noteis available below
read more...»UK Balance of Payments in 2007
A revision presentation is streamed here - I will upload the presentation in powerpoint format a bit later
Revision: Liquidity Trap
“The liquidity trap - a situation in which conventional monetary policy loses all traction” (Paul Krugman, March 2008). In normal circumstances, monetary policy can be a powerful instrument in managing aggregate demand, output and inflationary pressures and smoothing the impact of external economic shocks. But on occasions, monetary policy can become ineffective – the liquidity trap is associated with this.
read more...»Revision Note: Credit Crunch
A one page revision note on the credit crunch
Revision note
Revision_Credit_Crunch.pdf
Difficult Economics Concepts and Topics!
With the exams looming you may find that there are ideas, concepts or topics that, try as you might, you cannot quite nail! We will try to help you along using the blog. If you have a topic that you are finding especially difficult, post a suggestion here and we will try to produce a short revision note on it in good time - here is the first one on public and private goods - a common topic on the market failure papers for AS economics.
read more...»Searching for new acronyms!
Ok, the NICE decade seems to be over for now (NICE stood for non-inflationary consistent expansion) but what should we replace it with?
read more...»Central Banks- Power Failure?
Tonight on BBC Radio 4 (8pm) there looks like there will be an excellent hour long programme presented by Robert Peston examining whether central banks in the west have lost their power. Have a listen, there are bound to be lots of good last minute evaluative points you can get into you answers.
read more...»12 Must Revise Topics for A2
A personal selection of topics that I would want to have revised thoroughly before the A2 economics exams
read more...»Central bank impotence
David Smith writes about monetary policy in his Sunday Times column today - and there are some terrific evaluation points of use to AS and A2 students. Robert Peston is presenting a radio 4 programme on this very topic on Monday 19th.
read more...»Ricardo Rules OK?
This week’s newspaper headlines have been dominated by the £2.7 bn tax bribe (whoops .... tax adjustment) announced by the embattled Chancellor Alastair Darling to compensate for the fiasco over the abolition of the 10% starting rate of income tax. The FT this morning linked the economic effects of this tax cut to one of the most celebrated and controversial ideas of moden macroeconomics - Ricardian equivalence theory ..... how sexy does macroeconomics get!
read more...»NICE decade is over
Mervyn King declared that the NICE decade was formally over in his Inflation Report published today – NICE stood for non-inflationary continuous expansion (a good term to use in the exam) – but the combination of sharply rising food, energy and fuel prices is driving inflation higher whilst contributing to a fall in real incomes and a wider economic slowdown.
read more...»Mervyn faces the Music
The Governor and his colleagues faced the press yesterday at the launch of the quarterly inflation report .... here is a selection of comments from them from questions fired from economics journalists, there is some great evaluation in here for AS and A2 economics students!
read more...»Surge in UK inflation
The latest figures for consumer price inflation were far worse that expected. Consumer prices increased by 0.8% in April taking the annual rate of inflation to 3.0% - right at the top of the level allowed by the government as part of the inflation target. Both goods and service price inflation moved higher as the UK economy struggles under a series of cost-push inflationary pressures. I have attached a PowerPoint file showing some of the key inflation charts.
read more...»China’s Inflation Problem
China’s inflation rate has climbed to a twelve year high with consumer prices 8.5 per cent higher than they were a year ago. Much of this is the result of the spiraling cost of food (22 per cent higher over the last twelve months).
read more...»Renault-Nissan announce entry into low-cost car market in India
The battle is intensifying to develop, manufacture and sell low priced family cars to meet the burgeoning demand from consumers in emerging markets. Renault and Nissan announced today that they are entering into a joint venture with the India firm Bajaj Motors to jointly build a $2,500 car to compete with Tata Motors’ Nano mode. A new 400,000 capacity plant is being built in Chakan, Maharashtra and the aim is to bring the car to the market in 2011.
read more...»Setting rates is no longer kids stuff
According to Roger Bootle writing in today’s Telegraph. The MPC does face an acute dilemma with evidence of surging cost push inflation and the real possibility (probability?) that CPI inflation will overshoot the 3% ceiling at some point in 2008. But Bootle argues that if the MPC is too cautious over interest rates, fearing a return to a wage-price spiral, then we might well suffer the slump in real output and jobs that characterised attempts to put the lid on rampant inflation in the 1970s and late 1980s.
read more...»Revision: Inflation Targets and Measurement
Here are a couple of useful revision resources on inflation:
read more...»UK Economy Revision Presentation
During our recent series of revision workshops for AS & A2 Economics, we looked at the key data and trends in the UK Economy.
read more...»No longer over a barrel?
David Smith turns his attention to oil prices in today’s Sunday Times and asks why the spiraling cost of crude has not hit global economic growth and inflation as much as in past oil shocks. Most of the recessions and major slowdowns in the global economy have been pre-dated by spikes in international commodity prices. Has oil now lost the power to shock?
read more...»The Monetary Stimulus
There was no change to UK base interest rates this week with the Monetary Policy Committee holding rates at 5.0% for May. Across the Channel, the hyperactive (!) European Central Bank also kept policy rates constant for what now seems like an eternity! Thank heavens the UK remains outside the Euro Zone! Whilst policy rates are at 5% for the moment, this does not mean that monetary policy is not acting as a stimulus to one or more of the components of aggregate demand (C+I+G+X-M).
The overall stance of monetary policy includes the effects of base rate movements and also changes in the external value of sterling against a basket of other currencies. So whilst interest rates have edged lower in recent months we should also take into account the major depreciation of sterling against the Euro Zone with whome we do more than half of our trade. A falling pound acts as an important stimulus to the export sector of the economy, even though the boost is muted somewhat by a slowdown in economic growth in our export markets. Will the lower pound be a white knight for the faltering UK economy?
Better off out than in?
Yes says Ambrose Evans-Pritchard in his piece in the Telegraph today arguing that the UK economy might have been dealt a much tougher blow from the fallout from the credit crunch had we been locked into the single currency zone. I have been discussing this with my A2 students this morning. When external shocks occur, the key to stabilising prices, demand and output is to have a flexible supply-side, fiscal policy autonomy and control over monetary policy. The UK has all three to a reasonable degree and I cannot help thinking that the sliding sterling-euro exchange rate is key to all of this.
Ambrose writes: “As Neil Mellor from the Bank of New York Mellon points out, the pound has been perfectly hedged in this cycle. Sterling has fallen hard against the euro, giving a shot in the arm to British manufacturers (yes, they still exist, 13pc of GDP) who rely heavily on Europe’s markets: yet it remains overvalued against the dollar, softening the effect of oil, metal, and commodity inflation. The shock absorber is working. The Bank of England has already cut rates three times.”
It is interesting when you chat to city and industry economists that discussion of the possible entry of the UK into the Euro Zone is completely off the agenda, the prospect does not exist. The debate has moved on for good.
Things can only get better .....
We asked a thousand people and most of them said ...... there is trouble ahead! Consumer confidence took a further nose-dive last month according to fresh data from the Nationwide Building Society. The main reason was another steep decline in the percentage of people reported as saying that the UK economy is in good shape. This is just one survey among many, and its limited longevity doesn’t give it much of a record in anticipating turning points in the economic cycle. But if the housing market presages a wider economic downturn, it might well be one of the survey indicators to watch carefully because the shift in sentiment does not appear to have benign causes. Sixty per cent of those surveyed say that now is a bad time to make a major purchase such as a house or a new car – almost twice the number compared to two years ago.
read more...»Does a current account deficit matter?
Yes according to economist Roger Bootle writing in the latest edition of the Deloitte Economic Review and reported in this article from the Financial Times.
“Britain is headed for its highest peacetime current account deficit and both household and government spending will have to slow painfully to correct it, according to economist Roger Bootle”
read more...»Gordon’s economic history lesson
It cannot have been easy or much fun for the man. Gordon Brown’s appearance on the Andrew Marr show this morning was supposed to have been the start of the big fight-back after the appalling drubbing that he suffered at the polls on Thursday and Friday. But the garbled mixture of reassurance and platitudes about the government ‘feeling our pain’ was distinctly underwhelming. I winced ahfl way through the interview when Brown claimed that the last Labour government inherited high inflation from the Conservatives. This is simply not true. I applaud his decision to give independence to the Bank of England in May 1997, but low and (relatively) stable inflation did not appear miraculously when Blair walked into Number 10 that year - consumer price inflation (the government’s chosen emasure, but not one that most of us now look at with much credence) was already low for some years before 1997 as our chart shows. Inflation targets (introduced in the UK in 1992 after our departure from the ERM) and a favourable mix of disinflationary economic shocks, globalisation and the strong exchange rate combined to give Brown and his Treasury team an inheritance of low inflation when they came to power. Perhaps it was the stress that caused Brown to make such a shocking mistake in his attempt to teach us all a little economic history?
Stabilising demand - will the tax rebate work?
It is an interesting case study in how to stabilise demand and output at a time when consumer confidence is declining and the domestic economy has been hit by a sharp negative shock emanating from the housing market. The fiscal rebates will soon be landing in the post boxes of millions of US households ... the key question is how much of a temporary stimulus will this provide for the economy? The Financial Times has a good article on this today.
“The difference depends on how much of the rebate package will be spent and how much will go on imported goods. It is also related to the time-frame over which it is spent, and whether this expenditure will, in turn, trigger knock-on spending ..... In effect the government will nationalise part of US household debt – socialising some of the costs of the economic downturn. In doing so it may reduce the risk of a sudden pull-back in spending by overstretched consumers, even if it does not actually boost spending by much. Analysts estimate anywhere from 20 per cent to 50 per cent of the rebates will be spent over a period of four to six months.”
The impact will depend on the marginal propensity to save and spend the extra income and also the marginal propensity to import goods and services. With a weaker dollar raising the prices imported products, perhaps the propensity to import might be a little lower at this key stage of the economic cycle? The tax rebate is also targeted at Americans on incomes below the top of the pay ladder - whose marginal propensity to spend might be expected to be higher than the super-rich.
According to ABC news:
“More than 130 million U.S. households are eligible for the checks. Individuals could get up to $600, couples up to $1,200 with an additional $300 per child. In total about $120 billion will be doled out over the next two months.”
The rest of the FT article is here
US economy awaits stimulation from Bush’s tax rebate (Guardian)
