This 10-question revision quiz focuses on inflation.
This 10-question revision quiz focuses on unemployment.
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.
We've been busy updating and extending our collection of free revision notes for AS Economics core topics. Set out below are links to the current AS Economics revision notes. Please bookmark or share this blog entry as we'll update this master listing each time we add new revision notes.read more...»
Here is an updated listing of the Unit 2 Macro Revise and Test Revision Quizzesread more...»
A revision blog and online test on the interaction between aggregate demand and aggregate supplyread more...»
Updated revision notes on aggregate supply, short tests to check your understanding and links to enrichment readingread more...»
Here is a quick revision test on some of the key UK economy data - how well do you know what has been happening to growth, inflation, unemployment and some other important macroeconomic indicators? Test your understanding and aim for a high score on bobble shoot!read more...»
Several teachers are now using Pinterest as a way of curating relevant news stories and other resources as a support for their students. Here is a great example from one of our Wow Economics presenters, Ben White (Head of Economics at St Peter's School York).
Updated revision notes on aggregate demand and a short revision quiz to test your understanding!read more...»
Revise the concepts of income and wealth and test your understanding with a short quizread more...»
Updated revision notes and short online tests to check your understanding on macroeconomic objectives - plus a selection of news article links for extension reading.read more...»
What is National Income?
National income measures the monetary value of the flow of output of goods and services produced in an economy over a period of time.
Measuring the level and rate of growth of national income (Y) is important for keeping track of:
- The rate of economic growth
- Changes to living standards
- Changes to the distribution of income
between groups within the population
Gross Domestic Product
domestic product (GDP) is the total value of output produced in a given
- GDP includes the output of foreign
owned businesses that are located in a nation following foreign direct
investment. For example, the output produced at the Nissan car plant on Tyne
and Wear contributes to the UK’s GDP
- The circular flowis a basic way of understanding how
different parts of the economic system fit together
- The circular flow of income shows
connections between different sectors
- It shows flows of goods and services and factors
of production between firms and households
- The circular flow shows how national income or
Gross Domestic Product is calculated
Businesses produce goods and services and in the process of doing so, incomes are generated for factors of production (land, labour, capital and enterprise) – for example wages and salaries going to people in work.
Leakages (withdrawals) from the circular flow
Not all income will flow from households to businesses directly. The circular flow shows that some part of household income will be:
- Put aside for future spending, i.e. savings (S) in banks accounts and other
types of deposit
- Paid to the government in taxation (T) e.g. income tax and national insurance
- Spent on foreign-made goods and services, i.e. imports (M) which flow into the economy
Withdrawals are increases in savings, taxes or imports so reducing the circular flow of income and leading to a multiplied contraction of production (output).
Injections into the circular flow are additions to investment, government spending or exports so boosting the circular flow of income leading to a multiplied expansion of output.
- Capital spending by firms, i.e. investment expenditure (I) e.g. on
- The government, i.e. government expenditure (G) e.g. on the NHS or
- Overseas consumers buying UK goods and service, i.e. UK
export expenditure (X)
An economy is in equilibrium when the rate of injections = the rate of withdrawals from the circular flow.If there is an increase in the rate of injections (other factors remaining constant), then equilibrium GDP will rise
If there is a fall in the rate of leakages (other factors remaining constant), then equilibrium GDP will rise
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.
This article gives the opportunity for some neat cause-and-effect analysis. The cause is data from the ONS which shows that manufacturing output fell by 1.5% in January, following a 0.9% rise in December. The effect? Sterling has fallen to another low against the dollar. However the chain of argument which links this to the fall in manufacturing data is missing, as if often the case in students' essays, and which tends to cost them valuable analysis marks in exams.
Does that reflect your changing habits over the last year? The ONS have released news of changes to be made to the official representative basket of goods whose prices they check to measure inflation. Each year they update the 700-or so items in the basket so the contents accurately reflect current trends in spending. So the items added and removed provide an interesting view of the goods and services which are most important to us, and how we are choosing to spend our disposable income.
Aggregate Demand may be stimulated by an increase in exports. Ha-Joon Chang, Author of the best seller, 23 Things They Don’t Tell You About Capitalism considers reasons in a short article for The Guardian why this hasn't happened after Sterling had fallen against other major trading economies. " Compared with ...2007, the pound has been devalued about 30% against the dollar, 50% against the yen, and 20% against the struggling euro. Yet despite the huge incentive to export created by such devaluation, Britain is still running trade deficits because it has lost the productive capacity to respond."
It may help students consider plausible policies to reduce its trade deficit, a macroeconomic goal overlooked in arguments over fiscal and monetary policies to control inflation or output. Finally it may aid evaluation, how different are the most pressing short and long term macroeconomic challengers facing UK governments.
Link to most trade figures.
It’s not often you read such a clearly set out, even-handed article on macroeconomic policy, so this relatively lengthy piece was interesting in itself as its writer appears to deal relatively equally with both sides of the big austerity debate. But you really have to take notice when the writer is the Secretary of State for Business, Innovation and Skills, Vince Cable.
Tomorrow's Financial Times leads with a headline, "Osborne to hand Carney powers to kick start the economy." Budget to alter Bank of England's remit...Loser Monetary Policy."
Stephannie Flanders, the BBC's Economics Editor, considered if the UK's present monetary policy with its use of Quantitative Easing had played a part in pushing up share prices and wondered if other unorthodox measures would be effective to deal with a stagnating economy.
Vince Cable the Business Secretary provides an outline in The New Statesman of the economic problems the current coalition government has faced, how monetary, fiscal and supply side measures might be used to stimulate the UK economy in response to what he calls the long economic stagnation of post-crisis Britain.
The FT implies that The Chancellor is not wholly convinced by arguments from Vince Cable to boost growth with a new programme of infrastructure spending on schools, roads and housing, funded by extra borrowing. The arrival of Mark Carney at The Bank of England may signal a sea change in how monetary policy is used to stimulate the economy, breaking with the 2% inflation targeting approach. The MPC may be encouraged to focus on targets for inflation and employment. Some of The Committee's members support more quantitative easing whilst The Deputy Governor Paul Tucker said the idea of negative interest rates should be considered.
Link to coverage of Cameron's Speech http://www.guardian.co.uk/politics/2013/mar/07/david-cameron-rules-out-extra-borrowing
The Economist wades in with an analysis of why the slump in consumer spending has contributed to a flatlining economy with low or barely perceptible growth. Household saving has increased to c.7%. Falls in real wages, coupled with rising 'administered prices' of gas and electricity have also helped lower consumption. But the cycle of higher costs and prices isn't helped when Sterling depreciated by 6% in the course of the New Year.
The loss of triple A status on UK government bonds has intensified the demands for a Plan B. So-called Keynesians demand an increase in both public spending and the public sector deficit.
What might Keynes himself have said about the current situation? Lacking a Ouija board, I am unable to communicate directly with the great man himself. But we can get a very strong hint from the title of the first major work which Keynes published when confronted with the 1929 financial crash. It is the Treatise on Money. His most famous work was not published until 1936, when the Great Depression was well and truly over. Its full name is the General Theory of Employment, Interest and Money.read more...»
Paul Tucker, The Deputy Governor of The Bank of England has stated in evidence to The House of Commons' Treasury Select Committee that negative interest rates should be considered as a monetary policy instrument to stimulate the UK's Economy. In their discussions with the MPs, other members of the Bank's MPC implied that they were not inflation-rate nutters, and that other means of stimulating or managing the economy were being considered.
The economist argues that the era of fast-rising world population is over - this video looks at the momentum shift brought about by a trend fall in the fertility rateread more...»
Huge media headlines today for the decision by Moody's to downgrade the UK's credit rating from AAA. It will take some time to see if this decision from one of the ratings agencies - who we must recall lost much of their credibility because of the sub-prime crisis - will have genuine and significant consequences for variables such as market interest rates, the sterling exchange rate, inflation and GDP growth. Stripping away the rather facile spin from the political parties, there have been some interesting and relevant comment pieces on the downgrading and I have chosen some of them for this blog entry. I hope some of them are helpful for your studies:
"The main driver underpinning Moody’s decision to downgrade the UK’s government bond rating to Aa1 is the increasing clarity that, despite considerable structural economic strengths, the UK’s economic growth will remain sluggish over the next few years due to the anticipated slow growth of the global economy and the drag on the UK economy from the ongoing domestic public- and private-sector de-leveraging process. Moody’s says that the country’s current economic recovery has already proven to be significantly slower — and believes that it will likely remain so — compared with the recovery observed after previous recessions, such as those of the 1970s, early 1980s and early 1990s. Moreover, while the government’s recent Funding for Lending Scheme has the potential to support a surge in growth, Moody’s believes the risks to the growth outlook remain skewed to the downside."read more...»
Bringing innovations to the market is crucial for countries wanting to focus on green industries as a source of economic growth. This blog will provide a number of short news videos on innovation in environmental products.read more...»
The much anticipated surge in exports of goods and services from the UK economy has not really materialised in recent times. Hopes of an export-led recovery and contribution to re-balancing of aggregate demand have diminished somewhat. In this discussion, writers from the Economist explain why Britain is no longer one of the world's biggest goods exporters.read more...»
Having just taught the circular flow of income to my year 12 Economists, the Office for National Statistics come along with a brilliant tool I can use to revise this topic- but it would work equally well as part of an introductory lesson.
Having German exchange students in my lesson has provided a super opportunity to discuss the position of the German economy within the Euro Area and to compare and contrast macroeconomic indicators between the UK and Europe's largest economy. Here is a selection of some of the video clips that have been used as prompts for discussion.read more...»
Today's announcement of routes for the HS2 project highlights the importance governments ascribe to public works projects.
There are several research organisations out there producing regularly updated forecasts on what is likely to happen to the relative shares of global GDP and income per capita over the long run. Typically the forecast stretches out to 2050 and necessarily involves plenty of uncertainty. But these over the horizon studies are quite interesting in their own right because they remind us of the changing drivers of growth in the world economy.
Here is one of these reports - World in 2050 The BRICs and beyond: prospects, challenges and opportunities - produced by economists at PriceWaterhouseCoopersread more...»