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Mark Carney says that a period of low inflation – even deflation – propelled by falling oil prices would be “unambiguously good” for the economy. How do we reconcile this with the textbook position that the economy needs a little bit of inflation, and that deflation is to be avoided? He has also said there were no signs yet of “bad” deflation – what is the difference between ‘good’ and ‘bad’ deflation? Can we assess whether it is true to say that deflation is always bad for the economy?
I have picked up on some of the analysis of yesterday’s inflation rate as well as last Thursday’s Inflation Report to consider this. If you want to set this task for your students, here are a few links to get them started:
-(If students only read one of these, they should really see this last one.)read more...»
There's a great graphic in the Economist to illustrate the currency pegs in operation around the world. According to the article, pegging a nation’s currency to that of a trading partner has some advantages. It allows businesses to plan; exporters and importers can agree on prices without worrying about sudden foreign-exchange fluctuations. Until the early 1970s, most global currencies were pegged to the dollar under the Bretton Woods system. Since then, pegs have been adopted for three main reasons by varying groups of countries.read more...»
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...»
This website, and the many links to videos and articles included within it, looks like a treasure trove of resources for teaching inequality.read more...»
The World Economic Forum at Davos tends to stimulate and showcase lots of fascinating material, and has a focus on global issues which is of particular interest for teaching about developing economies - all very useful for Edexcel Unit 4. I strongly recommend having a look at a new BBC collection called A Richer World which is a rich source of data and strong material for application of the theory we are teaching in the Growth and Development section of the syllabus.
If you don't get around to using anything else from there, I strongly recommend a great 3.45 minute video of Hans Rosling and Evan Davis analysing changing global inequality with the aid of seven snowballs.
This issue is emerging as one of the big, if not the biggest, economics story of our times. The world is vastly richer than in even the recent past, with many poor countries making good progress in catching up with the richer ones.
Yet within almost all economies, income and wealth gaps are widening. Last year Oxfam were talking about a double decker bus, representing the world’s richest people, who own half the wealth. This year wealth is concentrated in even fewer hands.read more...»
The title of this blog is taken from a Guardian article which is a stepping stone into a discussion about how best the UK can support development across the world.
You might think that the best indicator of our desire to help is the amount of money the UK government commits to overseas aid. That opens up two more discussion points. Firstly, does aid actually help poor countries? That’s a debate for another blog. Here, I’m going to focus on a second point: is there more to supporting development than being generous with aid?read more...»
CPI inflation has slipped well below the lower limit of the Monetary Policy Committee's target, to 0.5% - that is far lower than it fell during the recession, and the lowest level since May 2000. So, as Mark Carney prepares his letter to the Chancellor to explain how this has happened, and what the Bank of England intend to do about it, the BBC have published an article which examines why we need some inflation. It is one of those articles which is truly useful - probably more so than a text book as it is based on real, current context. Highly recommended to AS students learning about inflation for the first time, and A2 students who need to revise the basics.read more...»
Unit 4 Edexcel Economics Key Tips:read more...»
According to the Guardian, "rarely has a trade agreement invited such hype and paranoia". The Transatlantic Trade and Investment Partnership (TTIP) – or proposed free trade pact between the US and the European Union – has triggered apocalyptic prophecies: the death of French culture; an invasion of toxic chlorine chickens into Germany; and Britain’s cherished NHS will become a stripped-down Medicare clone.
From the point of view of free-trade cheerleaders, EU carmakers will more than double their sales, Europe will be seized by a jobs and growth bonanza and Americans will beg European firms to build their roads and schools. The world’s biggest trading nations will have no choice but to play by the west’s rules in the new world created by TTIP.read more...»
As world commodity prices plunge, who gains and who loses?read more...»
Two reports published in the last 48 hours provide some really useful background for teaching about policies to address the issues of poverty and inequality in developed economies. The Report of the All-Party Parliamentary Inquiry into Hunger in the United Kingdom was published yesterday, and concluded that because of falling real incomes, delays in paying benefits which people are legitimately entitled to, and sharp rises in fuel bills, many families are "one unexpected bill away from financial crisis".read more...»
I like to read Jeff Sachs for his alternative viewpoints. He often writes about investment and has recently argued that the problem with both free-market and Keynesian economics is that they misunderstand the nature of modern investment. Both schools believe that investment is led by the private sector, either because taxes and regulations are low (in the free-market model) or because aggregate demand is high (in the Keynesian model).
In Sachs’ alternative view, private-sector investment today depends on investment by the public sector. But investment into what? What types of capital should we be accumulating?read more...»
Every so often I read an article and start to tot up the number of economic concepts being covered in just a few words. This occurred to me again this morning when reading this BBC news article on train fare rises. Train fares are pegged to July's inflation rate and, as inflation is quite low at the moment, this means that the average rise of 2.2% is also relatively low (although regular train users may still feel aggrieved).
Have a read yourself and see how many concepts crop up or give them same exercise to your A2 students. My thoughts are below:read more...»
He's back! Sort of by popular demand! If you're looking for a quickfire activity for your Economics lessons this week then download the latest edition of the Angry Economist. Ask your students to choose one of the 8 policies announced in today's Autumn Statement by George Osborne and our favourite curmudgeonly economist randomly chooses an objective to analyse.
How does the proposed funding for new roads impact on equality for instance? How does the change in Stamp Duty application affect economic growth. A fun and quick way to get your students analyzing first thing in your lesson.
Download the Angry Economist Autumn Statement Edition here.
Globalisation ebbs and flows. There has been remembrance of the events of a century ago, when a rising tide of globalisation suffered a colossal retreat. Many observers watching the aftermath of the world crash of 2008 feared the same. Suddenly the headlines about the world becoming ‘flatter’ and more interconnected gave way to talk of fragmented financial markets, stalled trade talks and growing popular nationalism. Some economists have predicted another era of “deglobalisation”.read more...»
Just a quick post to share a great little video I just found on the Guardian website.read more...»
The current recovery has been different in the United States. Though unemployment has fallen from 10% to 6.1%, labour-force participation has not increased. In fact, it has declined to its lowest level since 1978. This is controversial. Some economists say long-term structural factors, mainly aging, explain most of the recent drop in the labour force. Others argue that short-term, cyclical factors are mostly to blame: workers are sitting out the job hunt, waiting for better opportunities.
What about the effects?read more...»
The poor countries should catch up with the richer ones, in theory, at least. And between 1988 and 2008, global inequality, as measured by the distribution of income between rich and poor countries, has narrowed, according to the World Bank. But within each country, there has been widening inequality in many poor places.read more...»
Just this week Ben Christopher has blogged that China poised to pass US as world’s biggest economy. It’s an interesting question of measurement, and there’s a long running debate about When will China ‘overtake’ America?
It will be many years yet before China really catches up on a per capita basis, of course. Rather depressingly, I have been wondering if the great catch-up is slowing down. From around 2000 to 2008 poor countries made galloping progress, but they seem to have hit headwinds. Will China also suffer this fate?read more...»
The world seems to want, and need, plenty of advice on ways to boost macroeconomic performance. I was drawn to one piece on Project Syndicate that was especially interesting because the author, Jeff Sachs (one of the most famous development economists) introduces his comments by saying:
“I am a macroeconomist, but I dissent from the profession’s two main schools of thought … the neo-Keynesians, who focus on boosting aggregate demand, and the supply-siders, who focus on cutting taxes. Both schools have tried and failed to overcome the high-income economies’ persistently weak performance in recent years. It is time for a new strategy, one based on sustainable, investment-led growth”.read more...»
The Local Government Association (which represents local councils in the UK) have joined the debate about term time holidays for pupils this week. They argue that current rules banning term time holidays or imposing fines on those families who take such breaks do not recognise the complexities of modern families and also prevent poorer families from affording vacations that are invariably dearer during the holiday period.
It struck me whilst reading one of the reports that the suggested policy is to allow head teachers that most quantifiable of options, 'common sense', to make decisions on a case-by-case basis would be the sort of argument that would make me scream if a student wrote it in an assessment answer. Economics students, unlike Local Government officials, need to take a much more analytic approach to this question!read more...»
Reports out over the last couple of days suggest that government spending on free nursery places for 3 year olds since 1998 has not produced any valuable educational or economic outcome. The policy was introduced as part of a series of reforms introduced by Tony Blair when he came to power in 1997. The Blair Government saw it as a method of reducing the differentials between educational attainment of poorer and wealthier sections of society and promoting a speedier return to work for some mothers.
Researchers studying the impact of the policy during the 2002 to 2007 time period, where spending on the policy amounted to more than £7bn found that the education received at age 3 had some impact on attainment at age 5 but any improvements were lost by age 11. The research suggested that the policy had only a minor impact on enabling more women to return to work earlier. Also, there is evidence that 5 out of 6 users of the free place would have gone to a paid-for equivalent at age 3 anyway.
So, does this offer us a good example of government failure in economic and social policy?read more...»
The world's economic order is changing. I struggle with labels for groups of countries. Have you heard of the BRICs, NICs, Next 11, CIVETS, MINTS, LEDCs, MEDCs and the Tigers? Sometimes I feel most comfortable talking about rich countries, poor countries and middle income countries (and when I do, I'm careful to differentiate between economic growth and economic development).
In the years when several large economies appeared to be catching up with the richer nations, the label emerging markets seemed to fit. Those stuck in poverty were then the submerging markets.
I heard a new one (to me) today - a frontier market - it was in an online quiz.read more...»
In 2015, the UN's Millennium Development Goals are expiring and the international community will set new goals. This is a hugely important exercise, so I'm drawn to the discussions as part of the Copenhagen Consensus -
"Effective investments for today’s children are fundamental for a better and more equitable world in the future. The Copenhagen Consensus Centre brings a simple but compelling logic to this endeavor: if we want to make sure that this world is realized for our children, let’s focus on the investments that will generate the most good”.
- Richard Morgan, UNICEF Senior Advisor on the Post-2015 Development Agendaread more...»
One optimistic observation in economics is that poor countries should be able to catch up with the richer ones, since it’s easier to grow from a low level of GDP to a higher one. This observation was made by Nobel-winner Robert Solow in 1956, and is based on the idea that low income countries are poor because their workers have access to less capital. This capital shortage (i.e. insufficient infrastructure) implies that the return on investment should be high, so capital should flow from rich countries to poor ones, leading the two worlds to converge on similar levels of productivity and income.
Furthermore, in this theory, growth in rich countries is driven by new technology which, once developed, could be adopted by poorer economies too. Indeed, the poor could potentially learn from the mistakes made by the rich, and leapfrog directly to more productive ways of doing things.
And so it seemed. From the late 1990s to 2008, poor countries were catching up fast. But that catch up seems to have slowed down (see chart above).read more...»
The Economist have posted a terrific video that takes a tour along the Pearl River in China. As the scenery rolls by, the narrator comments on the extent to which the journey through the surroundings reflects a journey through China's recent economic development.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.
In Economics, saving offers something of a puzzle. From some viewpoints, savings are a leakage from the circular flow of income, reducing multiplier effects. And if we all saved - in a determined effort to repay our debts (which sounds like a great idea) – the level of aggregate demand (AD) and economic activity would take a serious hit. This is the famous paradox of thrift.
Yet economies do need saving as a fund for business investment. The Harrod-Domar model is used in development economics to explain an economy's growth rate in terms of the level of saving and productivity of capital (see above). But many economies have a savings gap.
Yet I’ve been reading that adults in developing countries are half as likely to have an account at a formal financial institution as those in the rich world. Only 18% of people in the Middle East and north Africa do, compared with 89% in high-income countries. This makes saving even harder. So economists would like the world’s poorest to save more. That would help them to pay for big or unexpected expenses, such as school fees or medical treatment. It could also boost investment and thus accelerate economic growth.read more...»
AVAILABLE TO PRE-ORDER NOW: ESTIMATED PUBLICATION DATE: EARLY DECEMBER 2014
Edexcel UNIT 3 & UNIT 4 Worked Answers is a new printed resource from the tutor2u Economics team which we expect to be available for dispatch from early December 2014.read more...»
AVAILABLE TO PRE-ORDER NOW: ESTIMATED PUBLICATION DATE: EARLY DECEMBER 2014
AQA ECON3 & ECON4 Worked Answersis a new printed resource from the tutor2u Economics team which we expect to be available for dispatch from early December 2014.
The overall rate of infant mortality has been halved in the past two decades.
That's the good news. But Unicef' s latest figures estimate every day 17,000 under-fives die - 6.3 million a year - from largely preventable causes. Most of the deaths happen in the first hours or weeks following birth.read more...»
The growth vrs the environment debate is great for opening a thoughtful discussion about the net benefits of economic growth. Some participants take what might be described as a Kuznets Curve approach to the issue. That might be simply summarised as things get worse to begin with, but after a while they start to improve (OK, I’m simplifying a bit here). In environmental terms, you might illustrate this with the Peak Stuff idea. For several years now, the UK economy’s total consumption of physical resources has been falling. In the past, growth made our economy more and more damaging to the environment. But future growth might have far less of an impact, and even contribute to significant environmental improvements.
What about tropical forests, which observers in the last decades of the 20th century noted were under severe threat? The Economist newspaper seems to take an optimistic view. Future growth may have far less worrying consequences for tropical forests.read more...»
Following a similar format to last week's AS 'World of Economics', this free resource available from the download link below is a rapid 10 minute starter for the first class with your returning A2 students.
Entitled 'Whilst you were away', the resource shows a montage of images. Each image also has a question and all relate to news stories from around the world during the months of July and August 2014. The montage remains on screen with a 3 minute timer fading away at the bottom of the screen - ask your students (individually or in small teams) to answer all 9 questions in the 3 minutes available.
Then go through the answers one at a time - there is an individual slide showing the answer to each question plus a supplementary question for each image to stimulate discussion about how the news stories impact on economics. This is a Powerpoint resource so feel free to edit the questions as you see fit.
Download this engaging teaching resource to test student awareness of the international competitiveness rankings!
You may have already seen Geoff's blog on the newly released International Competitiveness Index. The World Economic Forum annually release its table of competitiveness using a variety of data measures including economic performance, quality of education and labour efficiency. The UK has moved up to 9th in the World.read more...»
According to The Economist there is a long history of efforts to distinguish products that have been made more ethically than others. In the late 18th century, anti-slavery campaigners urged British consumers to boycott sugar from the West Indies in favour of supplies from India. Today’s fair-trade movement took off in the 1960s, mostly in religious organisations that wanted to help the poor, whom they saw as losers in the global trading system. Fair Trade is a really important issue for discussion.read more...»
At the end of last term all our year 12's were set the task of writing a short article about a different developing country. They were tasked with covering:
- Key information- e.g. GDP, HDI, Gini coefficient, indicators of level of poverty/development
- What factors are limiting growth & development in this country
- How is the government and other stakeholders trying to promote growth & development in this country
- How successful have they been so far?
I have collated all these articles together into an e-book which teachers and students studying development economics should find very useful to make use of as part of the course.read more...»
Western Union and MoneyGram dominate the money transfer industry and the high level of fees that these companies has been heavily criticised in recent years. This is an important article given the huge scale of remittance transfers in the world economy to relatively poor countries such as India, the Philippines and many sub Saharan African nations.
Click here for an info graphic on remittances produced by the World Bank: http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/E...
Here is a really excellent blog on the issue of growth divergence - Simon Taylor contrasts the historical growth records of the United States versus Argentina and then South Korea against Ghana. The accompanying charts reveal starkly the widening gap in GDP per capita between each pair of countries over the very long term.
I will be following Simon Taylor's blog as the new school year comes into focus http://www.simontaylorsblog.com
Catastrophe Bonds (or cat bonds) are essentially a bet against natural disaster - insurance companies issue the bonds and investors get paid their interest in the event of natural disasters such as earthquakes not happening.
According to the Financial Times, "catastrophe bonds are typically issued for three years and, if no disaster occurs in that period, bond investors receive a good payout; otherwise, they have to pay out themselves."
Do the investors such as pension funds and insurance companies truly understand the risks that they are taking with (our) money?
Duncan Weldon investigates in this BBC Newsnight report. Ultra low interest rates in advanced economies appear to have encourage pension funds to search for riskier assets (a search for yield) to improve their return on their assets. A major natural disaster could trigger huge losses for those who have piled huge sums of money into them.read more...»
Here is a link to a video report produced by the IMF as part of their annual assessment of the UK economy. Overall, the IMF is considerably more optimistic than it was in 2013 about prospects for near term recovery of output and continued reductions in unemployment.
Risks to macro stability are also considered, namely weak productivity growth and high housing pricesread more...»
This is an absolutely outstanding article to use when introducing development economics to a level students. The work of Hausmann and Hidalgo on complexity and economic development is becoming more widely recognised and used in schools. Hausmann's article here in Project Syndicate emphasises the importance of building capabilities within an economy to promote the growth of higher value added industries. Here is the link to the article: https://www.project-syndicate.org/commentary/ricar...
The Russian central bank has raised their main policy interest rate by 0.5% to a new level of 8% in a bid to control inflationary pressures in the Russian economy.read more...»
Three years on from the riots and deep economic, financial and political crisis, is the reforming Greek economy turning a corner and improving outcomes for the key macroeconomic indicators. Professor Paul Collier labelled Greece as a "sub-merging economy" a little while ago but there are now some positive signs reflected in this highly relevant news report from the Financial Times. I have added some key macro data on Greece and other troubled Euro Area countries using data from the IMF World Economic Outlook.
Guardian: Greece forges template for economic recovery as tourists pour in: http://www.theguardian.com/world/2014/jul/03/greec...
BBC video: Pain in paradise for struggling Greeks: http://www.bbc.co.uk/news/world-europe-28012089read more...»
An important landmark for the UK economy? Britain’s economy is finally larger than it was before the financial crisis six years ago. FT economics editor Chris Giles analyses the data and warns that continuing weak productivity means output growth will be slower than before the crisis - an excellent analysis of the key macro indicators suitable for all A level economics students.
I have added some charts on the UK drawn from the latest IMF world economic outlook.read more...»
This Mini Lecture discusses issues of labour productivity, low-wage work and economic growth of emerging markets.read more...»
Each year the Human Development Report published by the United Nations gives a special focus on a particular issue related to development. In 2014 that issue is vulnerability.
To quote from the opening of the report:
"Real progress on human development, then, is not only a matter of enlarging people’s critical choices and their ability to be educated, be healthy, have a reasonable standard of living and feel safe. It is also a matter of how secure these achievements are and whether conditions are sufficient for sustained human development. An account of progress in human development is incomplete without exploring and assessing vulnerability."read more...»
A new online comedy series launches on Thursday 24th July!
The series tells the story of Scott and Adrian, two lovers on the verge of break up. Scott runs an oil company – bath oils that is – and Adrian spends their money as if it’s his own. Will they work things out or will Scott go it alone? All will be revealed when the series launches this August in time for the Scottish independence referendum.read more...»