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: 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...»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 2 Macro: A New £50 comes into circulation
This short BBC news video looks at the revamped £50 note - a terrific short piece on the new note and some of the innovation built into the design to reduce the risk of forgery.
Australia lowers interest rate to 4.5%
The Reserve Bank of Australia (RBA) has cut interest rates from 4.75% to 4.5% in a bid to boost growth amid fears of a slowdown in the global economy (the BBC article can be found here). This could be a useful case study to use with AS macro-economists when studying monetary policy so I have clipped the article and added a couple of questions onto this document to test analysis and evaluation of interest rate changes.
Top 10 resources on inflation on YouTube
What follows is a list of the ten video clips I use when teaching inflation as a topic.
They are a mixed bunch. Some are useful for class use, others work as pointers to a series of video clips from one producer. What I’ve tried to avoid, however, are links to the teach yourself Economics resources (though obviously they have their place) that are out there.
read more...»Unit 1 Micro: Copper prices and a copper crime wave
This Fact Check piece from the Channel 4 web site is superb background on the growing scale of copper thefts and also the economics of incentives when it comes to crime. One to read perhaps if and when your train home is delayed because local hoodlums have lifted some copper wiring from Network Rail! According to the feature, “At its peak of $10,000 a tonne in February 2011, copper was worth more than seven times what it was in 2001 – $1,425 a tonne, according to figures from the London Metal Exchange.”
FactCheck: Why copper theft is the perfect crime
Unit 1: Rice market intervention
A good example to discuss of government intervention into agricultural markets - in this case Thailand’s government have intervened in the market to buy unmilled rice at 15,000 Thai baht per metric tonne, which is a 50% premium on the current market rate. A good discussion of the possible impacts can be found, with a discussion of the economic rationale/consequences of it, here.
Will Jean-Claude Trichet be missed?
JCT is no longer president of the European Central Bank and he leaves, after eight years at its helm, with as many detractors as there are supporters. The ECB is widely perceived as being ‘genetically’ close to the German
Bundesbank following the neo-classical school where inflation is the route of all problems and so needs to be controlled no matter the cost.
A2 Micro: Concentration Ratio for the US Smartphone Market
We´re going to be looking at this part of the syllabus very soon and the two graphics below from here and here look at how the US market for smartphone operating systems is split between the major firms and also how global market share for mobiles as well as smartphones is split.
read more...»King on QE2
The Govenor, Mervyn King, explains how he hopes that by injecting 75 billion of newly printed cash into the economy Aggregate Demand will be stimulated enough to avoid a double dip. See video below and the full article here.
read more...»Fat tax: Denmark
Earlier this year, the Royal Economics Society had the Young Economist of the Year competition with one of the titles being to debate the use of a Fat Tax. This week, Denmark have announced exactly such a tax on some of its foods! Read more here.
Supporting article on the Danish fat tax from Time Magazine
And this feature on the efficiency and equity arguments surrounding the fat tax from Steve Sexton writing in the Freakonomics blog.
The Bicycle - A merit good and an integral part of sustainable transport solutions?
A recent economic study1 found that bicycle ownership can boost household income in sub-Saharan Africa by 35%. I may be biased given my passion for cycling but I think there are indeed some very strong economic arguments for encouraging more bicycles both in the developing and the developed world.
The bicycle: more than just a mode of transport
Fuel for Thought
When teaching elasticities, fuel always seems to have been a favourite example of a good with very inelastic demand in response to price changes. However, this AA research adds further to the evidence that suggests that even fuel has now reached it’s limit in terms of quantity demanded remaining firm at it’s market price.
read more...»Ali G and demerit goods
When discussing demerit goods, it is always good to be able to show a few examples. In these youtube clips, Ali G interviews a police superintendent about offensive weapons and a US federal agent about illegal drugs.
read more...»Unit 4 Macro: USA edges closer to naming China as a “Currency Manipulator”
The U.S came closer to finally calling the Chinese a currency manipulator and retaliating in the new round of protectionism fears. A good summary of the key issues here.
3 for 2 no more
The book world was shaken this month when it emerged that Waterstone’s, the UK’s largest book chain, is going to ditch its decade-old 3-for-2 offer. Good for A2 micro when discussing firms’ strategies for growth and profit. Read more here.
Unit 1 Micro: Homework Assignment on Market Prices
I have attached below a homework assignment for my Unit 1 AS Micro students on market prices. The assignment focuses on the global markets for coffee and also for steel and is attached below as a pdf file for download if teaching colleagues might like to use and adapt it!
China - helping or hindering economic development in Africa?
If Africa was a physical battleground between east & west during the cold war of the 20th Century, it can arguably be seen today as the ideological 21st Century battleground between the difference approaches to promoting economic development: the western aid model versus the Chinese trade model. Is the Sino-Africa relationship mutually beneficial? I certainly don’t claim to have a comprehensive answer to this but it has been interesting talking to Africans on my journey so far about their perception of this, particularly in Zambia…
read more...»AS and A2 Macro: Exchange Rates and “Safe Haven” Currencies
This article from the WSJ highlights one determinant of exchange rates that we may not be too familiar with, whether or not a particular currency is regarded as a “safe haven” i.e. if a particluar investor fears that a currency will not hold its immediate or future value, then said investor may choose to exchange it for one which is more likely to.
read more...»Unit 1 Micro: Teacher Update on New Regulations
The end of September has brought a raft of new or changed regulations affecting different markets. Here is a summary of some of them for students and teachers wanting to keep up to date:
read more...»Economics Resources: Best of Today Podcasts
A hat tip to my fellow blogger Graham Carter for suggesting this handy resource. The BBC web site maintains a regularly-updated selection of podcasts drawing on some of the best stories covered by the Today programme. Here is the link. Dip in once in a while to see if there is an audio-resource connected to relevant business, economic and financial news stories.
Unit 2 Macro: Interest Rates and Income Inequality
Changes in interest rates on loans and savings deposits across an economy can have - over time - a sizeable effect on the overall distribution of income and wealth in a country. Since March 2009 official policy interest rates in the UK economy have been held at an historic low of 0.5%.
New research from the Bank of England indicate that this lengthy period of ultra-low returns for savers has caused a dramatic redistribution of income away from savers towards borrowers, especially those on variable-rate mortgages. The Bank of England suggest that savers have lost more than £40bn because of low interest rates since the spring of 2009, but those losses are mirrored by dramatic gains, amounting to more than £50bn, for mortgage borrowers who have paid less in interest on their loans during the same period. This video from BBC news provides some extra background.
Monetary Policy Roundtable
The Bank of England have published minutes of a 6-monthly meeting held with the Centre for Economic Policy on 24th June to discuss monetary policy matters. The meetings are held under ‘Chatham House Rules’ which means that participants are not named, but they included a range of economists from private sector financial institutions, academia and public sector bodies. The comments reported in the minutes are also not attributable to individuals or to the institutions they represent, but make some interesting reading which might well be useful for student economists returning to start on the A2 macroeconomics course in September.
read more...»Unit 4 Macro: Dangers of High Inflation
The annual rate of inflation in the UK has overshot its 2 per cent target in 51 of the past 60 months and this has led some economists to believe that the Bank of England has been adopting a tacit policy of allowing inflation to stay above target by keeping official monetary policy interest rates at 0.5% since the Spring of 2009. The Governor of the Bank of England Mervyn King has expressed his concern about “uncomfortably high rates of inflation” but the Bank’s Monetary Policy Committee has yet to reverse the steep falls in interest rates that came in the wake of the global financial crisis in 2008-09.
Although modest but persistently higher inflation might be helpful in reducing the real value of outstanding government debt there are also underlying dangers in allowing above-target inflation for a considerable length of time. This blog will look at these.
read more...»Interest Rates Held at 0.5% once again
The Monetary Policy Committee decided to keep interest rates unchanged at 0.5%, a rate which offers little comfort to savers and pensioners groups who have seen a significant fall in interest paid out on deposit accounts, i.e. falling incomes from savings. The Base Rate is at a historically low level, its lowest rate since the foundation of the Bank of England.
read more...»AS Macro: Updated presentation on monetary policy
An updated revision presentation on Monetary Policy in the UK is available
streamed version available here
pdf handout version available here
AS Macro Key Term: Monetary Policy Tightening
A tightening of monetary policy is a decision by a central bank to use monetary policy to squeeze the growth of demand in the economy in an attempt to control / reduce inflationary pressures. It is the opposite of an expansionary monetary polocy. In recent weeks we have seen both the European Central Bank and the People’s Bank of China increasing their benchmark lending rates by 0.25 percentage points – this is an example of monetary tightening.
Tightening of policy occurs when
(i) Policy interest rates are increased
(ii) The central bnak decides to reverse some of the quantitative easing applied to the banking system
(iii) Tighter controls are applied on the level of bank lending / credit creation
(iv) The central bank seeks to achieve an appreciation of the exchange rate
