http://www.tutor2u.net/blog/index.php/economics/ en tutor2u.net Copyright 2012 2012-02-12T07:41:03+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/unit-2-macro-look-upwards-to-find-the-next-downturn http://www.tutor2u.net/blog/index.php/economics/comments/unit-2-macro-look-upwards-to-find-the-next-downturn#When:03:34:05Z Correlation does not necessarily imply causation but analysts at Barclays Capital are worried that a surge in skyscraper construction in China and India might be a forward indicator of another burst of financial and economic distress. This report in the Independent covers their findings: “Clusters of building activity usually coincide with periods of easy credit, excessive optimism and rising land prices, which often occur before market corrections.” * India is scheduled to complete 14 new skyscrapers taller than 240 meters (787 feet) over the next five years from the current two * China will increase the number of skyscrapers to 141, from the current 75, by 2017 * London’s Shard is expected to be completed in 2012 – at 1,017ft, it will be the tallest building in Western Europe News video from the BBC: Skyscrapers ‘linked with impending financial crashes’ Guardian news video: Huaxi: the village that towers above China   AS and A2 Specifications, AQA Economics Unit 2, EdExcel Economics Unit 2, AS Macro, Emerging Economies, Business Economics, Economies of Scale, Cycles and Shocks, Aggregate Demand, Capital Investment, Economic Growth, Global Economy, Teaching of Economics, 2012-01-16T03:34:05+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/unit-2-macro-factors-driving-business-investment http://www.tutor2u.net/blog/index.php/economics/comments/unit-2-macro-factors-driving-business-investment#When:13:42:35Z Profit-seeking businesses will go ahead with an investment if they believe that it will - over its projected lifetime - yield a real rate of return greater than if the money had been invested in the next best alternative way. Opportunity cost is a useful idea to use here. Private sector businesses usually focus on these objectives when investing in new capital inputs: AS and A2 Specifications, AQA Economics Unit 2, EdExcel Economics Unit 2, AS Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, Macroeconomic Policies, Keynesian Economics, UK Economy, 2012-01-10T13:42:35+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/unit-1-micro-costs-and-benefits-of-a-super-sewer-for-london http://www.tutor2u.net/blog/index.php/economics/comments/unit-1-micro-costs-and-benefits-of-a-super-sewer-for-london#When:22:38:37Z Thames Water has plans for a super sewer running 20 miles from Hammersmith to Beckton but the plan has come up against intense opposition from many local resident groups. It is a good example to use of cost-benefit analysis in action with a project that will directly affect millions of people living and working in the capital. There is an almost unending list of stakeholders involved in the debate. AS and A2 Specifications, AQA Economics Unit 1, EdExcel Economics Unit 1, A2 Micro, AS Micro, Business Economics, Economies of Scale, Cost Benefit Analysis, Cycles and Shocks, Aggregate Demand, Capital Investment, Environmental Economics, Market Failure, Externalities, Public Goods, Market Equilibrium and Price, Nature of Supply, Teaching of Economics, 2011-11-01T22:38:37+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/uk-economy-as-seen-by-the-bank-of-england http://www.tutor2u.net/blog/index.php/economics/comments/uk-economy-as-seen-by-the-bank-of-england#When:19:55:01Z Students who want to be able to quote current data and trends in the UK economy could do worse than spending some of their revision time picking out the highlights from the Bank of England’s Agents Summary of Business Conditions, published today. There is plenty of opportunity to find evidence which can be used to back up evaluative arguments in macroeconomics papers here. Key points 1/ Growth in domestic markets is sluggish at best, but investment in the export sector looks better, probably driven by the rise in exports to emerging markets, Germany and the US. 2/ The service sector looks far from buoyant, with so much spare capacity that investment intentions are low and recruitment in consumer services is down. 3/ Unsurprisingly, import and raw material prices are driving a need to pass on cost push inflation to buyers, although many found that their power to pass on price increases to consumers was very limited, in spite of widespread awareness of the increase in costs - reflecting fears that price elasticity is very high at the moment. A2 Macro, AS Macro, Balance of Payments, Commodities Markets, Cycles and Shocks, Aggregate Demand, Capital Investment, Labour Market, International Trade, Macroeconomic Policies, UK Economy, 2011-05-18T19:55:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/rise-in-investment-could-kick-start-recovery http://www.tutor2u.net/blog/index.php/economics/comments/rise-in-investment-could-kick-start-recovery#When:20:42:00Z UK businesses are sitting on a pile of cash and need to loosen the purse strings and invest more according to new research from Ernst and Young. Their latest macroeconomic forecast for the UK can be found here. There has been a shift in the share of total factor incomes flowing to workers and a corresponding rise in the share of profits in GDP (by factor income). Ernst and Young find that wages and salaries in the UK fell from 46.5% of GDP to 45.3% last year, while the share of non-financial company profits increased from 15.9% to 16.2%. The non-financial company financial surplus increased from £56 billion to £71 billion, almost 5% of GDP helped by a fall in interest payments on debt and a sharp fall in dividend payments. For economists at Ernst and Young, the cash mountain provides a big opportunity for the UK economy. They are urging companies either to step up capital spending commitments including creating extra capacity to export products. Or return surplus cash to shareholders through bigger dividends. The Ernst and Young forecast shows business investment in the UK increasing by 12.3 % this year and another 14.1% in 2012. With housing investment slowly recovering, this easily outweighs the effect of lower public sector investment, pushing total investment up by 5.7% this year and 8.1% in 2012. Higher investment provides a boost to aggregate demand and also the economy’s productive capacity. And a rise in exports will help to re-balance the economy. For cash to be committed to investment projects requires sufficient business confidence and this is where the Keynesian idea of animal spirits becomes so important to where the UK economy is heading over the next year or two. AS and A2 Specifications, AQA Economics Unit 2, EdExcel Economics Unit 2, AS Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, Macroeconomic Policies, UK Economy, Recession Watch, 2011-04-18T20:42:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-revision-investment-spending http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-revision-investment-spending#When:09:10:01Z This revision blog looks at the drivers of capital spending and the importance of investment for economic performance AS and A2 Specifications, AQA Economics Unit 2, EdExcel Economics Unit 2, AS Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, Economic Growth, Macroeconomic Policies, UK Economy, 2011-03-12T09:10:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/5-fresh-links-videos-to-attract-fdi http://www.tutor2u.net/blog/index.php/economics/comments/5-fresh-links-videos-to-attract-fdi#When:19:04:00Z I am teaching European and Global context for A2 macro this term and one of the key topics is the economics of EU enlargement. The opportunities to attract inflows of direct investment is one of the major attractions for new EU countries as they enter the single market. Here is a selection of videos promoting FDI into a selection of European nations. AS and A2 Specifications, AQA Economics Unit 4, A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, European Economy, EU Enlargement, Single Market, Macroeconomic Policies, Supply-side policies, Trade Policies, Teaching of Economics, 2011-02-04T19:04:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/a2-macro-revision-the-stock-cycle http://www.tutor2u.net/blog/index.php/economics/comments/a2-macro-revision-the-stock-cycle#When:19:29:00Z The stock cycle helps to explain changes in national output because nearly all businesses hold stocks of finished products or raw materials and components as a way of balancing changes in demand. AS and A2 Specifications, AQA Economics Unit 4, A2 Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, UK Economy, 2010-12-31T19:29:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/specific-supply-side-policies http://www.tutor2u.net/blog/index.php/economics/comments/specific-supply-side-policies#When:12:18:01Z Its always good to be able to refer to real economic policies when teaching supply side policies, rather than referring to them in the abstract, such as “increase real expenditure on R&D and education”. Here is a good current example of a supply side policy - the government last week began the long process of distributing its £200m UK Innovation Investment Fund (IIF), which will be focused on life sciences, digital and advanced manufacturing businesses. Lord Drayson, the science minister, also outlined plans to tackle the bureaucracy and red-tape that creates a log-jam for initial public offerings of high-tech companies, which have dried up in the last two years, creating problems for venture capital groups. AS and A2 Specifications, AQA Economics Unit 2, AQA Economics Unit 4, EdExcel Economics Unit 2, EdExcel Economics Unit 4, A2 Macro, AS Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, Macroeconomic Policies, Supply-side policies, Teaching of Economics, UK Economy, 2010-06-05T12:18:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/a2-economics-revision-changing-pattern-of-global-trade-investment http://www.tutor2u.net/blog/index.php/economics/comments/a2-economics-revision-changing-pattern-of-global-trade-investment#When:07:58:00Z This new streamed revision presentation guides students through some key evaluation points on the changing patterns in global trade & investment. Ideal for A2 revision. Revision Presentation on the Changing Pattern of Global Trade & Investment AS and A2 Specifications, AQA Economics Unit 4, EdExcel Economics Unit 4, OCR A2 Economics Unit F585, A2 Macro, Emerging Economies, Development Economics, Brazil Economy, China Economy, Indian economy, Russia Economy, Competition Policy, Cycles and Shocks, Aggregate Demand, Capital Investment, Consumer Spending, Saving, Global Economy, Credit Crunch, International Trade, OECD Economies, 2010-05-02T07:58:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/as-a2-revision-where-next-for-the-uk-economy http://www.tutor2u.net/blog/index.php/economics/comments/as-a2-revision-where-next-for-the-uk-economy#When:06:44:00Z Students wanting to demonstrate up-to-date understanding of the UK economy should find this streamed revision presentation really useful.  It was delivered by Geoff at our AS & A2 Economics workshops in London & Manchester.  It provides a comprehensive coverage of recent developments in the UK economy and highlights some potential downsides and upsides as the economy attempts to sustain a recovery during 2010 and 2011. Has the era of macro economic stability been replaced by a new phase of macro economic uncertainty, slower growth and a recovery constrained by debt? Or are there grounds for being more optimistic about the near-term future for the British economy? Revision Presentation on the UK Economy AS and A2 Specifications, AQA Economics Unit 2, AQA Economics Unit 4, EdExcel Economics Unit 2, EdExcel Economics Unit 4, OCR AS Economics Unit F582, A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, Consumer Spending, Saving, Aggregate Supply, Economic Growth, Exchange Rates, Inflation and Deflation, International Trade, Macroeconomic Policies, Fiscal Policy, Monetary Policy, Supply-side policies, Trade Policies, Keynesian Economics, Manufacturing Industry, Monetarism, UK Economy, Recession Watch, 2010-05-02T06:44:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/animal-spirits http://www.tutor2u.net/blog/index.php/economics/comments/animal-spirits#When:07:52:00Z Animal spirits refers to the state of confidence or pessimism held by consumers and businesses. Expectations for the future inevitably influence decisions made today about how much consumers are prepared to spend or save and the willingness of businesses to commit funds towards capital investment in their chosen markets. AS and A2 Specifications, AQA Economics Unit 2, AQA Economics Unit 4, EdExcel Economics Unit 2, EdExcel Economics Unit 4, OCR A2 Economics Unit F585, A2 Macro, AS Macro, Behavioural Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, Consumer Spending, Saving, Macroeconomic Policies, Keynesian Economics, Teaching of Economics, UK Economy, Recession Watch, 2010-04-25T07:52:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/broadband-and-economic-growth http://www.tutor2u.net/blog/index.php/economics/comments/broadband-and-economic-growth#When:14:52:00Z Investment in broadband capacity and speed has a strong impact on economic growth according to new research. A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, Economic Growth, Economics of Technology, International Trade, Macroeconomic Policies, Supply-side policies, OECD Economies, US Economy, 2010-04-03T14:52:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/foreign-investment-videos http://www.tutor2u.net/blog/index.php/economics/comments/foreign-investment-videos#When:07:59:00Z Videos produced by governments seeking foreign direct investment can be a useful teaching aid when studying the drivers of FDI. A2 Macro, AS Macro, Emerging Economies, Cycles and Shocks, Aggregate Demand, Capital Investment, Economic Growth, European Economy, EU Enlargement, Teaching of Economics, 2010-04-02T07:59:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/nissan-turns-over-a-new-leaf http://www.tutor2u.net/blog/index.php/economics/comments/nissan-turns-over-a-new-leaf#When:12:14:00Z This is a hugely important announcement and boost for the North east economy whose long term future must be built on competitive advantages in the emerging low-carbon industries of tomorrow. The decision to manufacture the lithium-iron batteries used in the Leaf electric cars is the key to the employment creation effects of the new investment by Nissan. Note too the role played by government financial support. The investment is backed by a £20.7m government grant and up to £220m from the European Investment Bank. The Nissan car plant is the most productive in the European Union. The plant opened in 1984 and has so far built 5.6 million cars. It produced a third of all cars built in Britain in 2009.  Digby Jones sings the praises of businesses such as Nissan in this super interview on the Politics programme a few days ago. A2 Macro, AS Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, Economic Growth, European Economy, GCSE Economics, Government Intervention, Subsidies, Manufacturing Industry, OECD Economies, Teaching of Economics, Transport Economics, UK Economy, Regional Economics, Recession Watch, Unemployment, 2010-03-18T12:14:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/india-ramps-up-infrastructure-spending-to-sustain-growth http://www.tutor2u.net/blog/index.php/economics/comments/india-ramps-up-infrastructure-spending-to-sustain-growth#When:11:00:00Z Rapid growth has put India’s creaking infrastructure under tremendous pressure. The Indian government has sharply increased investment spending on infrastructure with ambitious projects such as adding 20km of new roads each day! Can the spending projects deliver? This BBC India Business Report looks at the rise in investment spending. A2 Macro, AS Macro, Emerging Economies, Indian economy, Cycles and Shocks, Aggregate Demand, Capital Investment, Economic Growth, Global Economy, Macroeconomic Policies, Fiscal Policy, Teaching of Economics, 2010-03-14T11:00:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/supply-side-stimulus-for-the-chinese-economy http://www.tutor2u.net/blog/index.php/economics/comments/supply-side-stimulus-for-the-chinese-economy#When:11:53:00Z A top-down programme to encourage bottom-up growth of entrepreneurship in China’s rural areas. We have become accustomed to the enormous size of infrastructure projects in China designed to maintain domestic demand and employment and sustain a minimum growth rate of 8 per cent. China’s investments in new factories and properties surged 67 percent last year to 15.2 trillion yuan, more than Russia’s gross domestic product. This is another approach focusing on enterprise in rural areas. The Chinese Government has spent about $40 billion training people from the countryside to run their own business. The Government’s scheme provides free skills training, tax free loans of up to $8,000 and two years of support.   A2 Macro, AS Macro, Emerging Economies, China Economy, Cycles and Shocks, Aggregate Demand, Capital Investment, Aggregate Supply, Economic Growth, Global Economy, Macroeconomic Policies, Supply-side policies, Teaching of Economics, 2010-02-17T11:53:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/revision-presentation-a-question-of-confidence http://www.tutor2u.net/blog/index.php/economics/comments/revision-presentation-a-question-of-confidence#When:07:23:00Z This new revision presentation examines the implications of changes in consumer and business confidence for the UK economy Launch revision presentation on a Question of Confidence Download printable slide handouts Cycles and Shocks, Aggregate Demand, Capital Investment, Consumer Spending, Macroeconomic Policies, Supply-side policies, UK Economy, Recession Watch, 2010-01-29T07:23:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/is-uk-manufacturing-turning-a-corner http://www.tutor2u.net/blog/index.php/economics/comments/is-uk-manufacturing-turning-a-corner#When:18:47:00Z Whisper it quietly but there are signs of a rebound in orders and production in UK manufacturing industry. In recent weeks we have seen a cluster of articles suggesting that some of the industrial production that left the UK during an age of out-sourcing is now starting to return home. Having plunged last year manufacturing output appears to have stabilised and today we heard news from the Chartered Institute of Purchasing & Supply’s purchasing managers’ index that UK manufacturing activity grew at its fastest pace in more than two years in December 2009. Last week, a survey by the Engineering Employers Federation revealed that one in seven British companies had repatriated manufacturing operations to the UK in the past two years. Keep in mind that manufacturing contributes less than 12% of UK GDP - although many service sector jobs and businesses depend directly on the health of the industrial sector. Manufacturing may be making a comeback because of: 1/ Sterling: The weaker value of sterling against the Euro and the US dollar has given manufacturing industry a competitive boost 2/ Relative costs and supply issues: Higher than expected costs and quality problems have been cited by some businesses that have outsourced some manufacturing - high wage inflation in fast-growing emerging market countries has narrowed some of the unit labour cost gap between the UK and rivals 3/ Oil and transport costs: The high price of oil has increased the cost of shipping goods around the world encouraging producers to focus output closer to the market 4/ Overseas markets: Signs of a recovery in some of the UK’s main export markets - the majority of manufacturing production in the UK is exported, manufacturing industry in Britain is sensitive to the global economic cycle Sunday Times (3rd Jan) Made in Britain: How manufacturing is returning to the UK Scotsman: 15% of British firms switching production back to UK A2 Macro, AS Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, Manufacturing Industry, OECD Economies, Teaching of Economics, UK Economy, 2010-01-04T18:47:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/aggregate-demand-teacher-revision-presentation http://www.tutor2u.net/blog/index.php/economics/comments/aggregate-demand-teacher-revision-presentation#When:15:20:00Z Many thanks to Geoff for updating his popular revision presentation for AS students on Aggregate Demand Launch interactive version Download slides handout AS Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, Consumer Spending, Saving, Macroeconomic Policies, Fiscal Policy, Monetary Policy, Keynesian Economics, UK Economy, 2009-12-06T15:20:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/over-investment-in-china http://www.tutor2u.net/blog/index.php/economics/comments/over-investment-in-china#When:07:21:00Z John Gapper’s blog in the Financial Times today focuses on the risks that come from excessive capital investment in the Chinese economy. Bloated by an ultra-low cost of capital, many heavy industries have boosted their capacity to enormous levels and then relied on double digit annual growth in exports to absorb this capacity and maintain output and jobs. But this excess investment has made China vulnerable to the world financial crisis (not least the slump in world trade) and it has been a key factor behind global trade imbalances and the rise of protectionism. Capital investment of up to 40% of GDP is a reflection of a deeply skewed development model and one that is unsustainable. “The result is huge over-capacity in heavy industries that soak up excess capital, which was hidden until last year by strong export demand for steel and the other affected products. But it also makes Chinese industry vulnerable to shocks such as the financial crisis.The Chinese government itself accepts - at least in theory - the need to switch away from a pure reliance on exports to fuel growth, to boost domestic consumption and to make growth more balanced.” More here - China’s over-investment is its Achilles’ heel An FT editorial today develops the discussion and highlights the waste of scarce resources that occurs when investment is made in capacity that will probably never be used: “At the end of 2008, China’s steel capacity was 660m tons against demand of 470m tons. This difference is much the same as the European Union’s total output. Yet, notes the report, “there are currently 58m tonnes of new capacity under construction in China”. To the extent that gross domestic product is driven by such absurd spending is a measure of waste, not of economic welfare.” The rest of the editorial can be found here George Magnus also writes on China in his piece in the Times       A2 Macro, AS Macro, Emerging Economies, Development Economics, China Economy, Cycles and Shocks, Aggregate Demand, Capital Investment, Economic Growth, Global Economy, International Trade, Teaching of Economics, Supply-side policies, 2009-11-30T07:21:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/uk-recession-and-business-capacity-teacher-presentation http://www.tutor2u.net/blog/index.php/economics/comments/uk-recession-and-business-capacity-teacher-presentation#When:12:11:00Z This streamed presentation provides a snapshot of the latest economic data on UK business capacity. The slump in output in the British economy has left many businesses and industries with a huge amount of spare capacity and the negative output gap is expected to grow beyond 6% of GDP in 2010 according to the OECD. A high level of spare capacity (or productive slack) has important consequences for jobs, inflationary pressures, planned investment and business profits. Launch interactive presentation on Recession & Capacity Download pdf handout of slides A2 Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, Aggregate Supply, Labour Market, Teaching of Economics, UK Economy, Recession Watch, 2009-11-12T12:11:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/investment-teacher-presentation http://www.tutor2u.net/blog/index.php/economics/comments/investment-teacher-presentation#When:09:34:01Z This revision presentation is ideal for AS Macro students who wish to build their knowledge and understanding of the important topic of investment and its role in driving macroeconomic performance. The presentation stays clear of AD-AS or PPF diagrams as we cover this analysis next - I will post a second presentation on applying investment to the AD-AS framework sometime next week. Launch interactive presentation on the economics of investment Download printable pdf (slides) AS Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, UK Economy, 2009-11-04T09:34:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/gloomy-summary http://www.tutor2u.net/blog/index.php/economics/comments/gloomy-summary#When:21:02:00Z Here is a summary of four reports posted on the Business and Economics sections of the BBC News website over the last few days. Be warned - none of them are particularly hopeful, the green shoots of summer giving way to autumn mists. A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, Consumer Spending, Aggregate Supply, Exchange Rates, Inflation and Deflation, UK Economy, Monetary Policy, 2009-10-13T21:02:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/beijing-worries-that-supply-is-outpacing-demand http://www.tutor2u.net/blog/index.php/economics/comments/beijing-worries-that-supply-is-outpacing-demand#When:15:14:00Z Not all investment contributes to growth - and in an economy where super-charged capital spending has been a driving force of economic expansion over several decades, there is always a risk that a country that invests over forty per cent of GDP on capital goods can eventually suffer an investment-led slump. Japan learned to her cost the dangers of being over-capitalised. Is China recognising the same symptoms in time? This article from the Times makes for fascinating reading. “Beijing is eager to keep GDP growth above the level of 8 per cent supposedly required to maintain social stability and job creation. But there are fears that huge imbalances between production capacity and actual demand could lead to price wars, corporate failures and severe setbacks for the country’s stellar expansion trajectory.” Read Beijing moves to halt growth as supply starts to outstrip demand A2 Macro, AS Macro, Emerging Economies, Development Economics, China Economy, Cycles and Shocks, Aggregate Demand, Capital Investment, Economic Growth, 2009-10-04T15:14:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/a2-economics-revision-external-shocks http://www.tutor2u.net/blog/index.php/economics/comments/a2-economics-revision-external-shocks#When:19:26:00Z We have created this PowerPoint for A2 Economics students who wish to update their understanding of external macroeconomic shocks and cyclical fluctuations. Viewed streamed version of the presentation Download SCORM-compliant VLE version (ZIP file) Download printable pdf version A2 Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, Consumer Spending, Saving, Aggregate Supply, Global Economy, 2009-09-28T19:26:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/infrastructure-investment-to-keep-the-chinese-economy-driving-forward http://www.tutor2u.net/blog/index.php/economics/comments/infrastructure-investment-to-keep-the-chinese-economy-driving-forward#When:07:26:00Z The Chinese government has moved heaven and earth to keep their economy growing during the global economic crisis. The focus has been on boosting domestic demand such as consumer spending and capital investment. The government is behind the world’s largest stimulus programme - investing around $566bn - and the government has pledged to go ahead with large-scale projects. Quentin Sommerville reports on a huge infrastructural project - a good video to use to illustrate the multiplier effects of capital spending. A2 Macro, AS Macro, Emerging Economies, China Economy, Cycles and Shocks, Aggregate Demand, Capital Investment, Aggregate Supply, Government Intervention, Credit Crunch, 2009-09-15T07:26:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/volkswagen-looks-to-china-on-the-road-to-being-the-biggest-car-maker http://www.tutor2u.net/blog/index.php/economics/comments/volkswagen-looks-to-china-on-the-road-to-being-the-biggest-car-maker#When:10:32:00Z Volkswagen has a hugely ambitious long term aim - by 2018 it wants to overtake Toyota as the world’s biggest car manufacturer. With this in mind it makes clear sense to focus capital investment in countries where the projected growth of demand for new vehicles is strongest. The relatively mature markets of Western Europe and North America look less attractive compared to emerging economies such as China and Brazil. This week Volkswagen has announced a Euro 4 billion plan to expand capacity and output in China. In the short term the commercial need is to have sufficient capacity in place to meet the surge in demand brought about by the deep cuts in taxes on new cars introduced by the Chinese government as part of its economic stimulus programme - there has been a temporary cut in the purchase tax on cars with 1.6 liter engines to 5%. In the first half of 2009 Volkswagen has already sold over 620,000 cars in China! Long term however the market demand for automobiles is forecast to rise by more than 10% per annum. Volkswagen has engineered joint ventures with Chinese manufacturers to build cars at plants in Nanjing and Chengdu - it is not beyond the realms of possibility that within eight years, it could be assembling over two million cars a year in China - a staggering volume of production and one designed to maximise the economies of large scale production. More here from the BBC news site AS Macro, AS Micro, Emerging Economies, Brazil Economy, China Economy, Business Economics, Economies of Scale, Cycles and Shocks, Aggregate Demand, Capital Investment, Manufacturing Industry, Transport Economics, 2009-09-13T10:32:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/full-speed-ahead http://www.tutor2u.net/blog/index.php/economics/comments/full-speed-ahead#When:09:03:01Z Yesterday, Network Rail proposed a new £34 bn high-speed railway line linking Scotland and London by 2030, which would get passengers from London to Manchester in an hour; and London to Glasgow in two and a quarter hours. AS Macro, AS Micro, Cost Benefit Analysis, Cycles and Shocks, Aggregate Demand, Capital Investment, Transport Economics, UK Economy, Regional Economics, 2009-08-27T09:03:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/five-quarters-of-contraction-scale-of-1930s-downturn-draws-near http://www.tutor2u.net/blog/index.php/economics/comments/five-quarters-of-contraction-scale-of-1930s-downturn-draws-near#When:15:01:00Z UK national output declined 0.8% in the second quarter of 2009 and has now dropped 5.6% on the year, the largest annual decline since quarterly records began in 1955 according to the Office for National Statistics. We are now very close to an output slump on the scale of the 1930s. The drop in production was worse than analysts had expected although a note of caution is required - the data is provision and subject to revision. Most sectors of the economy are contracting.  Computer services are suffering as capital spending by UK businesses is postponed or cancelled. Services which makes up around three quarters of UK GSP fell 0.6% on the quarter with declines across the board despite a modest upturn in retail sales. Construction output declined 2.2% between April and June reflecting persistent weakness in the housing market. More here from Stephanie Flanders of the BBC A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, UK Economy, Recession Watch, Credit Crunch, 2009-07-24T15:01:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/1bn-programme-to-electrify-the-great-western-mainline http://www.tutor2u.net/blog/index.php/economics/comments/1bn-programme-to-electrify-the-great-western-mainline#When:10:38:00Z This Times article covers the announcement of a major investment in the rail network - £1bn of extra spending to electrify the Great Western Mainline. About 300 miles (480km) of line will be upgraded at a cost of £1.1billion, including tracks from Didcot to Oxford, Reading to Newbury and Liverpool to Manchester. Lord Adonis the current Transport Minister is quoted as saying that the scheme will “pay for itself over a 40 year time period”. The investment might make a good case study for cost benefit analysis: Students might generate a series of advantages / disadvantages and then discuss how they divide into private and social costs and benefits. A2 Macro, AS Macro, Cost Benefit Analysis, Cycles and Shocks, Aggregate Demand, Capital Investment, Environmental Economics, Government Intervention, Transport Economics, UK Economy, Regional Economics, 2009-07-23T10:38:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/falling-productivity-a-cause-or-symptom-of-the-recession http://www.tutor2u.net/blog/index.php/economics/comments/falling-productivity-a-cause-or-symptom-of-the-recession#When:17:00:00Z The annual rate of growth of output per hour worked (seasonally adjusted) for the UK economy is falling for the first time since the mid 1990s. There are good reasons for thinking that labour productivity tends to directly related to the business cycle; when demand and output is strong, firms will be making full use of their existing factor resources and capacity utilisation will be high. In a downturn, there are spare factor resources and productivity growth may suffer if businesses do not wish to adjust their labour force in response to declining demand. The danger is that, in the absence of flexible pay that reflects lower output per hour, weaker productivity will cause a rise in unit labour costs and this will put further pressure on business profit margins and the internal funds available to finance investment. UK productivity continues to lag behind levels achieved by many of our major international competitor nations. A2 Macro, AS Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, Aggregate Supply, Manufacturing Industry, UK Economy, Recession Watch, 2009-07-14T17:00:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/capex-under-pressure-as-spare-capacity-grows http://www.tutor2u.net/blog/index.php/economics/comments/capex-under-pressure-as-spare-capacity-grows#When:06:44:00Z The recession is creating a growing amount of spare productive capacity across many different markets and industries. From container ships to hotels and from steel plants to airlines, the fall in demand has lowered capacity utilisation and put a big squeeze on profits. That pressure on profit margins comes not just from weaker revenues. Keep in mind that many businesses have a large fixed cost component such as the overhead costs of operating a network. Thus when output is contracting, the average fixed costs of production increase. Declining demand and rising productive slack inevitably cause a fall in planned investment spending - economists term this a negative accelerator effect. BBC news reports that British Airways is cutting capital spending in response to the slump in demand and mounting losses. “The airline said it had cut spending by 20% to £580m ($952m) from £725m, and had lengthened its schedule of orders for 12 Airbus A380 aircraft.” Further evidence for the reverse accelerator affect comes from Japan where Japanese firms cut their capital spending by a record level in the first quarter of 2009. In contrast Stagecoach is increasing investment in a fleet of greener buses. A2 Macro, AS Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, UK Economy, Recession Watch, 2009-07-04T06:44:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/uk-recession-deep-very-deep http://www.tutor2u.net/blog/index.php/economics/comments/uk-recession-deep-very-deep#When:14:09:00Z The latest set of macroeconomic indicators for the UK show the steepest quarterly decline in national output for over fifty years. GDP in real terms in the first quarter of 2009 fell by 2.4 per cent compared with the previous quarter driven lower by an especially weak construction sector. Construction output fell 6.9 per cent compared with a fall of 5.0 per cent in the previous quarter. The wider measure of industrial production was 5.1% down on the quarter and capital spending fell 7.5 per cent and is now 13.2 per cent below the first quarter of 2008. A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, UK Economy, Recession Watch, Credit Crunch, 2009-06-30T14:09:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/one-home-in-six-at-risk-flood-defences-as-a-public-good http://www.tutor2u.net/blog/index.php/economics/comments/one-home-in-six-at-risk-flood-defences-as-a-public-good#When:13:42:00Z Flood defences provide a collective barrier against the huge damage that flooding can cause. The benefits are largely non-excludable and the costs of not having effective flood defence infrastructure are enormous. It has been found that one home in six in the UK is at risk of flooding in the years ahead as the impact of climate change becomes more apparent. This BBC news article looks at the need for extra investment in flood defences. AS Micro, Cycles and Shocks, Aggregate Demand, Capital Investment, Market Failure, Public Goods, 2009-06-24T13:42:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/cost-benefit-analysis-and-new-rail-lines http://www.tutor2u.net/blog/index.php/economics/comments/cost-benefit-analysis-and-new-rail-lines#When:09:23:00Z It is refreshing to read of a possibility of an expansion of the UK rail network. This is not simply an emotional response to the beauty of steam, but because for decades now we have underestimated the economic and social benefits from a well integrated and efficient rail network. The Association of Train Operating Companies has released a report urging new investment in the UK rail network to include opening up perhaps fourteen new lines in the years ahead. According to ATOC, today’s rail network carries 30% more passengers than it did 45 years ago on a network considerably smaller than it was then. Using their own cost benefit analysis - which gives great weight to possible agglomeration economies of scale, they estimate that in England alone there are 14 places where there could be a positive business case for a new line to provide access to communities each with a population of 15,000 or more but which are currently not served by rail. Here is the link for colleagues who want to download the report and the accompanying cost benefit analysis. It could form the basis for an excellent case study. A2 Micro, AS Micro, Cost Benefit Analysis, Cycles and Shocks, Aggregate Demand, Capital Investment, Transport Economics, 2009-06-16T09:23:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/spare-capacity-in-manufacturing http://www.tutor2u.net/blog/index.php/economics/comments/spare-capacity-in-manufacturing#When:15:31:00Z Spare capacity is a term that makes increasingly frequent appearances in AS macro multiple choice and data response questions. A survey from the British Chambers of Commerce finds that only 20% of manufacturing firms are operating at full-tilt whereas 40% of service sector businesses report that they are close to their capacity levels. Spare capacity rises when orders and demand tails off leaving under-utilised capital and labour resources. We have seen this in the steep contraction in production in new housebuilding and in car manufacturing and this inevitably has knock-on effects for supply-chain businesses. Operating below capacity can lead to a rise in the average fixed costs of production and therefore put pressure on profit margins. Little wonder that many manufacturing businesses have moved towards short-time working and have mothballed some of their production capacity. This BBC Midlands news article covers a march for jobs in the West Midlands   A2 Macro, AS Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, Aggregate Supply, Manufacturing Industry, UK Economy, Recession Watch, 2009-05-26T15:31:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/revision-animal-spirits http://www.tutor2u.net/blog/index.php/economics/comments/revision-animal-spirits#When:17:00:00Z Animal spirits refers to the expectations of businesses, entrepreneurs and consumers. When business confidence is high, we expect to see a rise in planned capital investment at each rate of interest. If there is a downturn in business confidence, for example during a recession, then planned investment may fall and some capital investment projects may be scrapped even when interest rates are fairly low. A2 Macro, AS Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, Consumer Spending, UK Economy, Recession Watch, Credit Crunch, 2009-05-25T17:00:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/business-decisions-drive-the-cycle-one-year-on http://www.tutor2u.net/blog/index.php/economics/comments/business-decisions-drive-the-cycle-one-year-on#When:09:17:00Z A year ago I blogged about the critical role that business decisions will take in determining the depth and duration of a downturn. “Companies take four sets of decisions that are vital to macro-economic performance: about wages and prices; the level of investment spending (on plant and machinery and R&D); levels of stocks (inventories), and employment levels.” So what has been happening in the intervening period? A2 Macro, AS Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, UK Economy, Recession Watch, 2009-05-24T09:17:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/economies-of-scale-for-wind-farms http://www.tutor2u.net/blog/index.php/economics/comments/economies-of-scale-for-wind-farms#When:09:25:00Z The scale of the new farm project at Eaglesham Moor near Glasgow is stunning but projects of this type inevitably create a huge furore especially for those living in the area. My own personal view is that wind farms as a source of renewable energy are things of beauty - this BBC video provides an aerial view of the Glasgow project and might be a good one to use when teaching about the economics of renewable energy, cost benefit analysis and economies of scale. The UK Government has a target of providing 15.4% of all electricity supply from renewable sources by 2015. Jim recently blogged about the London Array here   A2 Micro, AS Micro, Cost Benefit Analysis, Cycles and Shocks, Aggregate Demand, Capital Investment, Environmental Economics, GCSE Economics, Government Intervention, Market Failure, Externalities, Merit & De-Merit Goods, 2009-05-23T09:25:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/revision-slump-in-global-trade-and-uk-economy http://www.tutor2u.net/blog/index.php/economics/comments/revision-slump-in-global-trade-and-uk-economy#When:19:22:00Z An important area for students to understand are the ways in which global economic forces affect the domestic economy. Both the new AS and the legacy A2 syllabus for AQA expect students to be aware of the nature of and possible consequences of external demand and supply-side shocks. This chart from the Bank of England Inflation Report (May 2009) highlights just such a demand-shock - the collapse in world trade and the global recession. AS Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, Manufacturing Industry, Teaching of Economics, UK Economy, Recession Watch, 2009-05-14T19:22:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/revision-accelerator http://www.tutor2u.net/blog/index.php/economics/comments/revision-accelerator#When:08:58:00Z This revision note looks at the accelerator. Put simply, the accelerator model suggests a positive relationship between spending on new capital investment and the rate of growth of demand or output. Accelerator theories of investment assume that there is a desired capital stock for a given level of output and interest rates. A rise in output or a fall in interest rates may prompt increased levels of investment as businesses adjust to reach the new optimal capital stock level. Equally during a slowdown or recession, expected demand tails away and many businesses may choose to curtail capital projects until economic conditions improve. Thus in a recession we see evidence of a negative accelerator effect which in turn leads to a contraction in output and profits in those industries that build, design and install new capital equipment and buildings.   A2 Macro, AS Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, UK Economy, 2009-05-09T08:58:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/revision-importance-of-business-expectations http://www.tutor2u.net/blog/index.php/economics/comments/revision-importance-of-business-expectations#When:08:55:00Z Expectations matter hugely for businesses - and changes in business sentiment have important macroeconomic effects at different stages of the economic cycle. This brief revision note looks at the role of expectations. AS Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, Aggregate Supply, 2009-05-06T08:55:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/revision-business-investment http://www.tutor2u.net/blog/index.php/economics/comments/revision-business-investment#When:08:32:00Z This revision note covers capital investment spending in the economy. Investment is spending by businesses and the government on capital goods such as new factories, machinery & vehicles. Much new investment embodies advances in technology. Investment (I) is an important component of AD, but as we shall see, it also has an impact on the supply-side and is a key factor driving the competitiveness of a country in a globalising world. AS Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, Economic Growth, UK Economy, 2009-05-03T08:32:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/australias-broadband-superhighway http://www.tutor2u.net/blog/index.php/economics/comments/australias-broadband-superhighway#When:10:34:00Z It is ambitious, expensive and will take years to roll out - but the Australian government’s newly announced $43 billion project to extend super-fast broadband across the country is the type of government funded infrastructure project that makes you sit up and take notice. This article in the Times could be a good one to use when teaching about the supply-side consequences of government spending. And it is another example of how fiscal policy can be used to kick start domestic demand with the creation of thousands of ‘shovel-ready’ jobs. “The project, which will start in Tasmania next year, requires the installation of fibre cables across Australia - a vast undertaking that the Government said would create 25,000 jobs a year during the eight years of construction.” More here from the BBC A2 Macro, AS Macro, Cost Benefit Analysis, Cycles and Shocks, Aggregate Demand, Capital Investment, Economic Growth, Global Economy, Unemployment, Fiscal Policy, Supply-side policies, Keynesian Economics, 2009-04-07T10:34:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/qa-is-capital-investment-always-more-profitable-in-inflationary-times http://www.tutor2u.net/blog/index.php/economics/comments/qa-is-capital-investment-always-more-profitable-in-inflationary-times#When:11:52:00Z Is capital investment are always more profitable in inflationary times? One way of measuring the profitability of an investment project is as a rate of return on capital employed. The real return makes an adjustment for the effects of inflation and it is the expected real return that should drive investment decisions. Economics Q&A, Q&A - Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, 2009-03-28T11:52:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/infrastructure-and-growth-2 http://www.tutor2u.net/blog/index.php/economics/comments/infrastructure-and-growth-2#When:16:15:00Z A hat tip to my colleague Jon Mace for spotting this rather good BBC news article that considers the role that investment in infrastructure can have in sustaining and promoting economic growth. It is a good example of how government spending (fiscal policy) can affect both aggregate demand and long run aggregate supply. And it raises important questions about how such projects are funded. A2 Macro, AS Macro, Cost Benefit Analysis, Cycles and Shocks, Aggregate Demand, Capital Investment, Economic Growth, GCSE Economics, US Economy, Fiscal Policy, Supply-side policies, 2009-03-25T16:15:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/qa-what-is-the-accelerator-effect http://www.tutor2u.net/blog/index.php/economics/comments/qa-what-is-the-accelerator-effect#When:15:44:00Z What is the accelerator effect? The accelerator effect describes a principle where how much a business chooses to spend on capital investment will be influenced by how quickly demand is growing for their products. Economics Q&A, Q&A - Macro, A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, Aggregate Supply, Economic Growth, GCSE Economics, 2009-02-22T15:44:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/supply-side-indicators-for-the-uk http://www.tutor2u.net/blog/index.php/economics/comments/supply-side-indicators-for-the-uk#When:10:17:00Z I am about to start teaching supply-side economics with my AS students so the time has come to update some of the charts I use to illustrate aspects of supply-side performance. This is available to download as a PowerPoint file below. A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, Aggregate Supply, UK Economy, Supply-side policies, 2009-02-15T10:17:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/green-shoots http://www.tutor2u.net/blog/index.php/economics/comments/green-shoots#When:18:38:00Z An article from today’s Telegraph suggets there may be ‘Glimmers of hope on the Horizon’ for the world economy. A2 Macro, AS Macro, Emerging Economies, China Economy, Commodities Markets, Cycles and Shocks, Aggregate Demand, Capital Investment, European Economy, Global Economy, Credit Crunch, International Trade, Recession Watch, US Economy, 2009-02-05T18:38:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/defence-of-the-car-manufacturers-loan-guarantee-package http://www.tutor2u.net/blog/index.php/economics/comments/defence-of-the-car-manufacturers-loan-guarantee-package#When:22:36:00Z On BBC i-player you can listen to a 10-minute interview with Lord Peter Mandelson on the Radio 5 ‘Drive’ programme this evening; after opening this link move the ‘fast forward’ cursor towards the bottom left of the screen from the 0.00 time to 2.14.30 to find the start of the interview. Lord Mandelson defends the measures to help the automotive industry which he announced today against criticism that the measures won’t go far enough to help the suppliers of car manufacturing, or the jobs which are being lost right now throughout the industry, and that other industries may be equally deserving of help to survive the recession. A2 Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, Credit Crunch, Fiscal Policy, Supply-side policies, 2009-01-27T22:36:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/investing-in-poland http://www.tutor2u.net/blog/index.php/economics/comments/investing-in-poland#When:19:09:00Z Have you noticed on Sky News a new advert featuring regularly looking to attract inward investment into Poland? It is short (just 30 seconds) but puts across some of the potential benefits from relocating to central Europe - and I used it in one of my lessons today on EU enlargement - it is available here. This second advert reinforces the point - together they might be a useful starter video for a lesson on inward investment in ‘the heart of an enlarged EU”. The Invest in Poland agency is here.   Cycles and Shocks, Aggregate Demand, Capital Investment, European Economy, EU Enlargement, 2009-01-27T19:09:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/an-economy-on-the-brink http://www.tutor2u.net/blog/index.php/economics/comments/an-economy-on-the-brink#When:12:33:29Z Britain stands on the brink of one of the deepest recessions since the end of World War Two. Real GDP in the UK fell by its highest amount for eighteen years in the 3rd quarter of 2008 and this marks only the early stages of the downward slide. Most of the really bad economic news - such as the banking collapses and the carnage on the high street in the weeks before Christmas - happened in the final quarter. 2009 will be the first downturn that the vast majority of students will ever have experienced and for many, the direct consequences of a sharp fall in output, profits, jobs and spending will be clear to see. Naturally for economics students and teachers, the fall out from the global credit crunch and financial crisis will be an incredibly interesting time - the era of the Great Stability has come abruptly to an end and all bets seem to be off regarding the extent and depth of the next stage of the economic cycle. Expect the word recession to be increasingly replaced by the word slump as the forthcoming year unfolds. Indeed the R word may be swapped for the D word if the contraction becomes embedded. A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, Saving, Exchange Rates, Global Economy, Credit Crunch, UK Economy, Recession Watch, Fiscal Policy, Monetary Policy, 2008-12-26T12:33:29+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/falling-investment-as-accelerator-effect-kicks-in http://www.tutor2u.net/blog/index.php/economics/comments/falling-investment-as-accelerator-effect-kicks-in#When:13:25:07Z Here is a fresh sign of the impact of the economic downturn. The real value of capital investment spending by businesses fell sharply in the 3rd quarter of 2008 - investment demand is now on a steep downward path as our chart illustrates. This is evidence for what is known as the accelerator effect. The demand for capital goods such as new machinery, factories and technology is linked to the actual and expected rate of growth of final demand for a firm’s products. When market demand slows down or falls as it is across many sectors of the economy, so the amount of spare productive capacity increases and leads to a reduction in planned investment spending. Many businesses are scaling back their investment programmes or postponing capital projects because they have lowered their expectations of future demand, revenue steams and anticipated profits. Only this week we learned that an £88m investment at car maker Toyota’s Flintshire factory has been put on hold because of the economic downturn. Manufacturers, retailers and construction companies are all holding back from going ahead with projects - the lack of demand is the main factor. Capital investment is a volatile component of aggregate demand and in total contributes around 16-18 per cent of the UK’s real national income in any given year. The drop in investment is a portent of difficult times to come and we can expect to see further cuts in capital spending (capex) as we move into 2009. The UK economy will suffer a deep recession next year and the availability of finance to fund capital spending is severely curtailed by the ongoing credit crunch The result will be a reduction in demand for capital goods and related inputs - bad news for those industries whose own fortunes depend on a steady flow of capital projects from the business sector. Can government investment spending help to fill some of an increasing void? BBC: UK businesses cut back investment A2 Macro, AS Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, Economic Growth, GCSE Economics, UK Economy, Recession Watch, Credit Crunch, 2008-12-20T13:25:07+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/global-downturn-leave-costly-empty-vessels http://www.tutor2u.net/blog/index.php/economics/comments/global-downturn-leave-costly-empty-vessels#When:21:17:13Z The global shipping industry is associated with huge internal economies of scale and where demand is closely tied to the fortunes of industries such as iron ore, oil and coal but also to the world economic cycle. Things are looking grim for shipping operators who have bet hundreds of millions of dollars on expanding a fleet for which there is now substantially less demand.   A2 Macro, A2 Micro, AS Macro, AS Micro, Emerging Economies, China Economy, Cycles and Shocks, Aggregate Demand, Capital Investment, Global Economy, Transport Economics, 2008-12-18T21:17:13+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/economies-of-scale-giant-wind-farms http://www.tutor2u.net/blog/index.php/economics/comments/economies-of-scale-giant-wind-farms#When:19:49:01Z This BBC article on the granting of permission for a giant wind farm off the coast of North Wales might be a good example of the importance of economies of scale in making renewable sources of energy more cost efficient. And heading to the web site of the Gwynt y Môr Offshore Wind Farm accesses some resources on the potential costs and benefits of a scheme that might provide electricity for up to 500,000 homes. If construction goes to plan, the wind farm will start to produce power from 2012. A2 Micro, AS Micro, Business Economics, Economies of Scale, Cost Benefit Analysis, Cycles and Shocks, Aggregate Demand, Capital Investment, Environmental Economics, GCSE Economics, Market Failure, Externalities, Market Equilibrium and Price, Nature of Supply, 2008-12-03T19:49:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/who-are-the-bank-of-englands-spies-on-the-ground http://www.tutor2u.net/blog/index.php/economics/comments/who-are-the-bank-of-englands-spies-on-the-ground#When:19:50:01Z The Bank of England has a network of Regional Agents operating across the length and breadth of the UK. Think of the Regional Agents as a form of intelligence network designed to give the Bank of England a feel for what is really happening on the ground. A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, Aggregate Supply, Inflation and Deflation, Manufacturing Industry, UK Economy, Recession Watch, Monetary Policy, 2008-10-25T19:50:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/hamish-mcrae-on-the-return-of-credit-rationing http://www.tutor2u.net/blog/index.php/economics/comments/hamish-mcrae-on-the-return-of-credit-rationing#When:07:37:01Z One of our most gifted business and financial communicators peers beyond the murky uncertainty of recent days to consider a world where those banks who survive the crisis are much more circumspect about how much they are prepared to lend. “So people who are deemed bad risks, such as the self-employed and people in flashy professions, will find it harder to get a mortgage. Have a bad credit record and that will be a shut-out. First-time buyers will have to have saved for a 10 per cent deposit, or more. Small companies will find it more difficult to raise capital. Start-ups will find it harder to get going. Big companies, even profitable ones, will have to pare back their investment plans and cut their staff levels. Everything will slow down as a result.” This is not a return to the dark ages although the prospects of a wholesale nationalisation of the bad debts of the banking system cannot totally be ruled out. But a world where credit is both harder to obtain and more expensive will come as a shock to the millions of consumers weaned on easy lending with minimum checks and balances applied.  The danger is not that consumers have to become more prudent in their spending and borrowing habits, rather that small and medium sized businesses will have their ambitions curtailed by a new credit squeeze. There are already signs of a sharp downturn in planned investment spending. A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Capital Investment, UK Economy, Credit Crunch, 2008-10-01T07:37:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/some-good-radio-programmes http://www.tutor2u.net/blog/index.php/economics/comments/some-good-radio-programmes#When:23:11:00Z Radio 4 has had some useful and interesting programmes for students of Economics recently. Last week’s Analysis was on sport and considered whether we should invest so much in sport. Our success in the Olympics suggests that the investment has paid off in one way at least. But is investment in the 2012 London Olympics worthwhile? Listen by clicking on this link On the same evening, Investigation looked at the reasons for high oil prices. Listen to this here Our Food, Our Future is a short series looking at food production and prices. Some of the recent programmes can be found on the website and there is a useful slide show here: BBC radio 4 analysis has an archive of past programmes.   A2 Macro, A2 Micro, AS Macro, AS Micro, Cycles and Shocks, Aggregate Demand, Capital Investment, Oil and Gas, Market Equilibrium and Price, Price Mechanism in Action, 2008-08-17T23:11:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/cross-elasticity-demand-for-new-aircraft http://www.tutor2u.net/blog/index.php/economics/comments/cross-elasticity-demand-for-new-aircraft#When:07:12:00Z Over twenty airlines have gone bust since the price of aviation fuel started to climb and the turbulence in the global aviation market is likely to lead to a fall in demand for new aircraft according to a report in today’s Times.   A2 Micro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, Oil and Gas, Market Equilibrium and Price, Elasticity of Demand, Inter-related Markets, Transport Economics, 2008-07-14T07:12:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/manufacturing-gets-a-boost-from-uk-government-investment http://www.tutor2u.net/blog/index.php/economics/comments/manufacturing-gets-a-boost-from-uk-government-investment#When:22:35:00Z British manufacturing industry perennially appears to move from one recessionary period to another. But although the sector as a whole has shrunk as a share of GDP and employment, we still have some world class manufacturing businesses out there often engaged in high-knowledge and high-value production - competing on quality and craftsmanship rather than mass volume. The decision this week by the UK government to build two new huge aircraft carriers is an important shot in the arm for a number of UK manufacturing firms and this BBC report says that seven UK-based firms have won contracts totalling £91.5m to build parts for the new carriers. Corus, based in Scunthorpe, will get £65m to provide steel whilst five other English firms, in Dorset, Greater Manchester, Surrey, Suffolk and Lancashire, will build products ranging from control towers to landing aids. Corus ofcourse is now owned by the Indian conglomerate Tata! But a good example of how government capital spending can have potentially large multiplier effects if the initial contracts are given to domestic businesses. The rest of the BBC article is here Cycles and Shocks, Aggregate Demand, Capital Investment, Manufacturing Industry, UK Economy, Fiscal Policy, 2008-07-05T22:35:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/businesses-hold-the-key-to-the-next-stage-of-the-cycle http://www.tutor2u.net/blog/index.php/economics/comments/businesses-hold-the-key-to-the-next-stage-of-the-cycle#When:11:59:00Z These are turbluent times for the economy - but the macroeconomic numbers of output, investment, jobs and pay are simply the aggegate of many thousands of decisions taken by individual businesses across the length nd breadth of the economy. How the UK economy emerges in the current downturn will depend crucially on the strategies adopted by the busines sector. It is a huge challenge - to make money and protect margins in a time when cost pressures are enormous, when demand might be slipping away and productivity growth is slowing down as capacity utilisation drops. A2 Macro, AS Macro, Business Economics, Cycles and Shocks, Aggregate Demand, Capital Investment, UK Economy, Recession Watch, 2008-06-30T11:59:00+00:00