http://www.tutor2u.net/blog/index.php/economics/ en tutor2u.net Copyright 2012 2012-02-11T19:04:45+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/stephanie-flanders-explains-quantitative-easing-in-60-seconds http://www.tutor2u.net/blog/index.php/economics/comments/stephanie-flanders-explains-quantitative-easing-in-60-seconds#When:22:22:21Z 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!! A2 Macro, AS Macro, Financial Markets, Global Economy, Credit Crunch, Government Intervention, Macroeconomic Policies, Monetary Policy, UK Economy, 2012-02-09T22:22:21+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/the-impact-of-interest-rates http://www.tutor2u.net/blog/index.php/economics/comments/the-impact-of-interest-rates#When:06:31:19Z 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. A2 Macro, AS Macro, Macroeconomic Policies, Monetary Policy, OECD Economies, US Economy, Teaching of Economics, 2012-01-29T06:31:19+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/unit-4-macro-money-debt-and-the-new-world-order http://www.tutor2u.net/blog/index.php/economics/comments/unit-4-macro-money-debt-and-the-new-world-order#When:18:40:23Z “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. AS and A2 Specifications, AQA Economics Unit 4, EdExcel Economics Unit 4, OCR A2 Economics Unit F585, A2 Macro, Emerging Economies, Cycles and Shocks, European Economy, The Euro, Financial Markets, Global Economy, Macroeconomic Policies, Monetary Policy, OECD Economies, Teaching of Economics, 2012-01-22T18:40:23+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/unit-2-macro-quantitative-easing-in-the-uk http://www.tutor2u.net/blog/index.php/economics/comments/unit-2-macro-quantitative-easing-in-the-uk#When:20:06:05Z 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. AS and A2 Specifications, AQA Economics Unit 2, EdExcel Economics Unit 2, AS Macro, Macroeconomic Policies, Monetary Policy, UK Economy, Recession Watch, 2012-01-08T20:06:05+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/unit-2-macro-revision-quiz-on-monetary-policy http://www.tutor2u.net/blog/index.php/economics/comments/unit-2-macro-revision-quiz-on-monetary-policy#When:01:22:40Z 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. AS and A2 Specifications, AQA Economics Unit 2, EdExcel Economics Unit 2, AS Macro, Macroeconomic Policies, Monetary Policy, Teaching of Economics, Digital Learning, 2012-01-07T01:22:40+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/unit-2-macro-a-new-50-comes-into-circulation http://www.tutor2u.net/blog/index.php/economics/comments/unit-2-macro-a-new-50-comes-into-circulation#When:16:20:13Z 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. AS and A2 Specifications, AQA Economics Unit 2, EdExcel Economics Unit 2, AS Macro, Macroeconomic Policies, Monetary Policy, Teaching of Economics, 2011-11-02T16:20:13+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/australia-lowers-rate-to-4.5 http://www.tutor2u.net/blog/index.php/economics/comments/australia-lowers-rate-to-4.5#When:10:08:30Z 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. Aus_Int_Rate_Cut.docx AS Macro, Macroeconomic Policies, Monetary Policy, 2011-11-01T10:08:30+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/top-10-resources-on-inflation-on-youtube http://www.tutor2u.net/blog/index.php/economics/comments/top-10-resources-on-inflation-on-youtube#When:12:37:22Z 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. 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, OCR AS Economics Unit F582, A2 Macro, AS Macro, Emerging Economies, Development Economics, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, Monetarism, Poverty and Inequality, Teaching of Economics, Fun Friday, 2011-10-26T12:37:22+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/unit-1-micro-copper-prices-and-a-copper-crime-wave http://www.tutor2u.net/blog/index.php/economics/comments/unit-1-micro-copper-prices-and-a-copper-crime-wave#When:19:18:58Z 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 AS and A2 Specifications, AQA Economics Unit 1, EdExcel Economics Unit 1, AS Micro, Macroeconomic Policies, Monetary Policy, Market Failure, Teaching of Economics, 2011-10-10T19:18:58+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/unit-1-rice-market-intervention http://www.tutor2u.net/blog/index.php/economics/comments/unit-1-rice-market-intervention#When:15:56:09Z 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. AS Macro, Cycles and Shocks, Aggregate Demand, Global Economy, Credit Crunch, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, 2011-10-09T15:56:09+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/will-jean-claude-trichet-be-missed http://www.tutor2u.net/blog/index.php/economics/comments/will-jean-claude-trichet-be-missed#When:14:09:46Z 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. AS Macro, Cycles and Shocks, Aggregate Demand, Global Economy, Credit Crunch, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, 2011-10-09T14:09:46+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/a2-micro-concentration-ratio-for-the-us-smartphone-market http://www.tutor2u.net/blog/index.php/economics/comments/a2-micro-concentration-ratio-for-the-us-smartphone-market#When:13:58:21Z 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. AS Macro, Cycles and Shocks, Aggregate Demand, Global Economy, Credit Crunch, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, 2011-10-07T13:58:21+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/king-on-qe2 http://www.tutor2u.net/blog/index.php/economics/comments/king-on-qe2#When:13:50:15Z 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. AS Macro, Cycles and Shocks, Aggregate Demand, Global Economy, Credit Crunch, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, 2011-10-07T13:50:15+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/fat-tax-denmark http://www.tutor2u.net/blog/index.php/economics/comments/fat-tax-denmark#When:21:33:17Z 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. AS Macro, Cycles and Shocks, Aggregate Demand, Global Economy, Credit Crunch, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, 2011-10-05T21:33:17+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/the-bicycle-a-merit-good-and-an-integral-part-of-sustainable-transport-solu http://www.tutor2u.net/blog/index.php/economics/comments/the-bicycle-a-merit-good-and-an-integral-part-of-sustainable-transport-solu#When:18:19:53Z 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 Beyond the Bike - the Economic Cycle, A2 Macro, A2 Micro, AS Macro, Emerging Economies, African Economy, Economic History, Environmental Economics, Macroeconomic Policies, Monetary Policy, Supply-side policies, Market Failure, Externalities, Merit & De-Merit Goods, Transport Economics, Unemployment, 2011-10-05T18:19:53+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/fuel-for-thought http://www.tutor2u.net/blog/index.php/economics/comments/fuel-for-thought#When:14:08:49Z 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. AS Micro, Cycles and Shocks, Aggregate Demand, Global Economy, Credit Crunch, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, 2011-10-05T14:08:49+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/ali-g-and-demerit-goods http://www.tutor2u.net/blog/index.php/economics/comments/ali-g-and-demerit-goods#When:00:14:34Z 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. AS Macro, Cycles and Shocks, Aggregate Demand, Global Economy, Credit Crunch, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, 2011-10-05T00:14:34+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/currency-manipulator http://www.tutor2u.net/blog/index.php/economics/comments/currency-manipulator#When:15:31:13Z 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. AS and A2 Specifications, AQA Economics Unit 4, EdExcel Economics Unit 4, OCR A2 Economics Unit F585, A2 Macro, Emerging Economies, China Economy, Exchange Rates, Global Economy, Macroeconomic Policies, Monetary Policy, Trade Policies, OECD Economies, US Economy, 2011-10-04T15:31:13+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/3-for-2-no-more http://www.tutor2u.net/blog/index.php/economics/comments/3-for-2-no-more#When:16:58:45Z 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. AS Macro, Cycles and Shocks, Aggregate Demand, Global Economy, Credit Crunch, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, 2011-10-03T16:58:45+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/unit-1-micro-homework-assignment-on-market-prices http://www.tutor2u.net/blog/index.php/economics/comments/unit-1-micro-homework-assignment-on-market-prices#When:02:11:00Z 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! AS_Micro_Market_Prices_EW.pdf AS Macro, Cycles and Shocks, Aggregate Demand, Global Economy, Credit Crunch, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, 2011-10-03T02:11:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/china-helping-or-hindering-economic-development-in-africa http://www.tutor2u.net/blog/index.php/economics/comments/china-helping-or-hindering-economic-development-in-africa#When:18:57:18Z 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… AS Macro, Cycles and Shocks, Aggregate Demand, Global Economy, Credit Crunch, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, 2011-10-02T18:57:18+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/as-and-a2-macro-exchange-rates-and-safe-haven-currencies http://www.tutor2u.net/blog/index.php/economics/comments/as-and-a2-macro-exchange-rates-and-safe-haven-currencies#When:13:51:47Z 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. AS Macro, Cycles and Shocks, Aggregate Demand, Global Economy, Credit Crunch, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, 2011-10-02T13:51:47+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/unit-1-micro-teacher-update-on-new-regulations http://www.tutor2u.net/blog/index.php/economics/comments/unit-1-micro-teacher-update-on-new-regulations#When:07:25:52Z 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: AS and A2 Specifications, AQA Economics Unit 1, EdExcel Economics Unit 1, AS Micro, Business Economics, Government Intervention, Minimum Prices, Regulation, Macroeconomic Policies, Monetary Policy, Market Failure, De-Merit Goods, Externalities, Merit & De-Merit Goods, Market Equilibrium and Price, Nature of Demand, Nature of Supply, Teaching of Economics, 2011-10-01T07:25:52+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/economics-resources-best-of-today-podcasts http://www.tutor2u.net/blog/index.php/economics/comments/economics-resources-best-of-today-podcasts#When:21:34:59Z 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. AS Macro, Cycles and Shocks, Aggregate Demand, Global Economy, Credit Crunch, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, 2011-09-30T21:34:59+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/unit-2-macro-interest-rates-and-income-inequality http://www.tutor2u.net/blog/index.php/economics/comments/unit-2-macro-interest-rates-and-income-inequality#When:20:53:00Z 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. AS and A2 Specifications, AQA Economics Unit 2, EdExcel Economics Unit 2, AS Macro, Cycles and Shocks, Macroeconomic Policies, Monetary Policy, Poverty and Inequality, 2011-09-16T20:53:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/monetary-policy-roundtable http://www.tutor2u.net/blog/index.php/economics/comments/monetary-policy-roundtable#When:10:49:01Z 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. A2 Macro, Macroeconomic Policies, Monetary Policy, Teaching of Economics, UK Economy, 2011-07-25T10:49:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/unit-4-macro-dangers-of-high-inflation http://www.tutor2u.net/blog/index.php/economics/comments/unit-4-macro-dangers-of-high-inflation#When:15:43:00Z 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. AS and A2 Specifications, AQA Economics Unit 4, EdExcel Economics Unit 4, A2 Macro, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, Teaching of Economics, UK Economy, 2011-07-11T15:43:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/interest-rates-held-at-05-once-again http://www.tutor2u.net/blog/index.php/economics/comments/interest-rates-held-at-05-once-again#When:23:03:00Z 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. AS and A2 Specifications, AQA Economics Unit 2, AQA Economics Unit 4, EdExcel Economics Unit 2, EdExcel Economics Unit 4, A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Macroeconomic Policies, Monetary Policy, UK Economy, 2011-05-05T23:03:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-updated-presentation-on-monetary-policy http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-updated-presentation-on-monetary-policy#When:10:18:00Z An updated revision presentation on Monetary Policy in the UK is available streamed version available here pdf handout version available here AS and A2 Specifications, AQA Economics Unit 2, EdExcel Economics Unit 2, A2 Macro, Macroeconomic Policies, Monetary Policy, UK Economy, 2011-05-04T10:18:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-key-term-monetary-policy-tightening http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-key-term-monetary-policy-tightening#When:08:02:00Z 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 AS and A2 Specifications, AQA Economics Unit 2, EdExcel Economics Unit 2, AS Macro, Macroeconomic Policies, Monetary Policy, 2011-04-11T08:02:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/ecb-breaks-rank-and-raises-interest-rates http://www.tutor2u.net/blog/index.php/economics/comments/ecb-breaks-rank-and-raises-interest-rates#When:15:20:00Z The European Central Bank has become the first of the four major central banks to lift policy interest rates since the start of the global financial crisis. This decision came on the same day as Portugal applying for emergency support in a bail out that might be worth Euro 80 billion. David Blanchflower, a former member of the Monetary Policy Committee has called the move “a big mistake” hinting that Spain - where more than 80% of mortgages are on variable interest rates - is more vulnerably to financial distress than many are prepared to admit. The ECB is starting to move their policy interest rates towards normal levels - but this tightening of monetary policy starts with the Euro Area suffering 10 per cent unemployment - it takes a hawkish central bank to start increasing the cost of borrowing money when one in ten people in the currency union is out of work and when the Euro has already been appreciating against the US dollar threatening the strength of an export-led recovery for the currency union. The ECB was forced to reverse a rate rise in the autumn of 2008 when the financial crisis took hold. Might they have to do the same sometime this summer? It seems that the ECB has confirmed that the Euro Area will now experience a two-speed currency union for the next few years with Germany leading a group of fast-growing countries and the debt-ridden periphery (the PIIGS) condemned to grow more slowly and suffer the impact of a period of painful fiscal austerity. Eurozone interest rate rise explained (BBC news) Guardian: Portugal bailout analysis: Is Spain next for EU help? - video   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, European Economy, The Euro, Macroeconomic Policies, Monetary Policy, OECD Economies, 2011-04-07T15:20:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-key-term-expansionary-monetary-policy http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-key-term-expansionary-monetary-policy#When:20:47:00Z An expansionary monetary policy (also known as a relaxation of monetary policy) means an attempt to use monetary policy to boost or reflate aggregate demand, output and jobs. Typically this involves a central bank cutting official policy interest rates. It might also involve a relaxation of credit controls and in some countries, Quantitative Easing has been used involving the creation of new money by the Central Bank to purchase debt from banks and boost their capacity to lend to individuals and businesses. The Bank of England cut official policy rates from 5.5% in the early autumn of 2008 to 0.5% in February 2009 in a bid to stabilise confidence and demand during the descent into recession. Quantitative easing worth £200bn (or 12% of UK GDP) has also been used to provide an extra flow of funds in the UK banking system in a bid to unfreeze credit supply and support an economic recovery. A fall (depreciation) in the exchange rate is also an expansionary monetary policy AS and A2 Specifications, AQA Economics Unit 2, EdExcel Economics Unit 2, AS Macro, Cycles and Shocks, Exchange Rates, Macroeconomic Policies, Monetary Policy, UK Economy, 2011-04-04T20:47:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/uk-economy-boe-policy-interest-rate http://www.tutor2u.net/blog/index.php/economics/comments/uk-economy-boe-policy-interest-rate#When:18:20:00Z What is the base interest rate currently in the UK economy?  How does the current base rate compare with recent years and further back?  This interactive chart courtesy of our friends at Timetric updates within 15 minutes of the interest rate decision made by the Bank of England Monetary Policy Committee - bookmark this blog page so your students always have access to the latest data. And if you scroll down to the bottom of the blog entry you will see a listing of many of our new Timetric charts - updated as we add more to the range. AS and A2 Specifications, AQA Economics Unit 2, AQA Economics Unit 4, EdExcel Economics Unit 2, EdExcel Economics Unit 4, A2 Macro, AS Macro, Macroeconomic Policies, Monetary Policy, Teaching of Economics, UK Economy, 2011-03-10T18:20:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/the-latest-data-from-the-mpc http://www.tutor2u.net/blog/index.php/economics/comments/the-latest-data-from-the-mpc#When:22:28:00Z I’ve just updated my ‘monetary policy’ powerpoint with the latest information from the Bank of England’s February 2011 inflation report, and thought it might be a useful resource for others… AS and A2 Specifications, EdExcel Economics Unit 2, AS Macro, Macroeconomic Policies, Monetary Policy, 2011-03-08T22:28:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/tuesday-talks-the-smell-of-money http://www.tutor2u.net/blog/index.php/economics/comments/tuesday-talks-the-smell-of-money#When:09:23:01Z A fascinating half-hour broadcast on Radio 4 yesterday really grabbed my attention - The Smell of Money looks at the growing prevalence of the cashless society, and its implications for modern economies. A lovely accompanying article on the impact of forged money can be found here. As a short extension activity that could follow on from using these resources, students could consider the following question (one of my favourite mock interview questions): Suppose that aliens on Mars have found a way of forging our money so that it is completely indistinguishable from ‘official’ currency. They then come to Earth on a shopping spree, and take their purchased goods back with them to Mars. Who pays the cost of the shopping spree? A2 Macro, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, Market Failure, Teaching of Economics, Tuesday Talks, UCAS and Oxbridge Advice, 2011-03-02T09:23:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/the-cost-of-credit-mining-the-card-charges http://www.tutor2u.net/blog/index.php/economics/comments/the-cost-of-credit-mining-the-card-charges#When:17:45:00Z Our good friends at Timetric are producing some superb stuff with economic data and here is another example. Policy interest rates are at historically low levels but the cost of borrowing for businesses and unsecured loans for personal customers continues to edge higher and is a vast multiple of the policy rate. This blog from Timetric offers timely background on the rising cost of credit. And it provides a connection to information failures in the consumer credit market. AS and A2 Specifications, AQA Economics Unit 2, AQA Economics Unit 4, A2 Macro, AS Macro, Global Economy, Credit Crunch, Macroeconomic Policies, Monetary Policy, Market Equilibrium and Price, Price Mechanism in Action, Teaching of Economics, 2011-03-01T17:45:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/combining-monetary-and-fiscal-policy-to-curb-inflation-in-china http://www.tutor2u.net/blog/index.php/economics/comments/combining-monetary-and-fiscal-policy-to-curb-inflation-in-china#When:06:02:00Z Inflation is rising in China, and many of the reasons are the same as those given by Mervyn King for the rise in the UK - food prices are up 10.3% and the producer price index has risen to 6.6%, giving an annual inflation rate of 4.9% in January. This is in spite of three interest rate rises in the last four months, and has brought about a further rise from 5.81% to 6.06% by the Central Bank. The growth of the property owning middle class is recognised as having a role here - the National Bureau of Statistics also announced changes in how it calculates consumer price inflation. In spite of the fact that there is still a huge proportion of the population who live on a very low income, and poor families spend up to half their incomes on food, housing has now been given a much larger share of the new consumer price index (CPI) basket, and food prices have been given less weight, it said. 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, Emerging Economies, China Economy, Economic Growth, Global Economy, Housing Economics, Inflation and Deflation, Macroeconomic Policies, Fiscal Policy, Monetary Policy, Market Failure, Externalities, 2011-02-16T06:02:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-what-next-for-the-pound http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-what-next-for-the-pound#When:12:23:00Z This is an excellent resource for recent developments in the foreign exchange markets and discussions about where sterling might be heading next and the possible macroeconomic effects. AS and A2 Specifications, AQA Economics Unit 2, AS Macro, Exchange Rates, Macroeconomic Policies, Monetary Policy, Teaching of Economics, UK Economy, 2011-02-14T12:23:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/us-pay-day-loan-firms-set-for-rapid-expansion-in-the-uk http://www.tutor2u.net/blog/index.php/economics/comments/us-pay-day-loan-firms-set-for-rapid-expansion-in-the-uk#When:20:42:01Z The financialisation of the British economy continues apace. This article in the Guardian reports that US pay day loan businesses (regulated loan sharks to you and me) are planning a rapid and sizeable entry into the UK consumer credit market. In part this might be because in the UK there is little or no effective regulation on what they can charge. Cash-strapped families often denied credit by high street banks are vulnerable to the heavy marketing of these businesses - students will know of one of them Wonga the shirt sponsor for Blackpool FC. The typical pay day loan is around £75 to £750, which is deposited in their bank account in as little as 15 minutes, to be repaid in around two to four weeks but with interest rates that can easily reach 30% a month or higher. The pay day loan market might be a good case study for students wanting to understand more about the demand for credit and discussions about whether there should be a maximum price or cap on the interest rates that can be charged. AS and A2 Specifications, AQA Economics Unit 1, AS Micro, Cycles and Shocks, Aggregate Demand, Consumer Spending, Global Economy, Credit Crunch, Government Intervention, Maximum Prices, Macroeconomic Policies, Monetary Policy, Market Equilibrium and Price, Price Mechanism in Action, 2011-02-13T20:42:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/martin-weale-argues-for-higher-interest-rates-now http://www.tutor2u.net/blog/index.php/economics/comments/martin-weale-argues-for-higher-interest-rates-now#When:08:03:00Z The newest member of the Monetary Policy Committee - Martin Weale - makes the case here in this article in the Guardian for an early and modest rise in base interest rates. AS and A2 Specifications, AQA Economics Unit 2, AQA Economics Unit 4, EdExcel Economics Unit 2, A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, Teaching of Economics, UK Economy, 2011-02-01T08:03:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/will-we-have-to-live-with-high-unemployment http://www.tutor2u.net/blog/index.php/economics/comments/will-we-have-to-live-with-high-unemployment#When:10:23:00Z Will many advanced economies have to live with a new semi-permanently higher level of unemployment as a consequence of the global financial crisis, economic slump and a period of fiscal austerity?   AS and A2 Specifications, AQA Economics Unit 4, EdExcel Economics Unit 4, A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Global Economy, Credit Crunch, Macroeconomic Policies, Fiscal Policy, Monetary Policy, OECD Economies, US Economy, Unemployment, 2011-01-17T10:23:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/analysis-and-evaluation-practice-of-the-monetary-policy-decision http://www.tutor2u.net/blog/index.php/economics/comments/analysis-and-evaluation-practice-of-the-monetary-policy-decision#When:19:41:00Z There was a great interview on BBC Radio 4’s Today programme this morning, about whether the MPC should respond to persistently above-target inflation by raising base rate. Two former MPC members Professor Charles Goodhart and Willem Buiter debated whether the Bank of England should increase interest rates, and the interview gives a great opportunity for students to practise their skills of analysis and evaluation. * Play the interview, and as they are listening they should list the arguments given for and against a rise. * Then each should select their two ‘favourites’ of the reasons given for each side of the argument and write a paragraph which starts as follows: “The Monetary Policy Committee should now decide to RAISE/HOLD interest rates because….” They then complete a paragraph, following the WEESTEPS evaluation technique, which has to refer to each of their 2 arguments for and 2 arguments against increasing rates, using data and making reference to the real economy, fully explaining every aspect of policy and theory that they are using, and concluding with justification for what they consider to be the over-riding argument. A2 Macro, AS Macro, Macroeconomic Policies, Monetary Policy, Teaching of Economics, UK Economy, 2011-01-13T19:41:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/will-the-bank-use-qe-as-a-hangover-cure http://www.tutor2u.net/blog/index.php/economics/comments/will-the-bank-use-qe-as-a-hangover-cure#When:10:11:00Z Yesterday Mervyn King coined another acronym to describe the decade ahead - his assessment is that this will be the SOBER decade - “a decade of savings, orderly budgets, and equitable rebalancing”.Some analysts are seeing his speech last night, reported here by the BBC website, as a signal that the Bank of England are contemplating more quantitative easing in the near future. The Governor of the Bank said that at present the amount of money in the economy was still “barely growing at all” - figures released by the Bank this morning show that seasonally adjusted provisional figures for ‘broad money’ in September are as follows: M4 decreased by £5.5 billion (0.3%), compared with an average monthly increase for the previous six months of £0.8 billion. The twelve-month growth rate fell to 0.9% from 1.9% in August. M4 lending decreased by £0.7 billion (0.0%) in September. The twelve-month growth rate fell to 0.0% from 0.7% in August . Last night the Governor said that it was a “key role” for the Bank to provide stimulus when the economy was in need, so the judgement will depend on how great that need is, and which are the greatest risks facing us - inflation, or lack of growth. AS and A2 Specifications, AQA Economics Unit 4, EdExcel Economics Unit 4, A2 Macro, AS Macro, Financial Markets, Macroeconomic Policies, Monetary Policy, UK Economy, Recession Watch, 2010-10-20T10:11:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/here-we-go-again-high-tariffs-and-currency-wars http://www.tutor2u.net/blog/index.php/economics/comments/here-we-go-again-high-tariffs-and-currency-wars#When:09:37:01Z In 1930 the Hawley-Smoot Tariff Act was passed by the Republican-controlled House of Representatives. It was an attempt (by increasing tariffs) to ease the effects of the Great Depression but in fact it made it worse. Recently the House of Representatives passed legislation aimed at imposing trade sanctions against China unless it allows its currency to appreciate, thus diminishing its export advantage. Furthermore Treasury Secretary Tim Geithner warned against currency policies that might intensify “short-term distortions in favour of exports.” A2 Macro, AS Macro, Global Economy, International Trade, Macroeconomic Policies, Monetary Policy, OECD Economies, US Economy, Teaching of Economics, 2010-10-09T09:37:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/apple-amazon-and-the-multapplier-effect http://www.tutor2u.net/blog/index.php/economics/comments/apple-amazon-and-the-multapplier-effect#When:15:30:00Z With the Bank of England now considering further QE and also urging us all to empty our bank accounts and get out there and spend, spend, spend it got me thinking about the enabling effect of technology, in particular in the area of portable electronic devices. I did toy recently with buying an iPhone, but was struggling to justify the cost. I did however recently succumb to temptation and treated myself to a new 32G Apple Ipod Touch. A2 Micro, AS Micro, Cost Benefit Analysis, Cycles and Shocks, Aggregate Demand, Consumer Spending, Macroeconomic Policies, Monetary Policy, Market Equilibrium and Price, Elasticity of Demand, 2010-09-30T15:30:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/currencies-in-the-news-two-videos http://www.tutor2u.net/blog/index.php/economics/comments/currencies-in-the-news-two-videos#When:10:08:00Z Movements in the external value of currencies have direct and indirect effects on plenty of macroeconomic variables such as inflation, exports, output, profits and - ultimately - jobs. This week we have seen the Japanese central bank intervening in the foreign exchange market in an attempt to drive the value of the Yen lower. Japan is struggling to sustain a recovery after the global financial crisis and a weaker currency is seen as a vital part of the attempt to prevent another draining bout of price deflation. And the long-running dispute between the United States and China about the alleged under-valuation of the Yuan against the US dollar continues to rumble. This BBC news video takes a swing through New Jersey to find trade unions lobbying government for more action on the exchange rate issue. AS and A2 Specifications, AQA Economics Unit 2, AQA Economics Unit 4, EdExcel Economics Unit 2, EdExcel Economics Unit 4, A2 Macro, AS Macro, Emerging Economies, China Economy, Cycles and Shocks, Exchange Rates, Global Economy, Credit Crunch, International Trade, Macroeconomic Policies, Monetary Policy, OECD Economies, Japan Economy, US Economy, Teaching of Economics, 2010-09-16T10:08:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/macroeconomic-developments-in-the-uk-economy-september-2010 http://www.tutor2u.net/blog/index.php/economics/comments/macroeconomic-developments-in-the-uk-economy-september-2010#When:21:29:00Z Here is an updated version of the keynote tutor2u teacher presentation on key developments in 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, Global Economy, Macroeconomic Policies, Fiscal Policy, Monetary Policy, Supply-side policies, Trade Policies, OECD Economies, Teaching of Economics, UK Economy, Recession Watch, 2010-09-04T21:29:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/king-on-the-economy http://www.tutor2u.net/blog/index.php/economics/comments/king-on-the-economy#When:23:35:00Z The Guardian offers a good summary of the main issues arising from Mervyn King’s recent Inflation Report. There is a great little animation in the middle of this article to show how each month the Bank’s projected growth figures have always proven to be a little too optimistic and how they have deteriorated over the past couple of years. AS and A2 Specifications, AQA Economics Unit 2, AQA Economics Unit 4, EdExcel Economics Unit 2, EdExcel Economics Unit 4, A2 Macro, AS Macro, Cycles and Shocks, Macroeconomic Policies, Monetary Policy, UK Economy, Recession Watch, Unemployment, Credit Crunch, 2010-08-11T23:35:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/choppy-times-ahead http://www.tutor2u.net/blog/index.php/economics/comments/choppy-times-ahead#When:12:17:00Z “Looking ahead, the UK economy is facing a major rebalancing away from private and public consumption and towards net exports. Achieving that rebalancing, while confronting these headwinds, is likely to mean a choppy recovery.”  (Mervyn King on prospects for the UK economy over the next couple of years). Details here of the Bank of England’s latest inflation forecasts.  But as Chris Giles pointed out in an article in the Financial Times earlier on this week: “Despite having hundreds of economists working in the Bank, and the most sophisticated suite of economic models in the UK, the monetary policy committee’s forecasts since 1997 have achieved no better outcome than if the committee had simply predicted the average level for inflation and growth over the 13-year period” Hat tip to Michael Owen for spotting this excellent FT analysis. FT audit casts doubt on Bank’s forecasts AS and A2 Specifications, AQA Economics Unit 2, AQA Economics Unit 4, EdExcel Economics Unit 2, EdExcel Economics Unit 4, A2 Macro, AS Macro, Cycles and Shocks, Macroeconomic Policies, Monetary Policy, Teaching of Economics, UK Economy, Recession Watch, 2010-08-11T12:17:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/bank-of-england-votes-for-no-change http://www.tutor2u.net/blog/index.php/economics/comments/bank-of-england-votes-for-no-change#When:19:59:00Z Members of the MPC voted today for the interest rate to remain at 0.5% and quantitative easing to remain at £200 billion. This is the 16th consecutive month that interest rates have remain unchanged in the UK, this is despite calls for an increase due to inflationary pressures in the economy. The Consumer Prices Index (CPI) hit a 17-month high of 3.7% in April. It fell back to 3.4% in May but remains well above the Bank’s 2% target. Macroeconomic Policies, Monetary Policy, 2010-07-08T19:59:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/estonia-becomes-the-17th-member-of-the-euro-zone http://www.tutor2u.net/blog/index.php/economics/comments/estonia-becomes-the-17th-member-of-the-euro-zone#When:15:53:00Z Here is an update for revision on Euro issues. Estonia has been accepted into the Euro Zone and will join the single currency in January 2010. Details here. Estonia is the first of the Baltic States to enter into monetary union. In macroeconomic terms it is a minnow - with economic output of 14 billion euros ($17 billion), Estonia would rank as the euro’s second-smallest economy, ahead of Malta. 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, European Economy, The Euro, Exchange Rates, Macroeconomic Policies, Monetary Policy, 2010-06-08T15:53:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/a-selection-of-revision-notes-on-monetary-policy http://www.tutor2u.net/blog/index.php/economics/comments/a-selection-of-revision-notes-on-monetary-policy#When:21:06:00Z There have been no changes to official UK policy interest rates for over a year now. But that does not mean that the handling of monetary policy both in Britain, the Euro Zone and in many other countries has slipped from the headlines. Here is a selection of our blogs and student resources delivered over the Tutor2u web site over the last year. We hope that some of the resources will be useful in your revision for the June 2010 papers. AS and A2 Specifications, AQA Economics Unit 2, AQA Economics Unit 4, EdExcel Economics Unit 2, EdExcel Economics Unit 4, A2 Macro, AS Macro, Macroeconomic Policies, Monetary Policy, 2010-06-04T21:06:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/paul-krugman-at-the-lse http://www.tutor2u.net/blog/index.php/economics/comments/paul-krugman-at-the-lse#When:21:42:00Z This is a reprise of a blog posted last summer following Krugman’s talk at the LSE. So much of what he talked about remains relevant today especially the challenges facing macro-economic policy-makers when deflationary and debt dangers continue to lurk. ”“The central problem of depression-prevention has been solved, for all practical purposes.” Robert Lucas, 2003 In a world of depression economics many of the standard rules of economics no longer apply. The global economy remains in the grip of a sustained downturn, the duration of which might make Japan’s “lost decade” look favourable in comparison. And macro policy-makers are grappling with an infection that has proved highly resistant to the usual doses of anti-biotic. Despite a remarkable attempt at stimulating demand – through the acceptance of large fiscal deficits and the dual attack of conventional and unconventional monetary policy – things seems to getting worse albeit more slowly. This seemed to me to be gist of the core message from the first of the Lionel Robbins lectures delivered by the 2008 Nobel Prize Winner for Economics, Professor Paul Krugman of Princeton speaking at the LSE this evening. A2 Macro, Cycles and Shocks, Macroeconomic Policies, Fiscal Policy, Monetary Policy, OECD Economies, US Economy, Teaching of Economics, UK Economy, Credit Crunch, 2010-06-02T21:42:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-revision-policies-to-control-inflation http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-revision-policies-to-control-inflation#When:11:32:00Z This revision blog focuses on policies that can be used to control the rate of inflation. Our starting point is that inflation comes from more than one source. Rising prices are not simply the result of increasing aggregate demand but also from higher costs of production and the direct and indirect effects of changes in government policies. It is also important to note that many inflationary impulses come from outside the domestic economy - namely from external shocks in the global economic system - many of which an individual country has no control to change. AS and A2 Specifications, AQA Economics Unit 2, EdExcel Economics Unit 2, AS Macro, Inflation and Deflation, Macroeconomic Policies, Fiscal Policy, Monetary Policy, Supply-side policies, UK Economy, 2010-05-31T11:32:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-revision-household-saving http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-revision-household-saving#When:07:46:00Z In this revision blog we look at the economic significance of household saving. Saving has become a huge macroeconomic issue in the UK in recent years. There was a trend decline in the savings ratio during the late 1990s and for most of this decade and many have seen this as one of the reasons why the economy was at such high risk during the credit crunch. According to a recent news report, Britain entered the financial crisis and recession with the lowest savings rate since the Second World War, the second lowest of all major economies.  The UK national household savings rate fell to a post-war low of -0.5% in January 2008. That compared with a peak of 13.4% in 1984. AS and A2 Specifications, AQA Economics Unit 2, EdExcel Economics Unit 2, AS Macro, Cycles and Shocks, Aggregate Demand, Saving, Macroeconomic Policies, Monetary Policy, UK Economy, 2010-05-30T07:46:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-sterling-and-the-uk-economy http://www.tutor2u.net/blog/index.php/economics/comments/as-macro-sterling-and-the-uk-economy#When:07:00:00Z This is an updated version of a previous blog post on the macroeconomics of a weaker exchange rate - perhaps important for the AS macro paper on June 7th. The Bank of England - which is the UK’s central bank - estimates that the pound has depreciated by around 25pc against a basket of other currencies such as the euro and the US dollar since mid-2007. And in 2008-09, sterling registered an even larger depreciation against the dollar than its 1992 exit from the European Exchange Rate Mechanism. In trade-weighted terms, the decline was the biggest since figures were first calculated in the early 1980s. The fall in the external value of the pound has many possible consequences for an open economy such as the UK. At AS level it is important to identify these effects and explain them concisely using an AD-AS framework. Then support your answer with some good evaluation points and (where possible) supporting evidence. AS Macro, Cycles and Shocks, Exchange Rates, Macroeconomic Policies, Monetary Policy, Teaching of Economics, UK Economy, 2010-05-29T07:00:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/financial-reform-bill-what-goes-around-comes-around http://www.tutor2u.net/blog/index.php/economics/comments/financial-reform-bill-what-goes-around-comes-around#When:06:10:00Z A look at the bills set out in the Queen’s Speech yesterday shows a handful which will be of interest to students of economics, including the Office of Budget Responsibility bill, the Postal Services bill, the Welfare Reform Bill, the Energy and Green Economy bill and the Pensions and Savings Bill - a look through the list gives an opportunity to analyse the micro and macroeconomic impact that each might have. Economic History, Government Intervention, Macroeconomic Policies, Monetary Policy, UK Economy, Quirky Trivia, 2010-05-26T06:10:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/classroom-resource-global-interest-rate-tracker http://www.tutor2u.net/blog/index.php/economics/comments/classroom-resource-global-interest-rate-tracker#When:21:39:00Z Interactive data visualisations are becoming an increasingly useful resource in the economics classroom. Here is another excellent example that is well worth bookmarking.  The Wall Street Journal provide this up-to-date tracker of bank base rates.  Moving the slider across the timeline, you get a visual sense for whether rates are rising, on hold, declining etc.  Hovering over an individual country gives you the current rate for that nation together with the next expected rate decision date. View WSJ Global Interest Rate Tracker AS and A2 Specifications, AQA Economics Unit 4, EdExcel Economics Unit 4, OCR A2 Economics Unit F585, A2 Macro, Emerging Economies, Global Economy, Macroeconomic Policies, Monetary Policy, Teaching of Economics, 2010-05-02T21:39:00+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/as-economics-revision-managing-the-economy http://www.tutor2u.net/blog/index.php/economics/comments/as-economics-revision-managing-the-economy#When:06:33:01Z This is a streamed version of the presentation that supported the revision session undertaken by students at our workshops last week as they examined the issue of managing the economy during these unusual times. Revision Presentation on Managing the Economy AS and A2 Specifications, AQA Economics Unit 2, EdExcel Economics Unit 2, OCR AS Economics Unit F582, AS Macro, Cycles and Shocks, Macroeconomic Policies, Fiscal Policy, Monetary Policy, UK Economy, 2010-05-02T06:33:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/issues-and-prospects-for-the-uk-economy-in-2010 http://www.tutor2u.net/blog/index.php/economics/comments/issues-and-prospects-for-the-uk-economy-in-2010#When:11:18:00Z Here are some notes from a presentation on some current issues affecting the UK economy - suitable I hope for AS and A2 macroeconomics courses and students preparing for their June 2010 papers. We will make the full presentation available late and this blog post links to many of our other recent blogs on UK and global macroeconomic issues. 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, Cycles and Shocks, Macroeconomic Policies, Fiscal Policy, Monetary Policy, Teaching of Economics, UK Economy, Recession Watch, Unemployment, Credit Crunch, 2010-04-25T11:18:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/accommodatory-policies http://www.tutor2u.net/blog/index.php/economics/comments/accommodatory-policies#When:16:01:00Z An accommodatory policy is best described as a neutral macroeconomic policy stance in the face of an economic shock. AS and A2 Specifications, AQA Economics Unit 2, AQA Economics Unit 4, EdExcel Economics Unit 2, EdExcel Economics Unit 4, A2 Macro, AS Macro, Cycles and Shocks, Macroeconomic Policies, Monetary Policy, UK Economy, 2010-04-24T16:01:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/india-raises-interest-rates http://www.tutor2u.net/blog/index.php/economics/comments/india-raises-interest-rates#When:15:37:00Z Sean O’Grady writes here about the decision by the Reserve Bank of India to raise interest rates once more to combat retail price inflation that hovers just below the ten per cent mark. A volcanic hat tip to John Richards from Tonbridge for spotting this one. John points out that the article covers some really interesting macroeconomic aspects: namely the use of policy interest rates to control a booming economy, changes in reserve asset ratios (remember them?) as a tool of monetary control (limiting new bank lending), And also the high importance of food in the inflation basket for Indian consumers and the uneven impact of growth on the poorest parts of Indian society. “The World Bank has said that faster economic growth has seen rising disparities between urban and rural areas in India, prosperous and lagging states, and skilled and low-skilled workers. India’s richest states have incomes that are five times higher than those of the poorest states – a gap that is higher than in most other democratic countries, and may damage social cohesion.” AS and A2 Specifications, AQA Economics Unit 2, EdExcel Economics Unit 2, A2 Macro, AS Macro, Emerging Economies, Indian economy, Economic Growth, GCSE Economics, Global Economy, Macroeconomic Policies, Monetary Policy, Teaching of Economics, 2010-04-22T15:37:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/small-businesses-and-financial-economies-of-scale http://www.tutor2u.net/blog/index.php/economics/comments/small-businesses-and-financial-economies-of-scale#When:07:33:00Z The latest Bank of England survey on financial and credit conditions finds that smaller businesses are finding it tough to get the credit they need to finance an upturn in sales and production. Interest rate spreads on new loans are rising and it is larger firms that seem to be benefitting from lower borrowing costs. A Times article explains that “larger groups are enjoying a reduction in the cost of borrowing and improved access to credit as banks favour lower-risk custom.” - the main commercial banks continue to adopt a risk averse approach to new lending and this may hamper prospects of recovery. Unsecured loans for consumers have also become harder to get and more expensive despite the ultra-low interest rate policy of the Bank of England. In 2006, the top 10 average rate for a £3,000 personal loan was 6.49%, but today it is 14.92%, analysis by price comparison website moneysupermarket.com has shown. A2 Micro, AS Micro, Business Economics, Economies of Scale, GCSE Economics, Macroeconomic Policies, Monetary Policy, UK Economy, Credit Crunch, 2010-04-02T07:33:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/uk-economy-in-2010-essential-revision-presentation http://www.tutor2u.net/blog/index.php/economics/comments/uk-economy-in-2010-essential-revision-presentation#When:11:42:00Z Many thanks to Geoff for producing this superb 51-slide analysis and evaluation of the prospects for the UK Economy in 2010.  Updated to 25 March 2010 with the latest available data. AS and A2 Specifications, Economics Presentations, A2 Macro, AS Macro, Cycles and Shocks, Inflation and Deflation, Labour Market, Macroeconomic Policies, Fiscal Policy, Monetary Policy, UK Economy, Recession Watch, Unemployment, 2010-03-26T11:42:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/nice-to-see-you-to-see-you-nice http://www.tutor2u.net/blog/index.php/economics/comments/nice-to-see-you-to-see-you-nice#When:12:37:01Z Interesting speech given last week to Cambridge Alumni by Charles Bean (Deputy Governor at the MPC): ‘The UK Economy after the Crisis: Monetary policy when it is not so NICE’. The graphs that it refers to can be found here. A2 Macro, AS Macro, Macroeconomic Policies, Monetary Policy, 2010-03-21T12:37:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/is-70-of-the-world-economy-in-a-liquidity-trap http://www.tutor2u.net/blog/index.php/economics/comments/is-70-of-the-world-economy-in-a-liquidity-trap#When:11:33:00Z Paul Krugman expands on the nature of the liquidity trap and why more of the world economy might be in this situation than is commonly supposed. His opening paragraph raises an interesting question for A2 economists - does a liquidity trap encourage protectionist policies and heighten the risks of a period of prolonged de-globalisation? “Being in a liquidity trap reverses many of the usual rules of economic policy. Virtue becomes vice: attempts to save more actually make us poorer, in both the short and the long run. Prudence becomes folly: a stern determination to balance budgets and avoid any risk of inflation is the road to disaster. Mercantilism works: countries that subsidize exports and restrict imports actually do gain at their trading partners’ expense.” More here A2 Macro, Global Economy, Credit Crunch, Macroeconomic Policies, Monetary Policy, Teaching of Economics, Recession Watch, 2010-03-18T11:33:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/fed-pledges-to-keep-policy-rates-exceptionally-low http://www.tutor2u.net/blog/index.php/economics/comments/fed-pledges-to-keep-policy-rates-exceptionally-low#When:22:46:00Z Here is an interesting approach to interest-rate setting by the US Central Bank - the Federal Reserve. The Fed has pledged to maintain ultra-low interest rates for the time being in a bid to support and sustain a recovery in domestic demand and output and reduce the risk of a double-dip recession later on this year. A2 Macro, AS Macro, Macroeconomic Policies, Monetary Policy, OECD Economies, US Economy, Teaching of Economics, 2010-03-16T22:46:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/dispatches http://www.tutor2u.net/blog/index.php/economics/comments/dispatches#When:17:39:00Z An excellent Channel 4 Dispatches documentary last night on Cameron’s government. Lots of good stuff here for both Politics and Economics students, for example discussing the proposed “Office for Budget Responsibility” to introduce more independence into Treasury forecasts. There’s been lots of talk about fiscal tightening in recent months, but this program asks where exactly do the Tories want to start fiscal tightening - and the non-committal answers will have you laughing/crying*, with no Shadow Minister agreeing to a cut in their department; and the Conservative party not wanting to admit to future tax rises just before the election. It also discusses the issue of the Conservatives and their stance on Europe. *delete as appropriate. A2 Macro, AS Macro, European Economy, Government Intervention, Regulation, Macroeconomic Policies, Fiscal Policy, Monetary Policy, Keynesian Economics, UK Economy, 2010-03-09T17:39:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/withdrawing-the-drugs http://www.tutor2u.net/blog/index.php/economics/comments/withdrawing-the-drugs#When:17:58:00Z An excellent article in last week’s Economist magazine, which focuses on the difficult task of weaning the world economy off its fiscal and monetary stimulus. In recent years, Interest rates have plummeted, and budget deficits soared; whilst quantitative easing has come out the woodwork; but last week’s announcement that the Fed raised the discount rate in its first step of contractionary policy in quite some time as well as our own general election around the corner, where fiscal prudence is high on the agenda and it seems that the beginning of the next phase in economic policy has begun. A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Economic Growth, Government Intervention, Macroeconomic Policies, Fiscal Policy, Monetary Policy, Supply-side policies, Keynesian Economics, 2010-02-23T17:58:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/us-rate-rise-causes-hot-flows-of-money http://www.tutor2u.net/blog/index.php/economics/comments/us-rate-rise-causes-hot-flows-of-money#When:09:45:00Z This is a good example for AS students which illustrates how a change in interest rates can affect the exchange rate. Late on Thursday the US Federal Reserve raised their discount rate - the price at which banks borrow emergency money from the Fed - from 0.5% to 0.75%. The move was unexpected, and has given rise to plenty of speculation that they will follow this with a rise in their federal funds rate - the benchmark rate at which banks lend to each other and is used to set rates on mortgages and car loans. That means that currency speculators have bought the dollar heavily, betting on further rate rises and pushing the exchange value of the dollar up to a nine-month high against a basket of other currencies. The swift response in exchange markets shows exactly how freely floating exchange rates can be directly affected by a change in interest rates. As BBC News and the Telegraph report, central bankers are deeply concerned that such speculation could slow growth in output just as recovery is beginning, and officials from the Fed have been active in offering reassurance that the promise to keep rates low for an extended period remains in place. “The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy,” the Fed said. In spite of that, the massive foreign exchange market is still looking for a chance to make a profit by buying the dollar now. AS Macro, Balance of Payments, Exchange Rates, Macroeconomic Policies, Monetary Policy, OECD Economies, US Economy, Teaching of Economics, 2010-02-20T09:45:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/inflationary-pressures-in-china http://www.tutor2u.net/blog/index.php/economics/comments/inflationary-pressures-in-china#When:08:56:00Z This BBC news video provides an interesting window on the pressures for wages to rise in the booming city of Shanghai. The impressive rebound in Chinese economic growth is driven by the strength of the underlying growth forces in the economy together with the impact of the huge fiscal stimulus. But for many young professionals growth is causing the cost of living to surge - food and property prices are the main concerns. Inflation is a genuine risk for the Chinese economy - what might the Chinese authorities do about this? A2 Macro, AS Macro, Emerging Economies, China Economy, Global Economy, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, Teaching of Economics, 2010-02-16T08:56:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/mervyn-king-on-tailwinds-and-headwinds http://www.tutor2u.net/blog/index.php/economics/comments/mervyn-king-on-tailwinds-and-headwinds#When:16:39:00Z Mervyn King delivers the latest Inflation Report from the Bank of England and focuses on the strength of two forces: 1/ The tailwind of the policy stimulus from monetary and fiscal policy 2/ The headwind of the continued deleveraging in the financial system It is a good analogy to use and one that students should be able to latch onto as they grapple with their macroeconomics. This BBC news video provides a good overview of the Bank’s current thinking.  In it the Governor explains why the Bank will - for the third time - expects to write to the Chancellor to explain an inflation overshoot. And he comes out with a good quote “Monetary policy can do little to affect short-term changes in inflation” ....... instead it has more leverage on the growth of total spending in the economy which (relative to the supply-side capacity of the economy) affects demand-pull inflationary pressures during the economic cycle. A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Inflation and Deflation, Macroeconomic Policies, Monetary Policy, Teaching of Economics, UK Economy, Recession Watch, Credit Crunch, 2010-02-10T16:39:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/call-to-scrap-the-mpc http://www.tutor2u.net/blog/index.php/economics/comments/call-to-scrap-the-mpc#When:21:32:01Z David Blanchflower argues in this interview on the Radio 4 Today programme that the Bank of England acted too late during the financial crisis and may be on the threshold of making similar errors in setting policy rates in 2010. he suggests that the MPC is not fit for purpose and that a change in target is called for. But he doesn’t explain clearly what should take its place. So students will get something from this piece but are left unfulfilled. John Humphries should have pressed Blanchflower further. A2 Macro, AS Macro, Macroeconomic Policies, Monetary Policy, UK Economy, 2010-01-23T21:32:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/chinese-growth-in-words-and-pictures http://www.tutor2u.net/blog/index.php/economics/comments/chinese-growth-in-words-and-pictures#When:06:42:00Z Statistics about the speed of China’s development never cease to be amazing, no matter how many times you read them. Here is another one; in the dark days of 2009 the Chinese economy grew by yet another 8.7% (10.7% in the final quarter of the year) so that it is now set to overtake Japan, which probably shrank by 6% over the same period, to be the world’s second largest economy. And yet, according to Ma Jiantang, head of the National Bureau of Statistics, there are still 150 million people in China living on $1 a day and so poor according to the UN’s standard rating. This gives a remarkable contrast as the world’s second or third largest economy is also a developing nation with enormous conflicts and trade-offs in macroeconomic policy to resolve. Mr Ma also referred to the concerns about inflation in China - he said price rises were “mild and under control”, but over recent days the government has tried to limit the amount of loans made by the country’s banks in order to avoid a ‘domestic bubble’ of growth. This is the focus of the Times’ report, which highlights expectations that there may be a rise in interest rates in China in the next two months. A2 Macro, AS Macro, Emerging Economies, China Economy, Economic Growth, International Trade, Macroeconomic Policies, Monetary Policy, OECD Economies, Japan Economy, Poverty and Inequality, 2010-01-21T06:42:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/assorted-links-18-jan-focus-on-interest-rates http://www.tutor2u.net/blog/index.php/economics/comments/assorted-links-18-jan-focus-on-interest-rates#When:21:59:00Z 1/ BBC news video - UK interest rates could stay low for five years - One of the UK’s best known economists, Roger Bootle, predicts that interest rates will stay below 1% for the next five years 2/ Telegraph - Economists question success of Bank of England’s £200bn money-printing plan - Economists have cast doubt on whether the Bank of England’s £200bn quantitative easing (QE) programme is working 3/ Telegraph - Why the Bank of England will raise interest rates as deflationary threat melts away -  despite massive amounts of Quantitative Easing (QE) in both the US and UK. It is surely only a matter of time before short-term rates follow suit. Or so you would assume 4/ Guardian - Too dangerous to raise interest rates yet - Setting interest rates is a dangerous game - and one that could choke off recovery 5/ The Times - Profile of Willem Buiter - Maverick laughs all the way to the bank - More booms and busts lie in wait, economist Willem Buiter predicts. A2 Macro, AS Macro, Macroeconomic Policies, Monetary Policy, Teaching of Economics, UK Economy, Credit Crunch, 2010-01-17T21:59:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/revision-presentation-monetary-policy-for-as-economics http://www.tutor2u.net/blog/index.php/economics/comments/revision-presentation-monetary-policy-for-as-economics#When:11:56:00Z This revised and extended revision presentation on monetary policy is designed for AS students Launch interactive version of presentation Download pdf of slide handouts AS and A2 Specifications, AQA Economics Unit 2, Economics Presentations, EdExcel Economics Unit 2, AS Macro, Macroeconomic Policies, Monetary Policy, Monetarism, Teaching of Economics, UK Economy, 2009-12-27T11:56:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/is-monetary-policy-becoming-less-effective http://www.tutor2u.net/blog/index.php/economics/comments/is-monetary-policy-becoming-less-effective#When:14:23:00Z This hints that the transmission mechanism of monetary policy might have broken down.  When ultra-low interest rates appear to be ineffective in restoring confidence and spending, this is known as the liquidity trap. For the exam you need to explain how a reduction in policy interest rates can stimulate household and business sector demand and also (through the exchange rate) providing a stimulus to export s. But we do not live in normal times! There are grounds for thinking that – in the short term at least – the impact of monetary policy may have been reduced. Here are some reasons: A2 Macro, AS Macro, Macroeconomic Policies, Monetary Policy, UK Economy, Recession Watch, 2009-12-16T14:23:00+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/the-economics-of-a-hung-parliament http://www.tutor2u.net/blog/index.php/economics/comments/the-economics-of-a-hung-parliament#When:13:25:00Z Week in Westminster today featured a fascinating discussion about the impact of a hung parliament - the outcome of an indecisive election which results in no clear majority for any party. There is a view that this may be the outcome of the General Election which is due by June next year, and asking around my A2 students, is something which they see as a real possibility, as they struggle to evaluate the policies of the three main parties. It is well worth listening to and analysing with students who are in the midst of examining the macroeconomic indicators and fiscal policy, and perhaps asking them to suggest what they would do, if elected as Chancellor early next summer, in order to deal with the aftermath of the enormous fiscal stimulus injected to the economy over the last year and the probable fragile recovery from the UK’s longest recession. The link to the BBC i-player is here - listen to Lord David Steel and Roy Hattersley discussing how best to deal with the lack of a majority, then move forward to 15 minutes into the programme to hear the statements of each of the party leaders on fiscal stimulus, deficit and economic policy followed by analysis from columnists Larry Elliott of The Guardian and Liam Halligan of The Sunday Telegraph. A2 Macro, Cycles and Shocks, Government Intervention, UK Economy, Credit Crunch, Fiscal Policy, Monetary Policy, 2009-11-28T13:25:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/deflation-teacher-presentation http://www.tutor2u.net/blog/index.php/economics/comments/deflation-teacher-presentation#When:08:44:00Z This new revision presentation examines the causes and effects of deflation and the possible economic policy responses. Launch interactive presentation on deflation Download pdf handout of presentation slides A2 Macro, Inflation and Deflation, UK Economy, Monetary Policy, Supply-side policies, 2009-11-17T08:44:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/the-power-of-words http://www.tutor2u.net/blog/index.php/economics/comments/the-power-of-words#When:13:11:00Z Some say that “words have meaning and names have power”. Well when Mervyn King speaks, markets listen. And sell the pound too. A2 Macro, AS Macro, Economic Growth, Exchange Rates, Inflation and Deflation, UK Economy, Monetary Policy, 2009-11-12T13:11:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/economics-of-saving-teacher-presentation http://www.tutor2u.net/blog/index.php/economics/comments/economics-of-saving-teacher-presentation#When:12:48:00Z This revision presentation examines recent data on the extent of saving in the UK economy. Launch interactive presentation on the Economics of Saving Download printable pdf of slides A2 Macro, Cycles and Shocks, Aggregate Demand, Saving, UK Economy, Credit Crunch, Monetary Policy, 2009-11-12T12:48:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/judging-the-impact-of-qe http://www.tutor2u.net/blog/index.php/economics/comments/judging-the-impact-of-qe#When:11:32:01Z The BBC carries this interesting video discussion with De Anne Julius about the impact of the Bank’s Quantitative Easing programme designed to support demand and lending in the UK economy. She emphasises the importance of gradually withdrawing the QE programme and she argues that the main effect of QE so far has been to hold down the interest rate on government debt (gilts) but that there is little evidence so far that QE has enabled a rise in lending to consumers and small businesses. The Indy’s Big Question looks at QE in their edition today. A2 Macro, AS Macro, Cycles and Shocks, UK Economy, Recession Watch, Credit Crunch, Monetary Policy, 2009-11-05T11:32:01+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/cause-and-effect-of-the-weakness-of-sterling http://www.tutor2u.net/blog/index.php/economics/comments/cause-and-effect-of-the-weakness-of-sterling#When:13:26:00Z I do recommend this 4-minute interview to help explore the reasons for the weakness of sterling and whether it is helping the UK economy. Mark Thompson , a dealer at Moneycorp, was interviewed on Radio 5’s ‘Breakfast’ programme, and explained the shocks to the economy caused by the use of Quantitative Easing and the negative bank deposit rate (which means that if banks choose to hold money on deposit with the Bank of England it actually costs them money, rather than gaining them a return as interest). He sees these as strong statements that had been deliberately used to depress the value of the pound on the currency markets, thus encouraging exports and raising the price of imports, so that there is a substitution effect towards home-produced goods, which we can see is reducing the negative trade balance and so helping to raise the level of AD. The link here will take you to the Friday 25th September episode of the programme, and should remain live until the end of this week; I think that after that it will be unavailable. Once you have opened the i-player page, use the scroll bar below the ‘control panel’ to move forward through the programme to 1 hour 48 minutes, which is the start of the interview. A2 Macro, Balance of Payments, Cycles and Shocks, Aggregate Demand, Exchange Rates, International Trade, UK Economy, Monetary Policy, 2009-09-27T13:26:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/debt-repayment-a-virtue-or-a-curse http://www.tutor2u.net/blog/index.php/economics/comments/debt-repayment-a-virtue-or-a-curse#When:06:22:00Z This useful article from the BBC looks at debt, repayments and savings for individuals in the UK. In July UK households actually paid back more debt than they took out for the first time since the Bank of England started recording this data 16 years ago in 1993. At the end of that month total household savings amounted to £1.1 trillion, and total outstanding lending to individuals stood at £1.46 trillion (which is almost a trillion more than in 1993). Of this, £1.23 trillion was mortgage debt and £231m was other forms of consumer credit. Households are now starting to get the message about repaying that debt, with the average individual paying back £10 more than they borrowed in July – but the average personal debt standing at £24,000 is going to take an awful long time to pay back at £10 a month. Cycles and Shocks, Aggregate Demand, Consumer Spending, Saving, UK Economy, Recession Watch, Monetary Policy, 2009-09-17T06:22:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/king-confirms-green-shoots http://www.tutor2u.net/blog/index.php/economics/comments/king-confirms-green-shoots#When:05:45:00Z CPI inflation has fallen to 1.6%, and RPI inflation started to recover to -1.3%, in the measure of the annual rate to August. Is this good news? For CPI, it means that the rate is moving further away from the target of 2%, which would be a concern if it was to continue on that trend, but the RPI measure indicates a slightly lower level of deflation, which should be a welcome sign. However, in both cases, it depends upon the reason as well as the expectation of what happens next. In a speech to the Treasury Select Committee, Mervyn King suggested that inflation is likely to be volatile over the next year, and focusing on GDP, he said that there were signs of a recovery to positive growth in the third quarter of the year. But he remains very cautious; although the European Commission forecast the UK to grow 0.2% between July and September, this is less than in France or Germany, and Mervyn King suggested three factors, or headwinds, against which UK growth would have to struggle in order to become positive. A2 Macro, AS Macro, Inflation and Deflation, UK Economy, Monetary Policy, 2009-09-16T05:45:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/chinas-concern-over-us-monetary-expansion http://www.tutor2u.net/blog/index.php/economics/comments/chinas-concern-over-us-monetary-expansion#When:19:36:00Z As the US effectively prints more money, Chinese officials are expressing concern over the impact that this will have on their economy A2 Macro, AS Macro, Emerging Economies, China Economy, Exchange Rates, US Economy, Monetary Policy, 2009-09-09T19:36:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/keynes-and-the-multiplier-effect http://www.tutor2u.net/blog/index.php/economics/comments/keynes-and-the-multiplier-effect#When:21:42:00Z I am cross-posting Jon’s excellent blog on Keynes and the multiplier over at his excellent IB Blog that flags up some handy recent articles on this important macro policy concept: The Telegraph continues with it series of extracts from Edmund Conway’s new book and today it focuses on the twentieth centuries greatest economist John Maynard Keynes. In its simplest form Keynesianism argues that governments should be proactive during economic downturns rather than relying upon the power of the markets and interest rate cuts. Proactive in the sense that the government should borrow money and start spending. The doctrine lost favour in the 1970s as monetarist theory gained popularity. As you will be well aware Keynes has returned in earnest over the past 18 months as governments across the globe have pumped billions into the spluttering economies in the hope of restarting them. Although early days there are tentative signs that Keynes may have be right once again. Key to his argument of the effectiveness of pumping money into an economy is that of the multpier. Conway provides an excellent overview of the multiplier in his piece today: Say the US government orders a $10bn (£6bn) aircraft carrier. You might assume the effect of this would be merely to pump $10bn into the US economy. Under the multiplier argument, the actual effect would be bigger. The shipbuilder takes on more employees and generates more profits; its workers spend more on consumer goods. Depending on the average consumer’s “propensity to consume”, this could raise total economic output by far more than the amount of public money actually injected. If the $10bn increase caused total United States economic output to rise by $5bn, the multiplier would be 0.5; if it rose by $15bn, the multiplier would be 1.5. The article also provides some good points that students could use when being critical of fiscal policy (these were particuarly prevalent when monetarists were arguing against Keynesianism in the 1970s): One of their main arguments was that governments cannot “fine-tune” an economy by regularly adjusting fiscal and monetary policy to keep employment high. There is simply too long a time lag between recognising the need for such a policy (tax cuts, say) and the policy taking effect. Even if policy-makers speedily identify the problem, it takes time for laws to be drafted and passed, and more time still for the tax cuts actually to drip through the wider economy. There are a couple of recently published books on Keynes that you may want to get your teeth into: Keynes: Return of the Master by R Skidelsky Keynes: The Twenthieth Century Most Influential Economist by P Clarke A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, Government Intervention, Teaching of Economics, UK Economy, Fiscal Policy, Monetary Policy, 2009-09-03T21:42:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/the-birth-of-macro-prudential-policy http://www.tutor2u.net/blog/index.php/economics/comments/the-birth-of-macro-prudential-policy#When:21:11:00Z This week the UK Treasury will release details of the embryonic macro-prudential policy - a policy designed to prevent the asset price bubbles that have plagued the UK at regular intervals over the years. Robert Peston has a blog on this here and portrays it as a victory for the Bank of England. We will learn more in the coming days and weeks of the technical detail behind macro-prudential policy. I was reminded reading Robert’s blog of the policy prescription put forward by John Calverley in his most recent book “When Bubbles Burst” - will the Macro Prudential Policy Committee operate in a similar vein to an Asset Valuation Committee? “John Calverley floats the idea of an independent Asset Valuation Committee whose job would be to improve the flow of financial information available to stock market and property investors, alerting us to when asset prices were either dangerously over-valued or under-priced in the market and perhaps giving people a stronger base on which to reallocate their portfolios and achieve better long term returns. An Asset Valuation Committee might act as a set of Wise Elders to the herd many of whom have spent much of the last two decades stampeding from one asset class to another – from internet shares to buy-to-let property – without stopping to calculate in the cold light of day the risks of the decisions they have taken.” A2 Macro, Monetary Policy, 2009-07-06T21:11:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/boe-health-check-on-the-uk-economy http://www.tutor2u.net/blog/index.php/economics/comments/boe-health-check-on-the-uk-economy#When:13:23:00Z The Bank of England has released its latest health check on the stability (or otherwise) of the UK financial system. Without a recovery in financial sector balance sheets and a return of an appetite to lend and unfreeze the supply of credit, any recovery will be delayed and weak. Banks continue to de-leverage aggressively and I have met several owners of profitable and well managed smaller businesses in recent weeks who have complained that their banks are getting in touch directly to change the conditions of their credit facilities. In some cases the banks are adding 1 or 2 per cent to the rates charged for overdrafts and loans - which themselves are already a high multiple of the policy interest rate. It is the banking equivalent of the rip-off extra charges for people flying with the lower-cost airlines. A2 Macro, AS Macro, Business Economics, UK Economy, Recession Watch, Credit Crunch, Monetary Policy, 2009-06-27T13:23:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/king-and-chancellor-at-odds-over-intervention http://www.tutor2u.net/blog/index.php/economics/comments/king-and-chancellor-at-odds-over-intervention#When:05:52:00Z Both the Chancellor of the Exchequer and the Governor of the Bank of England gave their Mansion House speeches to the City yesterday, and both addressed the issue of regulation of the banking system. But while the Chancellor emphasised that he had no plans to fundamentally change the regulation system, the Governor called for more powers for the Bank to intervene and prevent excessive risk taking. This is at odds with the approach outlined by Alastair Darling, who referred instead to encouraging a change of management culture in the banks which would encourage bankers to manage themselves more effectively, being “rewarded for long-term success, not for failure”. He seems to suggest that the solution lies more in ensuring that banks are led by Boards of Directors with “the right people of the right skills and the right experience …. and they need to be equipped to ask the right questions.” He also called for an end to short-termism: “Their focus must be on long-term wealth creation and not short-term profits.” A2 Micro, Government Intervention, Regulation, UK Economy, US Economy, Monetary Policy, 2009-06-18T05:52:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/europe-revision-the-euro http://www.tutor2u.net/blog/index.php/economics/comments/europe-revision-the-euro#When:06:52:00Z Revision notes on aspects of the EU single currency - is the UK economy better off outside of the Euro? A2 Macro, European Economy, The Euro, UK Economy, Monetary Policy, 2009-06-04T06:52:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/blanchflower-reflects-on-his-time-on-the-mpc http://www.tutor2u.net/blog/index.php/economics/comments/blanchflower-reflects-on-his-time-on-the-mpc#When:13:52:00Z Professor David (Danny) Blanchflower predicts an age of austerity for the UK in this Radio 4 interview (1st June) as he reflects on a three year stint as a member of the Monetary Policy Committee. A2 Macro, AS Macro, UK Economy, Recession Watch, Monetary Policy, 2009-06-01T13:52:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/savers-must-sacrifice-liquidity-for-a-return http://www.tutor2u.net/blog/index.php/economics/comments/savers-must-sacrifice-liquidity-for-a-return#When:06:51:00Z One of the paradoxes of this recession is that savers - who by and large have been as far removed from causing the crisis as it is possible to be - have seen rates of return on individual accounts collapse. With policy interest rates dropping close to the floor and likely to stay below 1% for possibly a year or more, the rate of return on liquid savings accounts is desperately poor. Indeed the real interest rate is negative.  Bank of England figures show that the average interest rate on instant access accounts - including current accounts - was 0.15% at the end of April. Hence the need for savers to think long term about their savings options and search for better long term accounts offering a better fixed rate of interest. It involves sacificing liquidity for a higher rate of return. In this sense, nothing has changed because there has always been an inverse relationship between liquidity and interest rates - but the problem facing millions of savers, many of whom risk falling into relative poverty because of the collapse in income from interest-bearing accounts is highlighted in this BBC article. AS Macro, Cycles and Shocks, Aggregate Demand, Saving, Monetary Policy, 2009-05-14T06:51:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/revision-consumer-borrowing http://www.tutor2u.net/blog/index.php/economics/comments/revision-consumer-borrowing#When:08:27:00Z Most of us at some time in our lives need to borrow money to finance spending. From taking out a mortgage to making frequent use of bank credit cards, borrowing is a normal feature of life and not necessarily something to be worries about. What matter is whether building up debt is sustainable – in other words, can those who rely on debt pay it back? Credit means being able to buy now and pay later. The credit market for individuals is complex at the best of times and there is plenty of scope for individuals to end up in trouble if they borrow irresponsibly or are subject to mis-selling of loan products from the financial services industry. AS Macro, Cycles and Shocks, Aggregate Demand, Consumer Spending, GCSE Economics, Market Equilibrium and Price, Nature of Demand, UK Economy, Monetary Policy, 2009-05-04T08:27:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/optimism-and-pessimism http://www.tutor2u.net/blog/index.php/economics/comments/optimism-and-pessimism#When:22:26:00Z The optimist - the new member of the MPC Professor David Miles who spoke at our economics society recently and is decidedly bullish in this article in the Western Daily Mail about the impact of the huge macro policy stimulus. “Economic history teaches us that a combination of tax cuts, running large fiscal deficits, substantial cuts in interests rates and more quantitative easing is likely, with a certain time lag, to have a substantial impact on demand in the economy and it may well be that the worst of the recession may well be behind us.” On the other hand, the IMF - “The current recession is likely to be unusually long and severe and the recovery sluggish,” the IMF said in releasing two chapters from its twice-yearly World Economic Outlook (WEO). Have a read here A2 Macro, AS Macro, Cycles and Shocks, UK Economy, Recession Watch, Credit Crunch, Fiscal Policy, Monetary Policy, 2009-04-16T22:26:00+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/very-tentative-green-shoots http://www.tutor2u.net/blog/index.php/economics/comments/very-tentative-green-shoots#When:09:15:01Z This summer you can expect many column inches devoted to searching for green shoots of economic recovery. There must come a time when the unprecedented policy stimulus applied to the UK economy will start to bear fruit and evidence emerges of a turning point in the business cycle. A2 Macro, AS Macro, Cycles and Shocks, Aggregate Demand, GCSE Economics, UK Economy, Recession Watch, Credit Crunch, Fiscal Policy, Monetary Policy, 2009-04-13T09:15:01+00:00 http://www.tutor2u.net/blog/index.php/economics/comments/david-miles-brief-profile http://www.tutor2u.net/blog/index.php/economics/comments/david-miles-brief-profile#When:09:22:00Z A quick heads up on a brief profile of David Miles in The Times this morning UK Economy, Monetary Policy, 2009-03-28T09:22:00+00:00