Owner: UK Economics Blog URL:http://www.economicshelp.org/econ.html Join Date: Sun, 18 Mar 2007 15:29:13 -0500 Rating:0 Site Description: News and views on the UK and US economy; seeking to make economics approachable to non economists. Site statistics:Click here
Economic Problems of European Union 2007-03-17 13:45:00 Despite a recent improvement in EU growth (last year GDP growth was 2.9%) there are concerns over fundamental problems with the EU economy. In recent years by far the worst performers in the EU have been the big 3 of Germany, Italy and France. Germany for example has experienced 6 years of sluggish growth and poor productivity rates. The OECD estimates that productivity growth in the EU has averaged only 1.5%, which is lower than comparative rates in the US. Reasons for the Slowdown In European
growth Some slowdown inevitable after wonder years of 1950s and 1960s. 50 years ago, as the Treaty of Rome was being signed, the German economy was undergoing a period of tremendous growth, combined with low inflation and low unemployment. To some extent a slowdown from this rapid expansion is a reflection of a maturing economy. However this is only a partial explanation.German Reunification. This has often been used to explain low growth in Germany Read more:Economic
, Union
, European Union
Economic Record of Gordon Brown. 2007-03-14 16:21:00 Since becoming Chancellor in 1997 GordonBrown
has presided over the longest period of economic expansion in the UK since records began. He is widely credited for having been a model of fiscal prudence which has allowed the UK to go from the laughing stock of Europe to one of the best performers in the OECD.Is Gordon Brown
Britain’s best chancellor ever? Or is it more a case of being lucky to inherit a promising economic situation? Or is it as some people suggest an opportunity wasted, storing up economic problems for the future?This is a short economic evaluation of Gordon Browns’ record as Chancellor.Achievements of Gordon Brown as Chancellor of Exchequer.1. Independence of Bank of England. 4 days into his job he handed over control of Monetary policy from no.11 to the Bank of England Monetary Policy Committee. This is widely regarded as being a key factor in creating economic stability and a low inflationary environment for the long period of economic expansion. (Note the Con Read more:Economic
, Record
Criticism of Gordon Brown's Economic Record as Chancellor 2007-03-14 16:13:00 Gordon Brown
has been Chancelor since 1997, despite impressive growth figures some argue he was lucky to inherit a strong economic foundation and actually the last 10 years represented a wasted opportunity to secure the long term future of the UK economy1. He inherited the benefits of Supply side reforms.It is argued by the Conservatives that when he took power the economic fundamentals were already in place for a strong economy. Unemployment was already sharply falling from 3 million to 1.6 million. Over the past 20 years policies such as Privatisation and labour market reforms had helped increase the UK’s competitiveness and placed the framework for low inflationary growth. Gordon Brown
was merely lucky to inherit these.2. A Tax Meddler. Gordon Brown has introduced over 66 new types of tax. Although he has kept his promise of not raising income tax he has compensated by introducing new types of taxes like Airport tax, such taxes have been labelled “stealth taxes”. Depsite Read more:Economic
, Record
, Gordon
, Criticism
, Chancellor
Gordon Brown's 5 Economic Test for Joining Euro 2007-03-13 14:27:00 As GordonBrown
approaches his last budget as chancellor many are reviewing his tenure as Chancellor and evaluating his success or failure. One important contribution he made was to steer the UK away from joining the Euro on the ground that "it would not be in Britain's economic interest". The justification for this was based on his 5 economics tests.Before deciding whether the UK should join the Euro the Chancellor, Gordon Brown
drew up 5 economic tests which the UK must pass for the UK to join. The main principle behind these 5 economic tests was whether the UK would cope with a common monetary policy. The 5 tests are in some ways superfluous. The main test being is really whether the UK has a degree of economic harmonisation with the rest of Europe. 5 Economic
Tests for Joining
the Euro Economic Harmonisation. The UK economy must be harmonised with the Euro zone. If the UK economy was growing much faster than EU then UK interest rates would need t
What Causes the US Current Account Deficit. 2007-03-13 13:07:00 A look at factors that have contributed to the US current account deficit which has been over 6% of GDP for several years US consumer spending has been rising rapidly due to a combination of Tax cuts Low interest rates Rising house prices (although this is now being reversed) Therefore with rising consumer spending the US has been increasing the value of imports bought into the economy. Furthermore the US has a high marginal propensity to import. Many luxury good like electrical goods and cars tend to be imported. It is these kinds of goods which are bought when incomes rise. Decline in competitiveness. US manufactured goods have been losing comparative advantage to Asian economies. The primary reason is that wage costs in US are much higher than Asian economies. In particular China has seen its trade surplus with America grow due to its low labour costs.Dollar Relatively High compared to current account deficit. Dollar has not devalue Read more:Current
, Account
Overview of Indian Economy 2007-03-12 12:51:00 Economic Growth in India has increase to a record 9.2% Many economists see this as a sign India at last will be able to fulfill her potential to alleviate poverty and become a modern successful economy.See: Reasons to be optimistic about state of the Indian EconomyHowever despite the high growth rates the Indian economy still faces many potential problems. In the short term inflation could become a significant problem as the economy gets close to full capacity. Unlike China the Indian economy has serious supply side constraints in certain areas like lack of investment. This means that the capacity to grow at 9% may be not possible to sustain in the long term.See: Problems facing Indian EconomyAlso see State of Indian Economy 2007Indian Market Economic Overview
GDP Growth 2001- 05 6.8% Current GDP growth 9.2% Inflation 2001-05 4.0% Current Inflation 6.2%Indian Population 1.08bn Population growth 1.5%Picture of Taj Mahal: Unmesh Swanson Sri Chinmoy Centre Galleries
Help for Studying Economics. 2007-03-10 20:28:00 If you are a student studying economics These 10 tips will help make Economics
seem a little bit easier:Help for Studying Economics
China to Open Investment Trust 2007-03-10 18:19:00 Due to China
's huge current account surplus there stock of foreign currency reserves continues to mount. Jin Renqing a Chinese Minister recently announced plans to create a special agency to look into the best way to invest their $1,000 bn foreign currency reserves.Upto now the Chinese have invested a significant % in United States Treasury bonds. This is seen as a low risk investment strategy. However for various reasons the Chinese are likely to diversify their investments. For example they could take holdings in companies around the world. In particular they are likely to invest in commodity producers. Chinese rapid growth is causing the demand and price of commodities to rise. In the long term this will give China greater political sway over other countries who benefit from their investment. Up to now the Chinese have taken an inward looking approach to world affairs. But this could change as they increasingly flex their economic muscles.If the China loose their appetite for low
Does a Current Account Deficit Matter? 2007-03-10 09:18:00 A current account deficit measures the balance of trade in goods services Net Investment incomesA deficit on the current account means a country is importing more than we are exporting. This will have to be matched by a surplus on the financial and / or capital account.The financial account comprises of 2 main features:a) Short Term Capital flows e.g. hot money flows and purchase of securitiesb) Long Term Capital flows e.g. investment in building new factoriesSome economists argue we need not worry about a CurrentAccount
Deficit. This is because:1. If a current account deficit is financed from long term capital inflows then this can be beneficial for the economy. Inward investment can increase the productive capacity of the economy.2. In an era of globalisation it is much easier to attract sufficient capital flows to finance the deficit.3. If the deficit gets too large it will cause a devaluation which helps to reduce the deficit. Also when there is a slowdown
7 Common Economic Fallacies 2007-03-08 09:45:00 Immigration causes Unemployment. It is an argument often repeated. It goes something like this. “Immigrants who come over here are willing to work for lower paid jobs and thus they create unemployment for local people.” This argument is wrong because. Immigrants increase the supply of labour but they also increase Aggregate Demand in the Economy. This means that they buy more goods and create additional demand in the economy. They provide labour supply and increase labour demand. If immigration caused unemployment why did America not have high unemployment during times of mass immigration? Because the immigrants created as many jobs as they took. Often immigrants take jobs that native workers just don’t want to do. – You won’t see big multinationals cueing up to stop immigration.Furthermore immigrants tend to be of working age. Therefore they tend to contribute more tax than receive in benefits. Without immigration US demographics would have a larger % of Read more:Economic
, Common
, Fallacies
Is the US economy heading into Recession? 2007-03-07 17:11:00 Is the US economy
set for further growth or is a recession an inevitability for an economy that has been living beyond its means for a long time? With Alan Greenspan suggesting the US economy has a 33% chance of entering into recession it is worth considering whether this is a realistic prospect or just a controversial parting shot from the 81 year old former Chair of the Federal Reserve. Alan Greenspan is held in high regard as an economist, some even credit him with “saving the US economy”. However his track record on economic predictions is mixed. He did predict a dotcom bubble bursting, (although it was 4 years before it occurred) Reasons why the American Economy may enter a Recession. Falling House Prices. After several years of a booming housing market. House prices are now starting to fall in most US states. Falling house prices will have a significant impact on consumer spending. As house prices fall, people can no longer remortgage to
Should Govt Increase the Supply of Housing in UK 2007-03-07 16:51:00 For several years the UK government has frequently stated its desire to see an increase in the number of houses built. Yet despite its stated desire to increase the stock of housing. The number of houses being built is lagging behind the number of households being created. The effect is to exacerbate the UK housing bubble and make house prices even less affordable. The advantages of Increasing the Supply
of Houses. 1. Demand is Greater than Supply. The number of households in the UK is estimated to be rising by about 200,000 per year [1]. This is because of Rising population Increasing numbers of immigrants (esp. from eastern Europe) More people living alone; e.g. higher divorce rates, people living longer. However the number of new houses being built is less than 165,000 per year which is one of the lowest figures since 1924 [2] 2. House Price Volatility. Shortage of Housing
makes the housing market more volatile. Because supply cannot respond to changes
IMF Report on UK Economy 2007-03-06 08:33:00 Admist the turbulence of the financial markets the IMF produced a report generally positive on the state of the UK economy. They revised growth figure of the UK economy to 2.9%, this is in line with the Chancellors last budget forecast.However the IMF did note a cautionary note.1. They said inflationary pressures may pick up throughout the year. This will be particularly a problem if wage settlements generate high wage increases. Higher interest rates are a distinct possibility.2. Although the Chancellor is at last on course to meet the golden rule the IMF warned the government it needed to make "disciplined" choices in the forthcoming spending review. - Government spending has increased sharply making the government's fiscal position less promising.more at independent
What determines effectiveness of Monetary Policy in UK? 2007-03-05 15:10:00 The aim of monetary policy is to achieve the governments inflation target of CPI= 2% +/-1. They will also consider impact on economic growth and unemployment. But control of inflation is their primary objective. Factors which determine success of Monetary Policy
Accuracy of inflation forecasts. Monetary policy is pre emptive which means they try to reduce inflationary pressures before they occur. If inflation is higher than predicted, then interest rates will be too low to control inflation. Inflation predictions could be wrong if there is an unexpected rise in cost push inflation, for example an increase in the price of oil. In the past 15 years the MPC have benefited from generally low global inflation, However some economists feel that this “golden era” of price stability may not continue indefinitely. E.g. economic shocks associated with rising commodity prices. Time lags. It is estimated interest rate changes can take Read more:effectiveness
Will the US dollar continue to fall 2007-03-02 09:01:00 Since 2001 the dollar has been in steady decline. Against the £ the dollar has fallen from a low of £1 = $1.45 to close to the £1 = $2 mark. Against the Euro the $ has also depreciated from 0.85 to the present level of 1 Euro to $1.35.From several perspectives the fall in the value of the dollar appears to be following basic economic fundamentals and whilst these imbalance continue the dollar may continue to fall.Firstly the US current account deficit is remaining at record levels. The exact amount of debt with the rest of the world is predicted to be around $710 billion for 2006 [1] Basically this means America is importing more than it is exporting, causing an outflow of money. In recent years this huge level of debt has been bought by countries like Asia who have been happy to buy into the dollar for its perceived status as a “stable and secure” currency. However there is increasing evidence Asian bankers are no longer so confident in the American economy. Thus they are seeki
Why the UK will never join the EURO. 2007-03-01 18:11:00 From a political perspective the UK has always been reluctant to submerge itself in a European identity. The EU, with its prescriptions on the shape and size of bananas,(1) remains an easy target for UK tabloids and satirists. The idea of giving up the £ for a nondescript EURO would hardly make for a populist political agenda. However, political arguments aside, there is increasingly little if any support for the EURO, even from a purely economic point of view.Firstly the supposed benefits of joining the EURO are becoming increasingly marginal.1. Exchange Rate Stability. A main advantage of joining the Euro is that it reduces exchange rate volatility with our main EU trading partners. However since 2003 the £ has displayed very little exchange rate volatility. In this article. Stephen King, Chief Economist at HSBC claims that in effect the UK has already in effect joined the Euro. Anyway it is also relatively easy to insure against exchange rate movements through the purchase of cur
Effects of a falling Stock Market on the Housing Market 2007-02-28 17:09:00 Will a fallingStockMarket
adversely effect the US and UK Housing
Market?With Global Stock Markets suffering their biggest fall for a decade, it is worth considering the economic effect of a fall in stock markets.First of all it depends on the severity and length of the stock market fall. For example the stock market crash of 25% in 1987 didn’t cause any significant economic problems in the UK or US. Share prices soon recovered and in the UK the late 1980s saw a remarkable period of high economic growth. This was partly because; in response to falling shares, the UK govt cut interest rates and taxes to boost demand. There then followed a rise in economic growth and a rise in house prices.However other experiences show us that falling share prices can have an adverse effect on the economy. Most notably the great depression was caused by the wall street crash of 1929. What happened in 1929 was that the fall in share prices was so big and prolonged that it caused a general decline in e Read more:Effects
Costs of Inflation in UK 2007-02-28 16:37:00 Why does MPC and UK government worry about inflation? What are the reasons for having an inflation target of CPI 2% ?Economics Costs
of Inflation
1. Menu costs. This is the cost of changing price lists e.t.c. However with modern technology this is less significant these days. E.g. Computerised bar codes make it easier to update.2. Inflation creates uncertainty and confusion. When inflation is high it also tends to be more volatile. It becomes more difficult for firms to predict future prices and costs, therefore they tend to reduce or delay investment decisions. Therefore this tends to adversely effect economic growth in the long term.3. Lower CompetitivenessHigh inflation in the UK makes the UK less competitive compared to other countries. This will reduce demand for UK goods, causing lower growth and possibly balance of payments problems. This is increasingly important with the globalisation of the world economy. If we do lose competitiveness in the long term it is likely to lead to d
An Evaluation of the MPC in Controlling Inflation 2007-02-28 15:54:00 How Effective have the MPC been in meeting the Governments inflation target?The MPC are responsible for setting interest rates and determining UK monetary policy. They seek to keep inflation close to the government’s target of CPI 2% +/-1 %Currently (Feb 2007) inflation in 2.7%Advantages of MPC in setting interest rates.1. They are independent. They are not subject to political pressures. E.g. they are not tempted to keep interest rates low before an election. This used to be a problem for UK economy, with many experiences of boom and bust economic cycles.2. Monetary Policy is pre-emptive. They try to prevent inflation before it occurs. They predict future inflation trends. If inflation looks to be increasing above the govts target then they can increase interest rates to reduce consumer spending and keep inflation on track.3. MPC have reduced inflation expectations. People have confidence that inflation will remain low. Therefore wage demands are lower and it becomes easier to keep Read more:Inflation
, Evaluation
, Controlling
Keynes’s Paradox of Thrift 2007-02-27 15:28:00 In the great depression of the 1930s, GDP fell, unemployment rose and the UK experienced a long period of deflation. In response to this disastrous economic situation, mainstream economists were at a loss as how to respond. Such a lengthy period of disequilibrium didn’t sit well with Classical theory which expected markets to operate smoothly and efficiently. One policy the National government did approve was the cutting of unemployment benefits. The rationale was that in times of a depression the govt should set an example by reducing its debt. This example actually inspired members of the public to send in their savings in the hope that it would help the economy.Alas this is precisely the worst response the Government could have taken. By reducing benefits they further reduced consumer spending and AD. This made areas of high unemployment even more impoverished. When people saved rather than spent their money it just made the recession worse. It was J.M. Keynes who was one of the m Read more:Paradox
Economics Effects of Falling US House Prices 2007-02-27 13:58:00 After several years of rapid growth in US HousePrices
. The US housing market has taken a sharp reverse in fortunes. The number of new houses being built has fallen considerably and in many states of the US house prices are now falling. There are concerns that this fall in house prices will leave the US consumers with negative equity and therefore could cause a fall in Consumer spending. In recent years it has been consumer spending that has been the main determinant of US economic growth. It has also played a key role in global economic growth. However although falling house prices will cause a significant reduction in US consumer spending the effects on the global economy are less than they may have been a decade or so ago. Emerging markets like India and China are seeing a developing middle class with an apetite for luxury goods. Thus if the US was to go into recession it need not cause the world to follow. It is also worth remembering the Japanese economy is starting to recover, th Read more:Economics
, Effects
Advantages of Electronic Road Pricing in the UK 2007-02-26 11:34:00 1. Raises Revenue for the Government. If the governments gets more tax revenue it can mean either:a. other taxes can fall, b. the government can spend more on public transportc. or the budget deficit can reduce.Nobody likes new taxes, but whether money is collected from new or old taxes makes no difference to the disposable income of the tax payer.2. Increase social efficiency. In a free market the consumption of cars are overconsumed. When driving people ignore the negative externalities of congestion and pollution. The social cost is much greater than the private cost. Therefore it makes sense for the government to charge a much higher price of driving in congested areas.3. Congestion is Inefficient Congestion costs the UK economy over £20 billion a year in lost output and wasted time. This should be tackled.4. Reduce pollution and global warming. Pollution from cars is a significant contributor to CO2 emissions in the UK. Road charging should encourage people to look for other form Read more:Advantages
, Electronic
, Pricing
Inflation in the UK Prospects for 2007 2007-02-25 14:57:00 Since the Bank of England was given independence in 1997 UK inflation has been close to the government’s target of 2% +/-1. This is a remarkable improvement for the UK economy. Previously the UK economy suffered from consistently high inflation. Eg in 1979 inflation reached 25%. In 1992 inflation reached 11%. Reasons for low inflation are a matter of debate. The chancellor Gordon Brown likes to take credit for giving the Bank of England independence in 1992. However although this partly explains low inflation, it is only a small % of the reason.Reasons for Low Inflation
in the UK1. Economic growth has been more stable and predictable. The MPC have avoided a boom and Bust economic cycle. At the first sign of inflationary pressures increasing they have increased interest rates to reduce inflation before it occurs (policy is known as pre emptive monetary policy.) This has avoided a repeat of the late 80s inflationary boom.2. Inflation expectations are lower. Partly as a result of the MP
Welcome to UK Econmics Blog 2007-02-25 14:29:00 Hi and welcome to a blog about Economics and in particular UK economics.This blog is updated by Richard Pettinger. Richard studied Politics, Philosophy and Economics at LMH, Oxford Univesity. He now works as an Economics teacher in Oxford. He also works as a senior examiner for Edexcel.Blog post about State of UK Economy 2007 Read more:Welcome
Measuring Inflation - Sign of the Times 2007-03-20 08:28:00 To measure inflation the Office for National Statistics needs to find out the 1000 most common items bought in the UK. Each year they conduct a Family Expenditure Survey to find out what people spend their money on. - MeasuringInflation
Problems of measuring inflationRecent Items Added to CPIBroccoliOlive oil, Probiotic drinks, such as Yakult and Actimel, mobile phone ringtone downloads,credit card charges and mortgage arrangement fees.Items Excluded from CPI BrieVHS recorders, video cassettes and bulky cathode-ray tube televisionGenerally food items have been downgraded, services have become more importantThe March inflation figures are due out today and are forecast to be around 2.7% Read more:Times
UK Budget 2007 – Gordon Brown’s Last Budget 2007-03-22 13:19:00 After 11 consecutive years of being Chancellor of the Exchequer GordonBrown
is the longest serving chancellor since 1820 overtaking David Lloyd George (2). As Gordon Brown
wrly noted as chancellor Lloyd George successfully combined both being chancellor and being PM. In fact his last budget speech sounded in parts like a pre – election budget. – If not a general election at least a leadership election. Quick Summary of the 2007 Budget Income tax cut from 22p to 20p. This is largely financed by abolishing the 10p starting rate and removing allowances in N.I contributions. – “The tax man giveth and the tax man taketh away.”Corporation tax cut from 30% to 28%. This will largely be financed by raising the tax rate on small business from 20% to 22%. The justification was that it was to avoid people using small companies as a way to reduce income tax burden. However it is strange to increase corporation tax to 22% when income tax
UK Inflation Rates March 2007 2007-03-21 09:04:00 Markets were disappointed as the Consumer Price Index CPI measure of inflation rose from 2.7% to 2.8%.The CPI measure is the government's preferred measure. However many feel it doesn't reflect their personal changes in the cost of living. The CPI excludes several items such as: council tax, mortgage costs or house price changes.The old RPI measure increased to 4.6% driven higher by rising interest payments and council taxe rises.InflationRates
for PensionersIt is estimated that for pensioners the true cost of living may be rising as high as 9.1%. This is because they spend a higher % of their money on things like Gas and council taxes. Pensioners are increasingly indebted as their costs of living rise faster than their incomes. (1) Pension and other benefits are calculated according to CPI inflation.Definition InflationCosts of InflationMeasuring InflationInflation rate reaches 4.6% Read more:March
Benefits of European Union 2007-03-21 08:45:00 After criticising the EURO, at least arguing the UK should not join. I think it is only fair to remember some of the benefits of the EuropeanUnion
.Not least amongst the achievements of the EU include:Peace amongst nations - European Union
countries are no longer at loggerheads like they were in the past.Economic development of countries like Portugal, Ireland and Spain.Free Movement of workers across Europe.Prospect of membership has helped modernise Turkey.There are 50 reasons here at the Independent: 50 Benefits
of the European UnionI think the best of all 50 is this one:50. Lists like this drive Eurosceptics mad In the Daily Mail-Sun universe, the EU can never do any good. Brussels is an insane bureaucracy, which secretly plots to have all donkeys painted blue (with yellow stars). The 50th birthday of the European project is a time to celebrate the many positive things which the EU has brought us. European UnionBenefits of Joining EURO
Economics Easter Revision Course - Jesus College 2007-03-29 00:16:00 I am currently teaching an A Level EasterRevision
college at JesusCollege
. Our teaching room is right at the top with a great view of the Spires of Oxford.The course is organised by Cherwell College, Oxford. It lasts for 3 weeks but I am just doing 1 week. Read more:Economics
Monopoly Graph P=MC 2007-03-28 23:58:00 A simple Monopoly Diagram.Profit Maximisation will occur where Marginal Revenue MR = Marginal Cost MC.The Green shaded area is the level of supernormal Profits (AR-AC) QMore on Monopoly This is a photo of a diagram I drew on a white board. Much easier using a digital camera than using word and lots of lines. It will make it much easier to add diagrams to Economics Help.Soon I hope to put up my Economics Revision Guide. It is more professional than the current notes. I think it will be very helpful for students and it will be free! (not for resale of course)I also have many model Economics essays which will go up at some time.Monopoly Tutor 2U Read more:Graph
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