tag:blogger.com,1999:blog-5018024857743488412024-03-13T05:27:58.030-07:00EconKnowHowKnow Your EconomicsP.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.comBlogger133125tag:blogger.com,1999:blog-501802485774348841.post-1572275091074241052015-01-14T11:14:00.000-08:002015-01-14T11:14:21.897-08:00European Deflation<span style="font-family: Arial, Helvetica, sans-serif;">Latest inflation figures in the UK indicate that deflation could be a major worry in the UK. Inflation in the UK fell to 0.5% which is a worry because if inflation becomes negative, falling prices can lead to a <a href="http://econknowhow.blogspot.co.uk/search?q=deflation">deflationary spiral</a>. Consumers will put off purchasing goods because they know that prices will continue to fall, hence they will be able to save more money by waiting. Furthermore, in the Eurozone, there is deflation of 0.2%. This is one reason why deflation is such as hot topic among economists and businesses (for example, type 'deflation' into Google then click on the 'news' tab to see what comes up).</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">But I just came across a video on the FT where Sarah Gordon, the business editor, discusses how deflation may not actually be that bad, in the Eurozone. This perspective can also be relevant for the UK. The video explains deflation well and is worth listening to. </span><span style="font-family: Arial, Helvetica, sans-serif;">One of her key arguments is that while inflation remains negative, the CPI is actually positive (0.8%), only being bought down by falling fuel and energy prices. This means that its important to consider what measure of deflation is being used in any figures given. Also, falling fuel prices means </span><span style="font-family: Arial, Helvetica, sans-serif;">that consumers are actually benefiting because living costs have fallen. This might actually increase consumer spending rather than retard it. </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">She also mentions that businesses are not worried about deflation because if the European Central Bank embark on a quantitative easing programme, they will buy sovereign and corporate bonds which will reduce interest rates. This is actually good for businesses because it reduces companies' debts.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">This video can be accessed <a href="http://video.ft.com/3989089747001/Eurozone-deflation-a-good-thing-/World">here</a>.</span>P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-81428930542967886982014-11-07T09:51:00.000-08:002014-11-07T09:51:13.207-08:00Savings or Consumption?<span style="font-family: Arial, Helvetica, sans-serif;">I came across this great video about savings and consumption today. This video highlights the importance of savings in the economy, despite the common conception that consumption may be a <i>more important</i> component of the economy. I was told in school that consumption was roughly 70% of the economy. Indeed, in Keynes' view, increasing consumption will increase growth via higher spending. Remember that<span style="font-size: large;"><b> <span style="color: red;">AD = C + I + G + (X-I)</span></b></span>, where AD = aggregate demand, C = consumption, I = investment, G = government spending, X = exports, I = imports. If consumption increases, the left hand side of the equation, AD, increases. An increase in AD will increase economic growth, so the argument goes. </span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">But this 3 minute video actually argues the opposite. Savings are <b>more important</b> for the economy because it allows investment to grow and this helps increase production. In exams, the examiners are looking for a <b>balanced</b> argument. These alternative views are perfect to help you gain extra marks. </span><br />
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<div class="separator" style="clear: both; text-align: center;">
<span style="font-family: Arial, Helvetica, sans-serif;"><iframe allowfullscreen='allowfullscreen' webkitallowfullscreen='webkitallowfullscreen' mozallowfullscreen='mozallowfullscreen' width='320' height='266' src='https://www.youtube.com/embed/vj7XExwChwI?feature=player_embedded' frameborder='0'></iframe></span></div>
<br />P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-61161871018885842672014-10-07T14:27:00.000-07:002014-10-07T14:27:05.678-07:00You want to read this if you're considering studying Economics at university!<span style="background-color: #f3f3f3; font-family: Arial, Helvetica, sans-serif;">So I came across this interesting article recently reporting how a new economics curriculum will be taught at universities in <span style="line-height: 18.016206741333px;">London, Paris, New York, Boston, Budapest, Sydney and Bangalore. Apparently its a 'dismal science' that leaves students feeling 'disenchanted'. I hope you don't feel like that reading my blog! </span></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: #f3f3f3; line-height: 18.016206741333px;"><br /></span></span>
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: #f3f3f3; line-height: 18.016206741333px;">This <a href="http://www.ft.com/cms/s/2/f015a3ac-4aed-11e3-ac3d-00144feabdc0.html#axzz3FUnY8oVC">article </a>by the FT outlines how economic events have changed economics curricula over the years, from neoclassical to Keynesian to new Keynesian. Of course curricula must keep changing to adapt to events that make models obsolete, but a message to take away from this is that students are spending years learning models that are continuously changing, which makes it less enjoyable to study at degree level. Perhaps changing from abstract, mundane, incomprehensible maths will indeed make economics more accessible for young people. That's actually the whole reason why I started this blog! </span></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: #f3f3f3; line-height: 18.016206741333px;"><br /></span></span>
<span style="background-color: #f3f3f3; font-family: Arial, Helvetica, sans-serif;"><span style="line-height: 18.016206741333px;">I'll end this post with the ending sentence of the article to provide my readers with some food for thought:</span><span style="line-height: 18.016206741333px;"> '</span><span style="line-height: 22px;">The new thought is a return to the past: less maths and more history of economic thought might make for more enthusiastic and useful graduates.'</span></span><br />
<br />P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-83698031922290123752014-09-25T10:35:00.000-07:002014-09-25T10:36:14.071-07:00UPDATE: The state of the European economy<div class="MsoNoSpacing">
Recently, Europe’s economy has avoided appearing on many
of our news screens what with other international affairs such as Russia/
Ukraine, Syria and Iraq in the headlines for probably my entire summer
holidays. But that doesn't mean that the European economy is all hunky-dory and
the recession is a thing of the past.</div>
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<o:p></o:p></div>
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This post is an update of what is actually going on in
Europe right now, giving you three key case studies: Italy, France and Germany.
<o:p></o:p></div>
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<b><span style="color: red;">Italy<o:p></o:p></span></b></div>
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<!--[if !supportLists]--><span style="color: red; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><b><span style="color: red;">Triple dip</span></b><span style="color: red;"> recession – GDP
fell by 0.2% in the second quarter of 2014<o:p></o:p></span></div>
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</span></span><!--[endif]--><span style="color: red;">12.6% <b>unemployment</b> rate<o:p></o:p></span></div>
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</span></span><!--[endif]--><span style="color: red;">43% youth unemployment<o:p></o:p></span></div>
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</span></span><!--[endif]--><span style="color: red;">Little <b>political will</b> to do anything about it<o:p></o:p></span></div>
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<b><span style="color: #002060;">France
<o:p></o:p></span></b></div>
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<!--[if !supportLists]--><span style="color: #002060; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="color: #002060;">Rising <b>budget deficit</b><o:p></o:p></span></div>
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</span></span><!--[endif]--><span style="color: #002060;">Last quarter’s GDP
growth: 0%!<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="color: #002060; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><span style="color: #002060;">Chance of going back
into recession, was also 0% in the quarter before last<o:p></o:p></span></div>
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<b><span style="color: #00b050;">Germany<o:p></o:p></span></b></div>
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</span></span><!--[endif]--><span style="color: #00b050;">GDP fell 0.2% in the
last quarter, the first GDP contraction this year<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="color: #00b050; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><b><span style="color: #00b050;">Manufacturing sector</span></b><span style="color: #00b050;">
slow down<o:p></o:p></span></div>
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</span></span><!--[endif]--><b><span style="color: #00b050;">Geopolitics</span></b><span style="color: #00b050;"> is
affecting growth: Russia’s embargo on European food imports is apparently
affecting 9.5m European farmers, and is affecting Germany’s trade<o:p></o:p></span></div>
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<b><u>Key points to
note about Europe right now:<o:p></o:p></u></b></div>
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<!--[if !supportLists]--><span style="color: #7030a0; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><b><i><u><span style="color: #7030a0;">Low inflation.<o:p></o:p></span></u></i></b></div>
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Average Euro Area: 0.4% <o:p></o:p></div>
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Deflation in 8 Eurozone
countries including the PIGS (Portugal, Italy, Greece and Spain)<o:p></o:p></div>
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<table border="1" cellpadding="0" cellspacing="0" class="MsoTableGrid" style="border-collapse: collapse; border: none; margin-left: 21.25pt; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;">
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<td style="border: solid windowtext 1.0pt; height: 19.4pt; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 175.55pt;" valign="top" width="234"><div class="MsoNoSpacing">
<b>Country in
Eurozone<o:p></o:p></b></div>
</td>
<td style="border-left: none; border: solid windowtext 1.0pt; height: 19.4pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 3.0cm;" valign="top" width="113"><div class="MsoNoSpacing">
<b>Inflation rate<o:p></o:p></b></div>
</td>
</tr>
<tr style="height: 19.4pt; mso-yfti-irow: 1;">
<td style="border-top: none; border: solid windowtext 1.0pt; height: 19.4pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 175.55pt;" valign="top" width="234"><div class="MsoNoSpacing">
France<o:p></o:p></div>
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<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 19.4pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 3.0cm;" valign="top" width="113"><div class="MsoNoSpacing">
0.4%<o:p></o:p></div>
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<td style="border-top: none; border: solid windowtext 1.0pt; height: 19.4pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 175.55pt;" valign="top" width="234"><div class="MsoNoSpacing">
Italy<o:p></o:p></div>
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<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 19.4pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 3.0cm;" valign="top" width="113"><div class="MsoNoSpacing">
-0.1%<o:p></o:p></div>
</td>
</tr>
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<td style="border-top: none; border: solid windowtext 1.0pt; height: 20.3pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 175.55pt;" valign="top" width="234"><div class="MsoNoSpacing">
Germany<o:p></o:p></div>
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<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 20.3pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 3.0cm;" valign="top" width="113"><div class="MsoNoSpacing">
0.8%<o:p></o:p></div>
</td>
</tr>
<tr style="height: 20.3pt; mso-yfti-irow: 4;">
<td style="border-top: none; border: solid windowtext 1.0pt; height: 20.3pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 175.55pt;" valign="top" width="234"><div class="MsoNoSpacing">
Spain<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 20.3pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 3.0cm;" valign="top" width="113"><div class="MsoNoSpacing">
-0.5%<o:p></o:p></div>
</td>
</tr>
<tr style="height: 20.3pt; mso-yfti-irow: 5;">
<td style="border-top: none; border: solid windowtext 1.0pt; height: 20.3pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 175.55pt;" valign="top" width="234"><div class="MsoNoSpacing">
Greece<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 20.3pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 3.0cm;" valign="top" width="113"><div class="MsoNoSpacing">
-0.3%<o:p></o:p></div>
</td>
</tr>
<tr style="height: 20.3pt; mso-yfti-irow: 6; mso-yfti-lastrow: yes;">
<td style="border-top: none; border: solid windowtext 1.0pt; height: 20.3pt; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 175.55pt;" valign="top" width="234"><div class="MsoNoSpacing">
Portugal<o:p></o:p></div>
</td>
<td style="border-bottom: solid windowtext 1.0pt; border-left: none; border-right: solid windowtext 1.0pt; border-top: none; height: 20.3pt; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 3.0cm;" valign="top" width="113"><div class="MsoNoSpacing">
0.4%<o:p></o:p></div>
</td>
</tr>
</tbody></table>
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<b><u>Why is this a
problem?<o:p></o:p></u></b></div>
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<br /></div>
<div class="MsoNoSpacing" style="margin-left: 35.45pt; mso-list: l0 level1 lfo1; text-indent: -21.25pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><b>Increases
the real value of debt</b> which means that government debt increases making it
harder to pay off and increasing the likelihood of needing another bail out<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 35.45pt; mso-list: l0 level1 lfo1; text-indent: -21.25pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><b>Taxes</b>
will have to rise eventually to fund the increased debt accumulation which
means businesses will have a higher tax burden <span style="font-family: Wingdings; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-char-type: symbol; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin; mso-symbol-font-family: Wingdings;">à</span>
leaving some Eurozone countries<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 35.45pt; mso-list: l0 level1 lfo1; text-indent: -21.25pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]-->There is danger of falling into a deflation trap
where prices just keep falling. This is called a <b>deflation spiral.</b><o:p></o:p></div>
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<br /></div>
<div class="MsoNoSpacing" style="margin-left: 14.2pt; mso-list: l0 level1 lfo1; text-indent: -14.2pt;">
<!--[if !supportLists]--><span style="color: #7030a0; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><b><i><u><span style="color: #7030a0;">High
unemployment<o:p></o:p></span></u></i></b></div>
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<br /></div>
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<!--[if !supportLists]--><span style="color: #7030a0; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><b><i><u><span style="color: #7030a0;">High
government debt<o:p></o:p></span></u></i></b></div>
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<br /></div>
<div class="MsoNoSpacing" style="margin-left: 14.2pt; mso-list: l0 level1 lfo1; text-indent: -14.2pt;">
<!--[if !supportLists]--><span style="color: #7030a0; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><b><i><u><span style="color: #7030a0;">Political
upheaval<o:p></o:p></span></u></i></b></div>
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<br /></div>
<div class="MsoNoSpacing" style="margin-left: 14.2pt; mso-list: l0 level1 lfo1; text-indent: -14.2pt;">
<!--[if !supportLists]--><span style="color: #7030a0; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><b><i><u><span style="color: #7030a0;">Geopolitics
with Russia<o:p></o:p></span></u></i></b></div>
<div class="MsoNoSpacing">
<br /></div>
<div class="MsoNoSpacing" style="margin-left: 14.2pt; mso-list: l0 level1 lfo1; text-indent: -14.2pt;">
<!--[if !supportLists]--><span style="color: #7030a0; font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]--><b><i><u><span style="color: #7030a0;">Lack of
political union<o:p></o:p></span></u></i></b></div>
<div class="MsoNoSpacing" style="margin-left: 36.0pt;">
Different countries in the
Eurozone want different things and have different views with how situations should
be handled, e.g. with Russia, which makes it hard to manage economic policy and
introduce austerity measures where needed.<o:p></o:p></div>
<div class="MsoNoSpacing">
<br /></div>
<div class="MsoNoSpacing">
<b>What can be done?<o:p></o:p></b></div>
<div class="MsoNoSpacing">
<br /></div>
<div class="MsoNoSpacing" style="margin-left: 35.45pt; mso-list: l0 level1 lfo1; text-indent: -21.25pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]-->Keep <b>interest
rates low</b> – increasing interest rates will just decrease inflation more<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 35.45pt; mso-list: l0 level1 lfo1; text-indent: -21.25pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]-->“<b>Quantitative
Easing lite</b>”: the European Central bank buys assets to stimulate the
economy and help inflation rise<o:p></o:p></div>
<div class="MsoNoSpacing">
<br /></div>
<div class="MsoNoSpacing">
<b>Anything else?<o:p></o:p></b></div>
<div class="MsoNoSpacing" style="margin-left: 35.45pt; mso-list: l0 level1 lfo1; text-indent: -21.25pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]-->Role of<b> competition</b>
in markets: <o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 72.0pt; mso-list: l0 level2 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->There
was a period of very low inflation during the late 19<sup>th</sup> century in
Germany and the UK<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 72.0pt; mso-list: l0 level2 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->Analysis
shows there was competition in markets and businesses operated in a competitive
environment <o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 72.0pt; mso-list: l0 level2 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->Competition
restricts wage growth because there are many companies in the same industry
offering the same job and the same wage. This is happening now!!!<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 72.0pt; mso-list: l0 level2 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->A
competitive market means that firms are unwilling to increase the price of
goods and services – preventing inflation from rising. This is happening now!!!<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 72.0pt; mso-list: l0 level2 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->It
is therefore hard to increase inflation. This is happening now!!!<o:p></o:p></div>
<div class="MsoNoSpacing">
<br /></div>
<div class="MsoNoSpacing">
<br /></div>
<br />
<div class="MsoNoSpacing">
<br /></div>
P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-53353682481594973522013-09-30T11:02:00.000-07:002013-09-30T11:02:51.434-07:00UK and Foreign Capital<div class="MsoNormal">
<span style="font-size: 11.0pt;">Last week it was reported
that 53.2% of shares of UK-listed companies are foreign owned. This post sees
globalisation rearing its head again, discussing further impacts of
globalisation on the <st1:place w:st="on"><st1:country-region w:st="on">UK</st1:country-region></st1:place>
economy. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 11.0pt;">More than half of all shares
in UK-listed companies are owned by foreigners which shows the <st1:country-region w:st="on"><st1:place w:st="on">UK</st1:place></st1:country-region>’s greater
integration with the global economy. One reason for this is that people in emerging
economies such as <st1:country-region w:st="on">China</st1:country-region> and <st1:country-region w:st="on"><st1:place w:st="on">India</st1:place></st1:country-region> are
investing more abroad as they become wealthier. Another reason for this is that
foreigners tend to look for investment opportunities in other countries,
particularly rich countries, as a safe place to put their money, thus their
attraction to the <st1:place w:st="on"><st1:country-region w:st="on">UK</st1:country-region></st1:place>.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 11.0pt;">An increase in foreign
capital coming to the <st1:country-region w:st="on"><st1:place w:st="on">UK</st1:place></st1:country-region>
can help us reduce our current account deficit. Investment is a component of
aggregate demand, and so increasing investment can increase demand and help reduce
the effects of the financial crisis. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCcZ8K2tZwXsWuBCAkMNM4V23LPa4LXOw-C5vjtgoK3lqeiIFH03gTZnzaJWaARXsCqpPPOBO8odI3U1mXj2aFwfuYIrQ8nPb5pe0jIXErrUbJb5k2jyIHXnB2y4nEpHHcRJL4tuQ_tSr_/s1600/increase+in+ad.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="253" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCcZ8K2tZwXsWuBCAkMNM4V23LPa4LXOw-C5vjtgoK3lqeiIFH03gTZnzaJWaARXsCqpPPOBO8odI3U1mXj2aFwfuYIrQ8nPb5pe0jIXErrUbJb5k2jyIHXnB2y4nEpHHcRJL4tuQ_tSr_/s320/increase+in+ad.png" width="320" /></a></div>
<div class="MsoNormal">
<span style="font-size: 11.0pt;"><br /></span></div>
<div class="MsoNormal">
<span style="font-size: 11pt;">(Evaluation point: it could,
however, be showing that many UK-listed companies are foreign and conduct
little business in the </span><st1:place style="font-size: 11pt;" w:st="on"><st1:country-region w:st="on">UK</st1:country-region></st1:place><span style="font-size: 11pt;">)</span></div>
<div class="MsoNormal">
<br /></div>
<br />
<div class="MsoNormal">
<span style="font-size: 11.0pt;">One negative consequence of
foreigners owning shares in <st1:country-region w:st="on"><st1:place w:st="on">UK</st1:place></st1:country-region>
companies is that board level decisions are more difficult to make because directors
are scattered all around the world. This point is key as it links micro with
macro, something examiners relish to find in top exam answers.<o:p></o:p></span></div>
P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-22681323630902323882013-08-22T09:42:00.002-07:002013-08-22T09:42:33.556-07:00China - Case Study II<div class="MsoNormal">
<b><span style="font-family: Arial, Helvetica, sans-serif;">China's E-Commerce Market</span></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Arial, Helvetica, sans-serif;">Following on from
the Chinese Case Study I post, these notes explain how China is moving in a positive
direction to achieve three of its future growth targets (increase <b><span style="color: red;">innovation</span></b>, increase the <b><span style="color: red;">global presence</span></b> of Chinese companies and increase growth
coming from <b><span style="color: red;">domestic consumption</span></b>).<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Arial, Helvetica, sans-serif;">By 2020 <st1:country-region w:st="on">China</st1:country-region>’s
e-commerce market is forecast to be bigger than the existing markets in <st1:country-region w:st="on">America</st1:country-region>, <st1:country-region w:st="on">Britain</st1:country-region>,
<st1:country-region w:st="on">Japan</st1:country-region>, <st1:country-region w:st="on">Germany</st1:country-region> and <st1:country-region w:st="on"><st1:place w:st="on">France</st1:place></st1:country-region> combined (from <a href="http://www.economist.com/news/leaders/21573981-chinas-e-commerce-giant-could-generate-enormous-wealthprovided-countrys-rulers-leave-it">The Economist</a>)</span></div>
<div class="MsoNormal">
<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal">
<b><span style="font-family: Arial, Helvetica, sans-serif;">Alibaba<o:p></o:p></span></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Arial, Helvetica, sans-serif;"><b><u><span style="color: red;">Innovation</span></u></b>: <o:p></o:p></span></div>
<ul style="margin-top: 0cm;" type="disc">
<li class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Alibaba is a business to business e-commerce
company that sells Chinese goods to overseas suppliers. <o:p></o:p></span></li>
<li class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The company understands the spending habits of Chinese
consumers<o:p></o:p></span></li>
<li class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Alifinance is microlender to small firms
(planning on expanding to normal customers too)<o:p></o:p></span></li>
<li class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Insurance<o:p></o:p></span></li>
</ul>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Arial, Helvetica, sans-serif;"><span class="apple-converted-space"><b><u><span style="color: red;">Increase
the global presence of Chinese companies</span></u></b></span><span class="apple-converted-space">: Alibaba is looking to become public (i.e. be listed on a
stock exchange), and looking to expand to other emerging economies. <o:p></o:p></span></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Arial, Helvetica, sans-serif;"><span class="apple-converted-space"><b><u><span style="color: red;">Domestic
consumption:</span></u></b></span><span class="apple-converted-space"><b><span style="color: red;"> </span></b></span><span class="apple-converted-space"><b>‘Bamboo Capitalism’</b></span><span class="apple-converted-space"> is the term used to describe the efficiency of private
firms opposed to Chinese state-owned enterprises. Growth in private sector
firms drives domestic consumption.<o:p></o:p></span></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span class="apple-converted-space"><span style="font-family: Arial, Helvetica, sans-serif;">Bottom line: E-commerce is
driving future growth in <st1:place w:st="on"><st1:country-region w:st="on">China</st1:country-region></st1:place>.<o:p></o:p></span></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span class="apple-converted-space"><b><span style="font-family: Arial, Helvetica, sans-serif;">Challenges<o:p></o:p></span></b></span></div>
<div class="MsoNormal">
<br /></div>
<ul style="margin-top: 0cm;" type="disc">
<li class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region>’s companies are viewed with suspicion abroad <o:p></o:p></span></li>
<li class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Chinese firms are accused of supporting human
rights abuses for access to resources (read <span style="color: windowtext;"><a href="http://www.economist.com/news/middle-east-and-africa/21574012-chinese-trade-africa-keeps-growing-fears-neocolonialism-are-overdone-more">this Economist article about China in Africa</a>) </span><o:p></o:p></span></li>
</ul>
<br />
<div class="MsoNormal">
<br /></div>
P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-75863013314942657802013-08-18T05:02:00.000-07:002015-01-19T13:40:27.317-08:00China - Case Study I<div dir="ltr" style="line-height: 1.15; margin-bottom: 0pt; margin-top: 0pt;">
<div style="margin-bottom: .0001pt; margin: 0cm;">
<b><span style="font-family: Calibri;">Key Questions:</span></b></div>
<div style="margin: 0cm 0cm 0.0001pt;">
<span style="font-family: Calibri;">
<!--[if !supportLineBreakNewLine]--><br />
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l5 level1 lfo1; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Is growth increasing incomes on the
average Chinese? <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l5 level1 lfo1; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Is growth lifting people out of
poverty? <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l5 level1 lfo1; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Is minimum wage industrialisation the
best way to achieve growth?</span></div>
<div style="margin: 0cm 0cm 0.0001pt;">
<span style="font-family: Calibri;">
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<b><span style="font-family: Calibri;">QUALITY of growth
matters</span></b></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<b><span style="font-family: Calibri;"><br /></span></b></div>
<div style="margin: 0cm 0cm 0.0001pt;">
<span style="font-family: Calibri;">
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l1 level1 lfo2; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Average income for a Chinese worker is
(USD)$8000 <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l1 level1 lfo2; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">By 2020, it is estimated that average
Chinese wages would have risen to (US) $14,000. This level is considered to be
the upper income level that moved countries such as <st1:country-region w:st="on">Singapore</st1:country-region>,
<st1:country-region w:st="on">South Korea</st1:country-region>, <st1:country-region w:st="on">Greece</st1:country-region> and <st1:country-region w:st="on"><st1:place w:st="on">Portugal</st1:place></st1:country-region>, to ‘rich’ country stats -
the level that moved these countries past the boundary</span></div>
<div style="margin: 0cm 0cm 0.0001pt;">
<span style="font-family: Calibri;">
<!--[if !supportLineBreakNewLine]--><br />
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<b><span style="font-family: Calibri;">Five year plan</span></b><span style="font-family: Calibri;"><o:p></o:p></span></div>
<div style="margin: 0cm 0cm 0.0001pt;">
<span style="font-family: Calibri;"><br />
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l3 level1 lfo3; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><st1:country-region w:st="on"><st1:place w:st="on"><span style="font-family: Calibri;">China</span></st1:place></st1:country-region><span style="font-family: Calibri;">’s growth has been, on average, 9.6% over the past 30 years<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l3 level1 lfo3; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">The five year plan is the government’s
12th five-year plan used to set the future growth agenda for <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l3 level1 lfo3; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Renewed in 2011, the priorities for
this plan are sustainable growth, industrial upgrading and the promotion of
domestic consumption<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l3 level1 lfo3; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Criticism: there is no implementation
plan</span></div>
<div style="margin: 0cm 0cm 0.0001pt;">
<span style="font-family: Calibri;">
<!--[if !supportLineBreakNewLine]--><br />
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="font-family: Calibri;">See<a href="http://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Publicationseries/5-years-plan/Documents/China-12th-Five-Year-Plan-Overview-201104.pdf">
kpmg report</a>:</span></div>
<div style="margin: 0cm 0cm 0.0001pt;">
<span style="font-family: Calibri;">
<!--[if !supportLineBreakNewLine]--><br />
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l4 level1 lfo4; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Half of china’s growth comes from
adding <b>capital</b>. Bear in mind that growth quality is now becoming the
most important thing to think about rather than growth quantity<o:p></o:p></span></div>
<div style="margin: 0cm 0cm 0.0001pt;">
<span style="font-family: Calibri;"><br />
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<b><span style="font-family: Calibri;">Total Factor
Productivity </span></b><span style="font-family: Calibri;">(TFP) is measured by<b> </b></span><b><span style="color: red; font-family: Calibri; font-size: 13.5pt; mso-bidi-font-family: Arial;">innovation, allocative efficiency</span></b><span style="font-family: Calibri;"> (re-allocation
of factors, e.g. rural to urban, state owned to private) and </span><b><span style="color: red; font-family: Calibri; font-size: 13.5pt; mso-bidi-font-family: Arial;">human capital.</span></b><span style="color: red; font-family: Calibri; font-size: 13.5pt; mso-bidi-font-family: Arial;"> </span><span style="font-family: Calibri;">TFP is the
contribution of all factors of production to growth. When TFP increases, the
growth rate increases. This means that one or more of the factors of production
has been changed. </span><span style="font-family: Calibri;"><o:p></o:p></span></div>
<div style="margin: 0cm 0cm 0.0001pt;">
<span style="font-family: Calibri;"><br />
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<b><span style="font-family: Calibri;">Innovation</span></b><span style="font-family: Calibri;"> - micro level data shows that ⅔ technology comes from imitation,
most developing countries imitate first to gain enough wealth to then invest it
into R&D for new product development. Imitation leads to innovation -
creating an increase in growth.</span><span style="font-family: Calibri;"><o:p></o:p></span></div>
<div style="margin: 0cm 0cm 0.0001pt;">
<span style="font-family: Calibri;"><br />
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<b><span style="font-family: Calibri;">Human capital </span></b><span style="font-family: Calibri;">- <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region>’s
investment in human capital is geographical unevenly distributed. Rural parts
of <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region>
are under-invested in. If <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region>
invests in human capital all round, it has a better chance competing with other
economies. Human capital is beneficial because:</span><span style="font-family: Calibri;"><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l2 level1 lfo5; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Skill levels increase. E.g. they will
be more qualified to perform tasks and will do so quicker<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l2 level1 lfo5; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Creates a flexible economy - workers
have a greater capacity to adapt to changes in the economy, i.e. seize new
opportunities for wealth creation<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l2 level1 lfo5; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Increases occupational mobility of
labour and geographical mobility of labour as because of the previous point<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l2 level1 lfo5; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">High levels of education can increase a
worker’s ability to use foreign technology, their ability to absorb new information
and acquire technical skills<o:p></o:p></span></div>
<div style="margin: 0cm 0cm 0.0001pt;">
<span style="font-family: Calibri;"><br />
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<b><span style="font-family: Calibri;">Middle Income Trap</span></b><span style="font-family: Calibri;"><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<st1:country-region w:st="on"><st1:place w:st="on"><span style="font-family: Calibri;">China</span></st1:place></st1:country-region><span style="font-family: Calibri;"> needs to avoid the middle income trap. The middle income trap is
the trap that developing countries fall into when trying to make their
transition from a developing country to a developed country. They are not low
income by definition, i.e. they experience high growth rates and make money,
but they are not high income countries because they do not have technological
advantages. <st1:country-region w:st="on">China</st1:country-region>’s wages
are starting to increase, as shown <a href="http://www.tradingeconomics.com/china/wages-in-manufacturing">here</a>,
demonstrating that what was once the most popular destination for cheap
manufacturing, is now losing to countries such as <st1:country-region w:st="on">Bangladesh</st1:country-region>
and <st1:country-region w:st="on"><st1:place w:st="on">Singapore</st1:place></st1:country-region>.</span></div>
<div style="margin: 0cm 0cm 0.0001pt;">
<span style="font-family: Calibri;">
<!--[if !supportLineBreakNewLine]--><br />
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<b><span style="font-family: Calibri;">Key points:</span></b><span style="font-family: Calibri;"><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<b><span style="font-family: Calibri;"><br /></span></b></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l6 level1 lfo6; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Wages are increasing<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l6 level1 lfo6; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Poverty is slowing decreasing<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l6 level1 lfo6; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Innovation is creeping up<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l6 level1 lfo6; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Chinese firms are expanding globally<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l6 level1 lfo6; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Without the prospect for cheap labour,
firms will be deterred from investing in <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l6 level1 lfo6; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Only urban members of the workforce are
educated, also potentially deterring firms<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l6 level1 lfo6; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">The Chinese economy is still imitating<o:p></o:p></span></div>
<div style="margin: 0cm 0cm 0.0001pt;">
<span style="font-family: Calibri;"><br />
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span style="font-family: Calibri;">These points
suggest that <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region>
is heading for the middle income trap, a limbo between the rich and poor,
unable to progress. There are criticisms of the middle income trap, read the
Economist article <a href="http://www.economist.com/news/finance-and-economics/21571863-do-countries-get-trapped-between-poverty-and-prosperity-middle-income-claptrap">here</a>
to gain other perspectives, which will help you build your argument in your
exam. Remember that providing alternative views are brownie points. Read the
sources at the bottom as well.</span><span style="font-family: Calibri;"><o:p></o:p></span></div>
<div style="margin: 0cm 0cm 0.0001pt;">
<span style="font-family: Calibri;"><br />
<!--[endif]--><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<b><span style="font-family: Calibri;">The Future</span></b><span style="font-family: Calibri;"><o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level1 lfo7; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Focus on overcoming the middle income
trap<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level1 lfo7; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Increase own market reliance, e.g. US
consumers are increasingly buying domestically produced goods<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level1 lfo7; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Increase domestic demand by lowering
exports. E.g. exports are only a fraction in the <st1:country-region w:st="on">US</st1:country-region>
- <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region>
needs to get to that<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level1 lfo7; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Privatise. State owned companies are
not as productive. They distort the allocation of lending and bank credit.
State owned enterprises account for 30% industrial output and ¼ of urban jobs<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level1 lfo7; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Increase innovation<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level1 lfo7; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Increase opening - more Chinese firms
should go global. <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 72.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level2 lfo7; tab-stops: list 72.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: 'Courier New';">o<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">We have seen Chinese investment in
African natural resources, which is a start. They are building infrastructure
in poor African countries and providing jobs (however a negative is that they
are competing with local firms and undercutting them, making it difficult for
locals to make a living)<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 72.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level2 lfo7; tab-stops: list 72.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: 'Courier New';">o<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><st1:country-region w:st="on"><st1:place w:st="on"><span style="font-family: Calibri;">China</span></st1:place></st1:country-region><span style="font-family: Calibri;"> should focus on moving up the value chain by producing things
that is most competitive<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 72.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level2 lfo7; tab-stops: list 72.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: 'Courier New';">o<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">The government should push to create
Chinese multinationals<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 72.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level2 lfo7; tab-stops: list 72.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: 'Courier New';">o<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">At the moment, <st1:place w:st="on">Europe</st1:place>
in particular can benefit from the additional investment that Chinese firms can
offer<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level1 lfo7; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Services are important - increase job
creation, create a high skilled labour force and help <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region> rebalance<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level1 lfo7; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Raise consumption as a share of GDP,
not rising it in absolute terms<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level1 lfo7; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Restructure the economy: more services,
quality of growth needs to increase<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level1 lfo7; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Productivity and innovation: compete to
produce the best products in the world. Join the ranks of rich countries, e.g.
Samsung (<st1:country-region w:st="on"><st1:place w:st="on">South Korea</st1:place></st1:country-region>)
competing with Apple (US)<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 36.0pt; margin-right: 0cm; margin-top: 0cm; mso-list: l0 level1 lfo7; tab-stops: list 36.0pt; text-indent: -18.0pt; vertical-align: baseline;">
<!--[if !supportLists]--><span style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: Calibri;">Political reforms are required to
sustain a prosperous middle class<o:p></o:p></span></div>
<br />
<div class="MsoNormal">
<br /></div>
</div>
<span style="font-family: Arial; font-size: 15px; vertical-align: baseline; white-space: pre-wrap;"></span>P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-608257093513221752013-02-14T06:58:00.000-08:002013-08-18T05:13:38.993-07:00The Economics of Valentine's DayHappy Valentine's Day everyone! <br />
<br />
Have you ever wondered about the economics of Valentine's Day? What does it mean?<br />
<br />
This video (strangely) puts into context for us:<br />
<br />
<a href="http://www.learnliberty.org/videos/economics-valentines-day">http://www.learnliberty.org/videos/economics-valentines-day</a><br />
<br />
It explains three economic principles associated with Valentine's Day:<br />
1. Free markets<br />
2. Signalling<br />
3. The seen and unseen<br />
<br />
This video puts these key principles into context for us, hopefully you will understand them clearer after watching it.P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-78990816510313373682013-01-09T11:48:00.001-08:002013-08-18T05:14:13.474-07:00Case Study/ Example of Public Sector and Private Sector CooperationThe UK Driving Standards Agency recently set out plans to run driving tests from Halfords branches around the UK. 15 Halfords branches are set to become test centres to improve accessibility to those who do not live close to a test centre. The driving tests will still be conducted by DSA examiners, so Halfords is simply playing host.<br />
<br />
This provides a good example of private firms contributing to social welfare in a positive way, and has been the first for a long time (e.g. remember G4S?). Both examples can be used to describe the benefits and costs of PPPs or private sector involvement with government.<br />
<br />
<br />P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-78775166165300536622013-01-09T11:39:00.000-08:002013-01-09T11:39:29.018-08:00Top Posts of 2012Happy new years everyone! Like last year when I posted the <a href="http://econknowhow.blogspot.co.uk/2011/12/top-10-posts-this-year.html">top 10 posts of 2011</a>, its time to reveal the most viewed posts of 2012.<br />
<br />
10. Once again its <a href="http://econknowhow.blogspot.co.uk/2011/11/trade-unions.html">Trade Unions</a>, posted on 16 November 2011<br />
<br />
9. <a href="http://econknowhow.blogspot.co.uk/2011/08/word-of-day_03.html">Word of the Day: Economic Growth </a>posted on 3 August 2011<br />
<br />
8. New entry <a href="http://econknowhow.blogspot.co.uk/2011/08/production-possibility-frontier-and.html">Production Possibility Frontier and Long Run Aggregate Supply</a> posted on 5 August 2011<br />
<br />
7. <a href="http://econknowhow.blogspot.co.uk/2012/04/oligopoly.html">Oligopoly</a>, up from last year posted on 21 April 2012<br />
<br />
6. <a href="http://econknowhow.blogspot.co.uk/2011/09/negative-externality.html">Negative Externalities</a> posted on 16 September 2011<br />
<br />
5. <a href="http://econknowhow.blogspot.co.uk/2011/08/monopoly.html">Monopoly</a> posted on 23 August 2011<br />
<br />
4. Another new entry! <a href="http://econknowhow.blogspot.co.uk/2012/01/unemployment-notes.html">Unemployment notes</a> posted on 22 January 2012<br />
<br />
3. Non mover <a href="http://econknowhow.blogspot.co.uk/2011/08/word-of-day_13.html">Word of the Day: Elasticity</a> posted on 13 August 2011<br />
<br />
2. Another non mover <a href="http://econknowhow.blogspot.co.uk/2011/08/perfect-competition-long-run.html">Perfect Competition Long Run Equilibrium</a> posted on 11 August 2011<br />
<br />
1. A further non mover! The most viewed entry in 2012 was <a href="http://econknowhow.blogspot.co.uk/2011/08/perfect-competition-short-run.html">Perfect Competition Short Run Equilibrium</a> posted on 10 August 2011<br />
<br />
Seems market structures are popular topics that a lot of you are struggling with, but I'm glad that my posts are being viewed to help you out.<br /><br />Subscribe and recommend to friends!P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-89251267669686036452012-12-21T07:39:00.000-08:002012-12-21T07:39:55.707-08:00A Video on The Minimum Wage Building up a strong argument is essential for getting good grades. When evaluating the minimum wage, its not good enough just to write that it creates unemployment. What are the other effects?<br />
<br />
Here is a video describing the <a href="http://www.youtube.com/watch?v=siW0YAAfX6I&feature=youtu.be">effects of a minimum wage</a>. Sure it is slightly biased (free marketeers), but that's why their argument against it is really good.<br />
<br />
Notes on the labour market, trade unions and the minimum wage can be found <a href="http://econknowhow.blogspot.co.uk/2011/11/trade-unions.html">here</a>!P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-50004884208583581822012-12-05T11:42:00.000-08:002013-02-21T08:06:09.431-08:00Deck the Halls with Macro FolliesHere's something to get you all into the Christmas spirit, economics style!<br />
<br />
This is a video summing up the different economic schools of thought from <span style="color: red;">Keynes</span>, <span style="color: orange;">Malthus</span> (less relevant), <span style="color: blue;">J. B Say</span> (from Say's Law) and <span style="color: purple;">Hayek</span> in playful song.<br />
<br />
Its surprisingly enjoyable to listen to and is also a nice quick and dirty memory refresher for the key economics viewpoints. Here you go:<br />
<br />
http://www.youtube.com/watch?v=7uKnd6IEiO0<br />
<br />
About a year ago I posted up other playful videos from Econstories on <a href="http://econknowhow.blogspot.co.uk/2011/08/keynes-vs-hayek-free-market.html">Boom and Bust and Fight of the Century</a>.P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-4032494892503579782012-10-17T08:25:00.000-07:002012-10-17T08:25:42.238-07:00Very useful website (part from this one obviously!)Hi everyone, I came across this brilliant website for economics explanations, recent news analysis..etc. They have recommendations for textbooks, tailored exam board guidance, lots and lots of notes and graphs! Read it!<br />
<br />
<a href="http://economicsonline.co.uk/">http://economicsonline.co.uk/</a><br />
<br />
Enjoy!P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-43138425471394165922012-05-12T11:47:00.001-07:002012-05-12T12:27:20.525-07:00Michael Portillo's 'Great Euro Crisis'<span style="font-family: inherit;">On BBC2 on Wednesday night was a very information documentary about the Eurozone crisis, in particular Greece. You can watch it <a href="http://www.bbc.co.uk/iplayer/episode/b01hllyd/This_World_Michael_Portillos_Great_Euro_Crisis/">here</a> on BBC iplayer. Remember it won't be there forever, do take time to watch it.</span><br />
<span style="font-family: inherit;"><br /></span><br />
<span style="font-family: inherit;">Summary:</span><br />
<ul>
<li><span style="font-family: inherit;">One quarter shops have closed since the crisis began in 2008</span></li>
<li><span style="font-family: inherit;">Social costs: Graffiti everywhere, dereliction</span></li>
<li><span style="font-family: inherit;">Michael Portillo's view is that Greece's joining the euro created the crisis</span></li>
<li><span style="font-family: inherit;">Introduction of the Euro: purpose - to help the poorer European countries catch up to their richer counterparts</span></li>
<li><span style="font-family: inherit;">The Euro has made Greece uncompetitive, considering the Drachma was weak and this helped fuel demand for their exports</span></li>
<li><span style="font-family: inherit;">The Euro also increased the amount of exports entering the country, particularly cars (what made it easier was the wide availability of credit for Greeks to finance the purchase of these cars)</span></li>
<li><span style="font-family: inherit;">In 6 years, Greece's deficit from Germany went up from under <span style="background-color: white; line-height: 16px;">€3bn to over €8bn</span></span></li>
<li><span style="font-family: inherit; line-height: 16px;">Another contribution to the debt: transport advancements (equipment could not be manufactured in Greece, so had to be imported by German companies) were paid for with debt, and tax evasion</span></li>
<li><span style="font-family: inherit; line-height: 16px;">Devaluing the currency (going back to the Drachma) can help improve their competitiveness</span></li>
<li><span style="font-family: inherit; line-height: 16px;">Government put national assets (e.g. the airport) among other austerity measures, to try to save the country</span></li>
</ul>P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com1tag:blogger.com,1999:blog-501802485774348841.post-24153181199360336132012-04-27T14:23:00.000-07:002012-04-27T14:26:25.278-07:00Case Study: Separation of Ownership and ControlSometimes it is difficult to understand how some economics concepts can be used in the real world (although with economics, it should be easier to relate that other subjects..) so here is a perfect example of the <b>principal/agent problem</b>.<br />
<div>
<br />
<div>
<div>
<div>
There seems to be a conflict between what shareholders want and what managers (executives) want at Barclays. At Barclays, £730m was paid out to shareholders last year in contrast to £2.15bn that was paid in bonuses.<br />
<div style="text-align: -webkit-auto;">
<span style="text-align: left;"><br /></span></div>
<div style="text-align: -webkit-auto;">
<span style="text-align: left;">Read more here: </span>
<a href="http://www.thisismoney.co.uk/money/news/article-2132282/Barclays-boss-Bob-Diamond-lose-1-3m-bonuses-bank-attempts-douse-shareholder-rebellion-pay.html">http://www.thisismoney.co.uk/money/news/article-2132282/Barclays-boss-Bob-Diamond-lose-1-3m-bonuses-bank-attempts-douse-shareholder-rebellion-pay.html</a> <span style="text-align: left;"><br /></span></div>
</div>
</div>
</div>
</div>
<div style="text-align: -webkit-auto;">
<br /></div>
<div style="text-align: -webkit-auto;">
Read notes on the Principal Agent Problem <a href="http://econknowhow.blogspot.co.uk/2012/04/principal-agent-problem.html">here</a>.</div>P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-43058207851732240612012-04-21T11:00:00.000-07:002012-04-21T11:00:41.177-07:00Oligopoly<div class="MsoNoSpacing" style="margin-left: 36.0pt; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]-->A type of market structure where there are a
small number of firms dominating the market, all selling similar goods<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 36.0pt;">
<br /></div>
<div class="MsoNoSpacing" style="margin-left: 36.0pt; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]-->What’s your definition of ‘dominating’ the
market? How do economists go about determining whether a market is dominated by
a few firms or not? They measure the <b>concentration
ratio – the market share of the biggest firms in the market. For example, a
four firm concentration ratio shows the percentage of output produced in the
market by the four largest firms. </b>Statistically, this method is okay to
use, but at A-level (and GCSE), it is better that you know that <b>the essence of understanding the oligopoly
market is that firms in the market make decisions on price and output based on
the decisions of rival firms. They attempt to predict what the other firms are
doing, to compile their own strategy.</b><o:p></o:p></div>
<div class="MsoNoSpacing">
<br /></div>
<div class="MsoNoSpacing" style="margin-left: 36.0pt; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]-->An example of an oligopoly market is
supermarkets<o:p></o:p></div>
<div class="MsoListParagraph">
<br /></div>
<div class="MsoNoSpacing" style="margin-left: 36.0pt; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]-->Can compete on price (resulting in a price war,
see <a href="http://econknowhow.blogspot.co.uk/2012/01/evidence-of-price-war.html">here</a> and <a href="http://econknowhow.blogspot.co.uk/2011/10/oligopoly-case-study.html">here</a>) or not, instead competing on other bases such as:<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 72.0pt; mso-list: l0 level2 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->Loyalty
schemes (Tesco Clubcard, Sainsbury’s Nectar points)<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 72.0pt; mso-list: l0 level2 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->Advertising
and marketing<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 72.0pt; mso-list: l0 level2 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->Home
delivery options (e.g. Asda and Tesco)<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 72.0pt; mso-list: l0 level2 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->Discounted
petrol (e.g. Asda, Morrisons)<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 72.0pt; mso-list: l0 level2 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->Extension
of opening hours (e.g. Metro Bank open on Sundays)<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 72.0pt; mso-list: l0 level2 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><!--[endif]-->Lateral
growth in other industries (Asda opticians, Tesco banking and insurance)<o:p></o:p></div>
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<br /></div>
<div class="MsoNoSpacing" style="margin-left: 36.0pt; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><!--[endif]-->There are barriers to entry in the market<o:p></o:p></div>
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<br /></div>
<div class="MsoNoSpacing">
<b><u><span style="font-size: 12.0pt;">Kinked Demand Curve Theory<o:p></o:p></span></u></b></div>
<div class="MsoNoSpacing">
<b><u><br /></u></b></div>
<div class="MsoNoSpacing">
The theory explains how a competitive oligopolist may be
affected by rivals’ reactions to its price and output decisions.<o:p></o:p></div>
<div class="MsoNoSpacing">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLJNekpzdWG25_rTFd7gPo9d1WgczS1uI4F8WTDZYayPKbIgf-NU3CNyECOqMIGML4Ijy9hCdOEkJ_138VlxyTEWIgrvD1_z-f4Rdkl45kUi2CQcgv0i9WFA1T-Q3eFomleyyU4UFTjJmT/s1600/Oligopoly+kinked+demand+curve.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="376" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLJNekpzdWG25_rTFd7gPo9d1WgczS1uI4F8WTDZYayPKbIgf-NU3CNyECOqMIGML4Ijy9hCdOEkJ_138VlxyTEWIgrvD1_z-f4Rdkl45kUi2CQcgv0i9WFA1T-Q3eFomleyyU4UFTjJmT/s400/Oligopoly+kinked+demand+curve.png" width="400" /></a></div>
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<span style="color: red;"><br /></span></div>
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<br /></div>
<div class="MsoNoSpacing">
<o:p> </o:p>Look at the AR curve for now. The AR curve is relatively
elastic from P* to P<sub>1</sub> and relatively inelastic P<sub>1</sub>
onwards.</div>
<div class="MsoNoSpacing">
<o:p></o:p></div>
<div class="MsoNoSpacing">
The oligopolist sets price to P<sub>1</sub> initially. <span style="color: red;">When the curve is relatively elastic, </span>if a firm in the
market <span style="color: red;">increases the price</span>, other firms will not
follow because the resulting fall in demand is greater than the proportionate
change in price. The firm loses too much demand to attract other firms to
follow. <o:p></o:p></div>
<div class="MsoNoSpacing">
<span style="color: #7030a0;">When the curve is relatively
inelastic</span>, if a firm <span style="color: #7030a0;">lowers the price</span>,
other firms will follow because they benefit from the resulting increase in
demand. Even though the resulting increase in demand is lower than the fall in
price, firms benefit because consumers ‘shop around’ for lower prices; if Tesco
are selling a notebook for £1 and Asda are selling a notebook for 80p, provided
that Asda is just as accessible as Tesco, the consumer may decide to shop at
Asda instead. This is under the assumption that the oligopoly market compete on
price. If this happens, a <b><span style="color: #00b0f0;">price war</span></b><span style="color: #00b0f0;"> </span>may
result.<o:p></o:p></div>
<div class="MsoNoSpacing">
<br /></div>
<div class="MsoNoSpacing">
Now consider the MR and MC curves. The oligopolist sets
price and output level to P<sub>1</sub> and Q<sub>1</sub>. The <b>profit maximising level of output </b>is Q<sub>1</sub>.
The initial MC curve is MC<sub>2</sub>, but if the MC curve was to shift to
above MC<sub>1</sub> or below MC<sub>3</sub>, the oligopolist would have to
charge a different price to ensure profit maximisation (assuming AR = selling
price). <b>Price stability</b> is achieved because
the MC curve can be anywhere between MC<sub>1</sub> and MC<sub>3</sub>. <o:p></o:p></div>
<div class="MsoNoSpacing">
Furthermore contributing to price stability, the
oligopolist may decide to leave price and output at point X because of the <b>uncertainty</b> from rivals’ price and
output decisions.<o:p></o:p></div>
<div class="MsoNoSpacing">
<br /></div>
<div class="MsoNoSpacing">
<b><span style="color: #00b050;">The Kinked Demand Curve is only a theory and an estimate
of how demand changes when the oligopolist changes price because there is not
perfect information in the market for olipogolists to know the exact position
and shapes of their demand and revenue curves. The theory is useful because it
illustrates how firms are interdependent on rivals, and affected by
uncertainty.<o:p></o:p></span></b></div>P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-71376477232828930962012-04-14T12:56:00.000-07:002012-04-14T12:56:03.771-07:00Government Policies to Reduce Market FailureIf you've watched the news recently, you guys should know that the government are considering changing the packaging on cigarettes to discourage new smokers. Use this as a case study in your exam to demonstrate government policy to reduce market failure caused by demerit goods (See notes on <a href="http://econknowhow.blogspot.co.uk/2011/09/negative-externality.html">Negative Externality</a> and <a href="http://econknowhow.blogspot.co.uk/2011/10/externalities-and-market-failure.html">Market Failure</a>. These notes specifically apply to negative externalities, but it is relevant because the consumption of demerit goods causes negative externalities, e.g. second hand smoke).<br />
<br />
The new <b>plain</b> branding is being considered to deter youths from starting to smoke, but critics say that the branding will make no difference to those who are already in the habit of smoking. What is your view? Good idea? Tell the examiner!P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-40602542078274378632012-04-09T12:24:00.000-07:002013-08-18T05:16:04.803-07:00Another Contribution to the Business CycleRead an interesting article on <a href="http://www.bbc.co.uk/news/business-17654781">the BBC</a> about the cost of bank holidays, according to research from The Centre for Economics and Business Research (CEBR).<br />
<br />
Each bank holiday costs the economy £2.3m and that means the economy could gain an extra £19bn if bank holidays were scrapped. This can be a contribution to the <b>business cycle</b> (see <a href="http://econknowhow.blogspot.co.uk/2011/08/economic-cycle.html">here</a>) because bank holidays reduce GDP. If the economy was suffering a downturn, the loss of GDP can cause the economy to worsen from a downturn to a recession. For the UK, especially at a time where we are not experiencing strong growth, forecasters are predicting the worst from the working days that are lost.<br />
<br />
15% of the economy, which includes pubs, clubs, restaurants, cafes and visitor attractions, do well on bank holidays and 45% of the economy suffers, which includes offices, factories and building sites, where people do not go to work on the bank holiday. The areas that benefit do not balance out the loss of productivity from the services sector of the economy.<br />
<br />
Do read the full article for more information.P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-48361045651834782862012-04-09T09:49:00.000-07:002012-04-09T09:49:06.680-07:00Principal-Agent Problem<br />
<div class="MsoNoSpacing">
The <b>divorce/separation
of ownership and control</b> helps explain the principal/agent problem.</div>
<div class="MsoNoSpacing">
<o:p></o:p></div>
<div class="MsoNoSpacing">
<br /></div>
<div class="MsoNoSpacing">
Among large firms, the <b>managers</b> and the <b>owners</b>
of the company tend to be separate. One who has the financial capacity to
invest into a company (in extreme cases this can be through inheritance,
lottery..) can do so without running it. This is the separation of ownership
and control. <o:p></o:p></div>
<div class="MsoNoSpacing">
<br /></div>
<div class="MsoNoSpacing">
Because the owners are different to those who run the
company (the managers), they may have different objectives. <span style="color: red;">Managers want to benefit from perks (e.g. company car
contribution, pension contribution, discounted gym membership) and bonuses. </span><span style="color: #0070c0;">Owners want to maximise shareholder value. They also want
to <b>satisfice:</b> achieve minimum
targets that are acceptable and satisfactory to all member groups of the
coalition that make up the firm. Satisficing helps resolve the conflict bought
by the separation of ownership and control because in order to achieve ‘minimum’
targets, both parties must compromise. For more on satisficing, click <a href="http://econknowhow.blogspot.co.uk/2011/10/satisficing.html">here</a>.<o:p></o:p></span></div>
<div class="MsoNoSpacing">
<br /></div>
<div class="MsoNoSpacing">
The principal-agent problem is the conflicting objectives
of the owners and the shareholders of the company.<o:p></o:p></div>
<div class="MsoNoSpacing">
<br /></div>
<div class="MsoNoSpacing">
<u>How does the principal-agent problem affect a firm?<o:p></o:p></u></div>
<div class="MsoNoSpacing">
<br /></div>
<div class="MsoNoSpacing">
The owner can never be sure that the employed managers
are aiming to <b>maximise profits</b> or succumb
to the temptation of maximising their own benefits, possibly leading to
decreased profitability.</div>P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-15306927677055308722012-04-06T13:33:00.001-07:002013-08-18T05:16:48.106-07:00Quantitative Easing (QE)<br />
<div class="MsoNormal">
<span style="font-family: Calibri;">QE causes a
change in the money supply. Steps:</span></div>
<div class="MsoNormal">
<br /></div>
<ol start="1" style="margin-top: 0cm;" type="1">
<li class="MsoNormal"><span lang="EN-GB" style="font-family: Calibri;">The Bank of England (BoE) purchases
assets such as government bonds and corporate bonds<o:p></o:p></span></li>
<li class="MsoNormal"><span lang="EN-GB" style="font-family: Calibri;">Pays for these assets by creating
money electronically and crediting the accounts of the companies that it
bought assets from<o:p></o:p></span></li>
<li class="MsoNormal"><span lang="EN-GB" style="font-family: Calibri;">These accounts are called <b><span style="color: red;">reserves</span>.</b>
All banks hold reserves at the BoE and the essence of QE is that it builds
up these reserves<o:p></o:p></span></li>
<li class="MsoNormal"><span lang="EN-GB" style="font-family: Calibri;">QE is likely to lead to inflation
because banks lend more and increases the money supply (see <a href="http://econknowhow.blogspot.co.uk/2011/11/quantity-theory-of-money.html">Quantity Theory of Money</a>). Another reason for inflation is, holding everything else
equal (<b><span style="color: red;">ceteris
paribus</span></b>), more people have more money that they supposedly use
for consumption, creating demand pull inflation</span></li>
</ol>
<div class="MsoNormal">
<b><u><span lang="EN-GB" style="font-family: Calibri; font-size: 14pt;">Explained by Stephanie Flanders<o:p></o:p></span></u></b></div>
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<br /></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: Calibri;"><a href="http://www.bbc.co.uk/news/business-16973560">http://www.bbc.co.uk/news/business-16973560</a><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span lang="EN-GB" style="font-family: Calibri;">Stephanie
Flanders in the BBC’s economics editor, the link above provides a short video
RSAnimate of QE. A summary of the video is as follows: <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: 19.85pt; mso-list: l1 level1 lfo2; tab-stops: list 19.85pt; text-indent: -19.85pt;">
<span lang="EN-GB" style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><span lang="EN-GB" style="font-family: Calibri;">The
Bank of England creates money and spends it so that there is “extra cash”
flowing into the economy. They spend it by buying government bonds or <b><span style="color: red;">IOU</span></b>’s
(formal definition: documentation confirming that the debt is owed) from
financial institutions such as pension funds or insurance companies. <o:p></o:p></span></div>
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<span lang="EN-GB" style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><span lang="EN-GB" style="font-family: Calibri;">This
puts more money into the economy (higher money supply) because these financial
institutions that sold these bonds have more money to spend on new businesses
or on housing for example.<o:p></o:p></span></div>
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<span lang="EN-GB" style="font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><span lang="EN-GB" style="font-family: Calibri;">Because
of this, it is cheaper for the government to borrow as the BoE pushes up demand
for the Treasury’s IOUs and supply of bonds has been reduced. <b>Long term interest rates </b>are lower than
they should be making it cheaper for everyone else to borrow as well, because higher
demand means more spending and this leads to faster growth.<o:p></o:p></span></div>
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<span lang="EN-GB" style="font-family: Calibri;">The last point
explains the theory <b>WHY</b> the
government uses QE even with the risk of inflation, particularly during
recessions. If demand rises, consumption may increase and the economy begins to
recover. <o:p></o:p></span></div>
P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-40435215474673859522012-03-11T05:47:00.000-07:002012-03-11T05:47:42.543-07:00GREECEHere is a great selection of videos on Greece, posted in Tutor2u. I remember using this website for my revision, please have a look at their other posts.<br />
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<a href="http://www.tutor2u.net/blog/index.php/economics/comments/unit-4-macro-video-resources-on-the-euro-crisis?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+economics_news+%28tutor2u+Economics+Blog%29#When:08:08:15Z">http://www.tutor2u.net/blog/index.php/economics/comments/unit-4-macro-video-resources-on-the-euro-crisis?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+economics_news+%28tutor2u+Economics+Blog%29#When:08:08:15Z</a>
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<br />P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-80715091969923140992012-03-11T05:38:00.000-07:002012-03-11T05:40:34.094-07:00Cigarettes on the Black MarketThis post is an example of the Law of unintended consequences. One in three cigarettes sold in London in the beginning of this year is illegal, in contrast to the one in five that it was at the end of 2011. The black market for tobacco is responsible a loss of revenue to the Treasury accounting to more than £2billion, going to smugglers and criminal gangs instead.<span style="font-family: inherit;"><span style="background-color: white; text-align: left;"> </span></span><br />
<span style="font-family: inherit;"><span style="background-color: white; text-align: left;"><br /></span></span><br />
<span style="font-family: inherit;"><span style="background-color: white; text-align: left;">K</span><span style="background-color: #f3f3f3; text-align: left;">ey points to remember from this case study: </span></span><br />
<span style="text-align: left;"><span style="background-color: #f3f3f3; font-family: inherit;"><br /></span></span><br />
<span style="background-color: #f3f3f3; text-align: left;"><span style="font-family: inherit;">1. Increasing taxes on demerit goods may not provide incentives for people to give up/consume less, instead giving incentives for people to sell </span>illegitimate 'illicit whites'. </span><br />
<span style="text-align: left;"><span style="background-color: #f3f3f3; font-family: inherit;"><br /></span></span><br />
<span style="text-align: left;"><span style="font-family: inherit;"><span style="background-color: #f3f3f3; font-family: inherit;">2. They are bought and shipped from China very cheaply and sold cheaply for people to consume (Black Market). Evidence against free trade and China?</span></span></span><br />
<span style="font-family: inherit;"><span style="background-color: #f3f3f3; text-align: left;"><br /></span></span><br />
<span style="font-family: inherit;"><span style="background-color: #f3f3f3; text-align: left;">3. Taxation is designed to raise money for government expenditure, however £25million is spent by the government to reduce black market activity. </span></span><br />
<span style="font-family: inherit;"><span style="background-color: #f3f3f3; text-align: left;"><br /></span></span><br />
<span style="font-family: inherit;"><span style="background-color: #f3f3f3; text-align: left;">4. Demand for tobacco (as with any demerit good) is inelastic, meaning that the proportionate rise in price will lead to a less proportionate fall in demand, because consumers are satisfied with illegitimate copies.</span></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgYUenqdeoUIf-GfWjHEycNdhlRHXIOtYb_7rZDI8ZnLKQhPUIvKZAlj3n7VPbZQeda0ZgIRfKe1CaFSANUmnzLrugcXrwAzwqzK-VhkBzpIvC7tYQzU6w8JEUVMGPtGtsTPiLCd3_L5UKV/s1600/inelastic+demand.png" imageanchor="1" style="background-color: #f3f3f3; margin-left: 1em; margin-right: 1em;"><img border="0" height="281" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgYUenqdeoUIf-GfWjHEycNdhlRHXIOtYb_7rZDI8ZnLKQhPUIvKZAlj3n7VPbZQeda0ZgIRfKe1CaFSANUmnzLrugcXrwAzwqzK-VhkBzpIvC7tYQzU6w8JEUVMGPtGtsTPiLCd3_L5UKV/s320/inelastic+demand.png" width="320" /></a></div>
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<span style="background-color: #f3f3f3; font-family: inherit;"><span style="text-align: left;">Smugglers can make approximately £1.65million from bringing in a container of 10million counterfeit cigarettes. Each packet is made for just 20p and they have been found to contain substances such as asbestos (a harmful substance known to cause lung cancer and other illnesses).</span><span style="text-align: left;"> </span></span>P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-74155329051718227102012-02-26T12:24:00.003-08:002012-02-26T12:24:44.798-08:00Costs of InflationWatch this video about the costs of inflation: <a href="http://www.youtube.com/watch?v=9zFQ0KhKkpw&feature=youtu.be">http://www.youtube.com/watch?v=9zFQ0KhKkpw&feature=youtu.be</a><div>
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Also see <a href="http://econknowhow.blogspot.com/2011/07/word-of-day_31.html">inflation</a> word of the day<br /><div>
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</div>P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-34358206541838565452012-02-18T14:36:00.000-08:002012-02-18T14:36:35.859-08:00Profit Maximisation PointThe <b>profit maximisation</b> point is <span style="color: red; font-weight: bold;">MR=MC</span>. Below are the diagrams for the profit maximisation point for both monopoly and perfect competition markets. The profit maximisation point is the quantity and price level that the firm will produce at to ensure the most benefit. Before point X, MR is greater that MC thus profits will rise and rise. After point X, MC is greater than MR, thus firms do not see it profitable to produce after that point because they lose money. <br />
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For a monopolist, firms charge a price level higher than profit maximisation because it maximises producer surplus and consumers are still willing to purchase at that price level (See notes <a href="http://econknowhow.blogspot.com/2011/08/monopoly.html">here</a>). The quantity produced remains at Q<span style="font-size: xx-small;">1</span>. For a firm in perfect competition, the level of output produced is at X and the price charged to consumers is P<span style="font-size: x-small;">1</span>, making the firm productively and allocatively efficient. For more notes, see <a href="http://econknowhow.blogspot.com/2011/08/perfect-competition-short-run.html">here</a>.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj6W1bmnT_5wHkrwPRV3gDWuV3-wMzZRB-UYV97cej5sqwCtcvNCmpVPrF05fvOjKfn5testAkPSWKApSEmbzd9JGo2d7d7k5mLbUkBLPDuNJ4G841OOOQDy9lK38Xh0yzTy1r1cVQjCAqH/s1600/MR=MC.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="167" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj6W1bmnT_5wHkrwPRV3gDWuV3-wMzZRB-UYV97cej5sqwCtcvNCmpVPrF05fvOjKfn5testAkPSWKApSEmbzd9JGo2d7d7k5mLbUkBLPDuNJ4G841OOOQDy9lK38Xh0yzTy1r1cVQjCAqH/s400/MR=MC.png" width="400" /></a></div>
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For more notes on perfect competition and monopoly markets, see <a href="http://econknowhow.blogspot.com/2011/08/perfect-competition-short-run.html">here</a> and <a href="http://econknowhow.blogspot.com/2011/08/monopoly.html">here</a>, respectively.P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0tag:blogger.com,1999:blog-501802485774348841.post-43903626342868495502012-02-14T03:23:00.000-08:002012-02-14T03:23:19.032-08:00Inflation for January 2012Inflation fell to 3.6% in January, as forecasters predicted. Read more on the <a href="http://www.ft.com/cms/s/0/d4e71d0a-56f1-11e1-be5e-00144feabdc0.html#axzz1mLpZDyDa">Financial Times</a>. The ease in inflation may give signs that this 'stagflation' that the economy has been experiencing may be shifting away. The coming months will tell how unemployment will change in response (<a href="http://econknowhow.blogspot.com/2011/12/phillips-curve.html">Phillips Curve</a>). Inflation faces downward pressure from the effects of higher unemployment, slow exports markets (due to the Eurozone) and lower energy prices (causing a rise in imports).<br />
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A further £50bn Quantitative Easing that the MPC authorised earlier this month shows that there is still deficient demand in the economy and it may continue to stay low. Thus economists are predicting more QE to keep inflation from falling below the government's 2% target.<br />
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<br />P.Khttp://www.blogger.com/profile/03677594794424559980noreply@blogger.com0