BBC Radio 4 - The World Tonight

'The World Tonight', a BBC Radio 4 programme, yesterday, touched on the UK economy, discussing the following:

• Slowing growth and rising unemployment
• The importance of moving the economy from services to manufacturing
• Case Study: Starbucks: increasing training opportunities, education in management, job creation and career pathing 
• Vicious circle: 
• Manufacturing declines à Training and development of people to go into this sector declines à Manufacturing declines further
• Euro sovereign debt crisis
• The look into the future in 2012

Listen from 0:11:40 to 0:28:00 for the programme on 20/12/11 on this link: BBC R4 The World Tonight

Recent inflation figures!

Once again, the new inflation figures have come out for November and the CPI has fallen 0.2% from the previous month. The RPI also fell from 5.4% to 5.2%.
Reasons for the slight fall in inflation include:

• Supermarket food prices (bread and vegetables) - price war
• Transport costs - fuel prices fell

However, the rate at which prices are rising is still twice that of the rate of increase of wages, making society worse off. Wage rises are not keeping up with inflation, thus in real terms, salaries are falling.

What does the UK's economic growth tell us about the impact of cuts?

This blog was created to help you find resources for your exams, as well as providing specific exam revision notes, so below is the link to an article that talks about government cuts and their impacts on society.

http://www.rsablogs.org.uk/2011/adam-lent/growth-data-impact-cuts/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+rsaprojects+%28RSA+blogs%29

 
Make notes about what you read, and notice that the view of Adam Lent conveys that government cuts have not yet stifled growth.

Phillips Curve

·     The Phillips curve shows the short run trade off between unemployment and the rate of inflation (see July's post).

·     As unemployment falls, inflation rises. Both demand-pull and cost-push inflation can rise due to low unemployment.

·     Demand pull: When more people are in employment, more people have more spending money. Thus consumption increases, leading a shift of the AD curve to the right and a rise in the price level.

·     Cost push: Low unemployment means there is a smaller pool of labour for employees to choose from. This increases trade union bargaining power for higher wages (see here) and thus increases wage inflation. Because it costs firms more to produce the same level of output, they raise the price of the goods they produce to pass on this extra cost to consumers, contributing to a higher rate of inflation.

·     The trade-off illustrates the difficulty faced by policy makers and the government are faced with choosing the most suitable combination of inflation and unemployment rather than completely eliminating/reducing one of them.

·     The Phillips curve is still debated among many economists as they feel it does not hold. One of the criticisms of the Phillips curve is that in the 1970s (use this as a case study in the exam!!), inflation and unemployment were rising at the same time and there was no trade off. This was called stagflation/slumpflation (see Word of the Day in August).

The Phillips Curve relates to the quantity theory of money, so, if you have forgotten why, refresh your memory by clicking here!

In the long run, there is NO trade off between inflation and unemployment, shown in the diagram below. 

NRU is the Non-accelerating inflation Rate of Unemployment. This means that it is the only rate of unemployment that the inflation rate does not change, the natural rate of unemployment. It is also known as the equilibrium level of unemployment.

Negative Externality

There is a great video for those of you who are unsure about negative externalities conducted by my favourite person when I was studying my A-Levels, Paj Holden! To watch the video, please click here.

Please also look at my post on negative externalities as this will also help you.

Speculation

·     One of the factors that affect economic growth (see here), speculation is when the buying and selling activities of firms and individuals (known as speculators) affects the price of goods and commodities around the world.

·     Speculation can also influence the price of world currencies.

·     Before the crisis in 2007, the value of the pound rose significantly because interest rates were high prompting speculators to buy the pound because rewards for saving were greater.

·     Speculation can affect economic growth because of something known as the ‘speculative bubble’, relating to asset prices. Click on this link here for a more detailed analysis. Rapid growth of assets prices such as housing (e.g. 2007), commodities (gold, silver..) and shares/bonds can lead to a bubble because people speculate that the price will continue to rise so they buy more of these assets. When the price is above the real value of the asset, people will start to sell and the bubble bursts, leading to a collapses in business and consumer confidence and ultimately a recession.

Autumn Statement

Following the Chancellor's Autumn Statement yesterday, I found this excellent summary available on the BBC for you guys to read. It explains the key points and breaks down what he discussed into sections of the economy. Click here to view it.

There are also many pages on the FT from yesterday's statement. There are videos and interactive graphics so do look at them. The FT would have a more critical analysis of the issue and critique some of the policies and schemes introduced so read them to develop a better evaluation for the exam. Click here for it.