Basic questions of economics

Basic questions of economics

The fundamental economic problem is one of scarcity. The basic question of economics becomes: What to produce? How to produce? For whom to produce? You could also add When to produce? What to produce? Given limited resources of labour, raw materials and time, economic agents have to decide what to produce. Most primitive economies concentrate on producing food and shelter – the basic necessities of life. However, with increased productivity, the economy has more available resources which can be used for non-necessary goods,…

Farming subsidies in the UK

Farming subsidies in the UK

One potential benefit of leaving the EU is the opportunity to radically change how we spend agricultural subsidies. The Common Agricultural Policy CAP is one of the great mistakes of the EU. Given the share of EU spending on agriculture, it is their flagship policy, yet the CAP has given a very poor return in terms of economic and social welfare. Unfortunately, the EU has become caught by powerful agricultural lobbies, and it has proved very difficult to wean Europe off these very extensive subsidies. There is no other…

How the housing market affects the economy

How the housing market affects the economy

A look at how the housing market, and changes in house prices affects the rest of the economy. In summary: Rising house prices, generally encourage consumer spending and lead to higher economic growth. A sharp drop in house prices adversely affects consumer confidence, construction and leads to lower economic growth. Real house prices UK Changes in real house prices Wealth…

Cherry picking of data

Cherry picking of data

Cherry picking of data means we look for particular data and statistics that help to illustrate our point of view. It can also mean we present data in a certain way which is more favourable to creating the impression we want. Even the same statistic can be presented in different ways to give a very different impression. How to portray the recent record of the UK government? Since 2013, the UK has one of fastest growth rates in Europe, averaging close…

How to know when you’re in a recession?

How to know when you’re in a recession?

A recession is defined as a decline in real GDP for two consecutive quarters. We will know an economy is in an official recession after six months of falling national income. A recession will typically lead to higher unemployment, decline in confidence, falling house prices, decline in investment and lower inflation. However, although that may seem quite straight forward, in practise it can be difficult to know. GDP stats may not tell us until a significant time lag after the event. The ability to know whether you’re in a recession is…

Consumer confidence

Consumer confidence

Consumer confidence is the outlook that consumers have towards the economy and their own personal finance situation. This outlook can be optimistic (high consumer confidence) or pessimistic (low consumer confidence) The level of consumer confidence will be an important factor that determines the willingness of consumers to spend, borrow and save. A high level of consumer confidence will encourage a higher marginal propensity to consumer. A fall in levels of consumer confidence is often an indicator of an economic downturn. Factors that affect consumer confidence House prices – A form of…

Lagging and leading indicators

Lagging and leading indicators

A lagging indicator is an economic statistic that tends to have a delayed reaction to a change in the economic cycle. A leading indicator is an economic statistic that tend to predict future changes in the economic cycle. A co-incident indicator is a variable that changes with the whole economy. Recession of 2008 was very deep, but which statistics indicated it would happen? Lagging and leading indicators explained At the start of a recession, we may get a fall…

The impact of an ageing population on the economy

The impact of an ageing population on the economy

One of the great achievements of the twentieth century is a dramatic rise in life expectancy. For example, life expectancy in the US has increased from 45 in 1902 to 75.7 in 2004 (link). Even in the past 50 years, life expectancy has risen in most western economies. Life expectancy   However, increased life expectancy combined with declining birth rates have caused many to worry about the impact of an ageing population. Frequently, we hear about…