economics

Challenges of making economic forecasts

Challenges of making economic forecasts

All economic forecasts are subject to margins of error. This is because: There are many variables affecting the economy. For example, the role of shadow banking was largely ignored in 2007 forecasts, but failed sub-prime mortgage debt had a much bigger impact on the wider economy than ever before. There is always a big element of uncertainty, e.g. how will consumers react to certain events, e.g.what will happen to oil prices? It is hard to know even the actual state of the economy (delays in getting data, data incomplete) In…

Low inflation and high growth

Low inflation and high growth

Readers question: “Can an economy achieve low unemployment, low inflation and economic growth at the same time?” To achieve low unemployment, low inflation and economic growth at the same time is possible. For example, the UK economy 1993-2006 saw a prolonged period of low inflationary growth. Since early 2000, the Chinese economy has been growing at a rapid rate, with inflation staying relatively muted (with some exceptions e.g. 2008) For low inflation and high economic growth to occur, we need to see growth in aggregate demand and aggregate supply (productive capacity)….

Economic changes from railways

Economic changes from railways

I’m currently reading a book Blood, Iron and Gold by Christian Wolmar about how railways transformed the world. This interesting extract from the political economist Friedrich List, explains some of the economic benefits of railways: Railways would carry wood, turf and coal at less than half the present costs. Bavaria, where flour, meat and other foodstuffs are 50 – 100 per cent cheaper than in Leipzig, could export its surplus to the Erzgebirge, the Elbe and the Hanseatic cities. Cheaper…

Economic policies of Donald Trump

Economic policies of Donald Trump

The first admission about writing on the economic policies of Donald Trump is that nobody can be entirely sure what it will be – perhaps even Donald Trump himself. Campaign promises are one thing, but the reality of a Republican controlled Congress, may be something else. I don’t think it unreasonable to think that the reality of Congress may limit the more ‘populist policies’ of higher government spending and rising tariffs. Nevertheless Donald Trump’s economic policies are likely to involve: Tax cuts (predominantely for high-income earners and wealthy) Increase in…

What causes price fluctuations in agricultural markets?

What causes price fluctuations in agricultural markets?

Readers Question: What causes price fluctuations for the supplier in the agricultural market such as coffee/tea? Coffee tea are agricultural products. Therefore supply can be variable depending on several factors 1. Weather conditions. For example, early frost can harm supply. Good weather can lead to unexpectedly large increase in supply Also, disease and pests can affect supply. Global market In recent years, the number of countries producing coffee has increased. Traditional producers like Colombia have faced increased competition from new countries seeking to enter the market. More countries makes it harder for coffee producers to…

Guidance for setting monetary policy

Guidance for setting monetary policy

What factors should we consider when setting monetary policy? Basics of monetary policy If inflation is above the target and economic growth too fast, the Bank will likely increase interest rates. Higher interest rates increase cost of borrowing and reduce investment / consumer spending – leading to a lower rate of economic growth. See more at effect of higher interest rates If inflation is falling below target, the Bank can cut interest rates to try and boost economic growth. In extreme circumstances, the Bank could try: Pursue more quantitative…

Problems of Agriculture – Market Failure

Problems of Agriculture – Market Failure

Agriculture often appears to be one of the most difficult industries, frequently leading to some form of market failure. In the EU and US, agriculture is the most heavily subsidised industry, yet despite the cost of the subsidy it fails to address many issues relating to agriculture. Types of market failure in agriculture Volatile Prices / volatile supply Low and volatile income for farmers Environmental costs of intensive farming (negative externalities) Agriculture key component of rural life (positive externalities) Monopsony power…

Impact of Brexit on public finances

Impact of Brexit on public finances

Question: How will Brexit affect the UK budget deficit / national debt / public finances? One of the low points of the Brexit campaign was when the chancellor of the exchequer George Osborne announced a vote for Brexit would lead to higher taxes and lower spending straightaway. Dubbed the ‘punishment budget’ it probably had the opposite effect and encouraged people to vote – against Osborne / for Brexit. Voters quite rightly disliked the explicit threat that if you vote against me, immediately taxes will go up. Also, fundamentally Osborne was…