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Benefits of 20 mph Zone for Cars

By on May 16, 2008 in transport

Currently, 3,000 people die a year on the roads in the UK. That equates to nearly 10 people a day. Interestingly, if 1 person died on the railways it would make front page news. But, 10 deaths per day, is seen as an acceptable consequence of people’s right to drive at speeds that they want. Of course, speed is not the only cause of death; but, it does make a fatal accident more likely .

Death Rates from Speeding Cars

Research from the Department for Transport indicates that:

  • 1 in 40 pedestrians struck by a car at 20mph dies, compared with 1 in 5 at 30mph.
  • At 40mph the survival rate falls to 10 per cent.
  • A 1mph cut in average vehicle speed reduces crash frequency by about 5 per cent.

A study of 250 pilot schemes for 20mph zone saw crashes fall by 60% and child fatalities fell by 67%

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Paying off Mortgage Early

By on May 16, 2008 in economics

Readers Question: My husband and I will recently be getting a cash settlement. We currently have a 30 year 250,000 mortgage. Is it a good idea to pay the mortgage off completely? We’ve been getting mixed responses.

One thing you can do is to work out how much interest you would pay on a 30 year £250,000 mortgage.

If you assume interest rates are 6%, then you will be paying £1,531 a month. For 30 years this will cost you  a total of £544,680

Basically, you will be spending £294,680 just on interest payments.

If you kept the mortgage and invested the £250,000 would you be able to get a better return? I think you would struggle to get sufficient dividends or capital gains to justify the opportunity cost of not paying off the mortgage. Also some investments might be risky.

Something else you could do is to pay off the mortgage now and then invest the monthly amount that you used to have to pay towards a mortgage.

Reasons Not To Pay off  A Mortgage Early

The only reason to keep the mortgage would be if:

  • There was a very high exit fee.
  • You were wanting to set up a business and required a loan to get started. If that is the case a mortgage on your house might be the best way of going about it.
  • There might be some tax advantages of keeping the mortgage.

See also: Should I pay off my Mortgage Early?

Productivity and the Current Account Deficit

By on May 16, 2008 in trade

Readers Question: Using the data and your own economic knowledge, evaluate the importance of rising productivity in bringing about an improvement in the UK balance of payment on the current account.

Productivity is defined as output per worker or output per input. Rising productivity implies that the economy is becoming more competitive and will be able to produce goods at a lower cost. If UK firms can produce goods at a lower cost this will make UK exports more competitive and therefore increase exports.

For example, if there is an improvement in labour productivity following better education and training, firms will be help to produce more for the same costs. This will help the UK compete and sell more exports.

Increasing exports will help improve the current account as exports will be rising relative to imports.

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Economics and Politicians – Do They Mix?

By on May 15, 2008 in economics

Every now and then it is interesting to take a statement from a politician and examine the economics behind their political soundbites. This one caught my eye recently. (Mr Turnbull is an Australian politician)

Mr Turnbull has called on the Government to explain how the new taxes fitted in with the fight against inflation. “I ask the Treasurer how can he reduce inflation by increasing prices, what kind of voodoo economics is he peddling?”

See post: Is this Voodoo Economics?

Prospects of Recession in the UK

By on May 15, 2008 in recession

Mervyn King, governor of the Bank of England has said that the UK faces the prospect of a recession, with output falling for at least 1 or 2 quarters. However, on balance he still feels the most likely situation is for the UK to avoid recession; but, growth will remain sluggish in 2009 and 2010.

Factors That Could Push the UK into Recession

Low Wage Growth.

Average real wage growth in the UK has averaged 1%. With rising cost of living, people’s discretionary income is barely increasing.

Rising Unemployment.

Yesterday saw the first sign of a change in the unemployment pattern with a rise in registered unemployment.

Falling House Prices

UK House prices have started to fall and this has a powerful negative impact on the economy – see: effects of falling house prices

Rising Cost of Living

Rising food prices and rising energy prices reduce discretionary income leading to falling demand. (for A Level students note that the AS curve shifts to the left causing a movement along AD curve).

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Understanding Rates of Change Statistics

By on May 14, 2008 in economics

A Common question at AS and A2 Level is to understand economic graphs and statistics.

Look at the graph below and explain what happens to GDP at current prices between 1974-1983?

Many students will answer – In this period GDP is falling.

However, this is wrong. What is happening is that the growth rate is falling. In other words, GDP is increasing at a slower rate at the end of the period than at the beginning. Only if growth rates become negative is GDP actually falling.

Inflation and The General Price Level.

inflation

A similar issue could occur with a graph of inflation.

  • If the graph shows a decline in the inflation rate. It doesn’t mean that prices are falling. It means prices are increasing at a slower rate.
  • For example, between Jul 2008 and Jan 2009, the rate of CPI inflation falls from 5% to 2%. This means that the price level is increasing at a slower rate.
  • If we use the RPI measure. then there is a period of negative inflation (deflation) when the price level falls right at end of graph.

Two Views of Unemployment

This is an example of how you could view employment statistics in the US.

Total employment US

unemployment total

This graph shows the steep fall in employment, with only a very small improvement in employment at the start of 2010

Change in Employment – US

change unemployment

After 2009, the employment situation seems to improve. But, notice the numbers employed is still fallling throughout 2009 – there is only a decline in the rate at which employment falls.

Related

UK Inflation Worsens Despite Slower Sales

By on May 14, 2008 in inflation

Despite a slowdown in retail sales during March (Sales fell 0.4% in the month) UK CPI inflation increased to 3%. Retail Price Index RPI (which includes more items) increased to 4.2%. This is at the upper limit of the Government’s inflation target. It is the highest UK inflation rate for quite a while.

Last month, The Bank kept interest rates stable at 5%. The Governor of the Bank of England, Mervyn King said that they had a difficult balancing act.

On the one hand they had a faltering housing market and decline in consumer spending.

On the side of the monetary policy scales, they have rising inflation. Mostly caused by higher food and energy prices.

Inflation at National Statistics

Essay on Supply Side Reforms and Appreciation

By on May 12, 2008 in essays, trade

Readers Question: Assess the view that supply-side reforms have enabled the UK economy to be ‘more successful in maintaining growth, despite an appreciation in the value of its currency’ (Extract 1, lines 5-6}. (From Edexcel unit 3)

An appreciation in the exchange rate would tend to reduce aggregate Demand and lead to lower economic growth. An appreciation makes exports less competitive, decreasing quantity of exports. An appreciation also  makes imports cheaper, increasing quantity of imports (and hence money leaving the economy). Therefore, the (X-M) component of AD will be lower. This will reduce Economic growth.

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Turkey and Joining the EU

By on May 12, 2008 in Uncategorized

There has been much debate about whether Turkey should be admitted to the European Union. These are some of the benefits and costs which Turkey is likely to face if it is successful in joining the EU.

Benefits to Turkey of Joining the European Union EU

  1. If Turkey join the EU they have the potential to benefit from higher growth and investment.
  2. Membership of the EU will reduce barriers to trade (tariff barriers and non tariiff barriers). Therefore, it is easier for Turkish firms to export to the large EU market (nearly 0.5 billion). Turkey may have a competitive advantage because of lower labour costs.
  3. Furthermore, joining the EU will increase competitiveness. Domestic monopolies will face greater competition from EU rivals. This should help to reduce prices and increase efficiency.
  4. Another benefit from joining is that successful firms can benefit from economies of scale. As they sell to a wider EU market they can expand production and get lower costs.
  5. Membership may encourage inward investment. Western EU firms will be attracted to invest in Turkey because of the new potential markets and lower labour costs.  This investment will help boost productivity and stimulate economic growth growth.
  • However, Many Turkish firms may struggle to compete in the single market and could lose business to more efficient western firms. However, this lose of business may be most acute in the short term; in the longer term the increased competition may act as a spur to increase competitiveness.
  • However, inward investment may not increase because Turkey’s infrastructure is insufficient.

6. Turkey may benefit from EU policies such as CAP, Regional Policy and Transport Funds. Turkey is one of the poorer areas in the EU and therefore is eligible to regional funds. Over time this could make a big improvement in the structure of the Turkish economy.Problems of Joining the EU

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What is the Plural of Euro ?

By on May 12, 2008 in euro

A reader left a comment on a post saying the plural of Euro is Euro.

I was surprised to see this because according to the rules of English it should be Euros.

On researching the issue I found, that the European Commission did adopt Euro as the the plural of Euro.

However, rather bizarrely the Directorate-General for Translation (Eu body) advise using the plural form Euros for any publication intended for general publication.

It seems bizarre to have one official definition (which breaks the rules of English grammar) and then advise a different form for the general public.

In Ireland, the plural of Euro is supposed to be Euro. But, many have ignored the EU directive saying why should the EU dictate changes to the basic use of Language.

Personally I will continue to use the form Euros.

The English Style Guide of the European Commission Translation Service states:

12.12 … Guidelines on the use of the euro, issued via the Secretariat-General, state that the plurals of both ‘euro’ and ‘cent’ are to be written without ‘s’ in English. Do this when amending or referring to legal texts that themselves observe this rule. Elsewhere, and especially in documents intended for the general public, use the natural plural with ‘s’ for both terms.

Sometimes you can have too many commissions. They are complicating a simple issue.

Linguistic uses of the Euro