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Saltwater vs Freshwater Economics

Saltwater economists are associated with economists from the Universities on the east and West coast of the US. In particular universities such as Berkeley, Harvard, MIT and Yale. Economic thought from these universities tends to be more suspicious of free markets and advocate a greater role for government regulation and discretionary fiscal policy. Saltwater economists are more critical of rational expectations and point to examples of irrational behaviour. Freshwater economists are associated with the Chicago school of Economics and other universities around the Great Lakes such as Rochester and Minneapolis. The Chicago school…

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How Much Money Should A Teenager Have?

Readers Question: How much money should 18 year old have? I have been thinking about this for a while and was hoping you might be able to shed some light on the subject.  Please help.  Thank you in advance. There are frequent readers comments about the minimum wage for 16-18 year old Most seem to complain about the level of the minimum wage, but when I was a lad, we used to dream of earning £3.60 an hour… Anyway, here are some thoughts to consider. Education is a merit good. Education has…

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Help with Elasticity of Demand

Readers Question: How would I the price elasticity of demand if the mean price is $7.50 and the mean quantity is 20,000? I don’t even know where to begin. My text book does not offer a proper equation for a problem with missing numbers. Yes, to calculate elasticity of demand you would need to know the change in price and change in quantity. There are different ways of calculating the % change in price and demand. It can be either arc elasticity of demand (taking mid point) or point elasticity Prices…

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Who Benefits from Debt

Readers Question: I would like to know more on the issue of who exactly benefits from the UK national debt that my great grandchildren are going to be paying. It is helpful to think of the three aspects of the government debt Structural deficit – related to above inflationary increases on health and education and / or reluctance to tax. Cyclical deficit – the deficit created by recession and the modest attempts at fiscal expansion e.g. VAT cut. Financial sector innovation – to bailout banks. We are borrowing to spend more on health…

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Selfish actions and The Public Good

Readers Question: discuss whether economic actions by individuals always results in net benefit to the society “Many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good….

Bond Yield Curves

Bond Yield Curves

Recently I wrote about impact of rising bond yields on long term bonds. There is uncertainty whether the rise in bond yields reflects economic growth or worries over government debt. This post explains the inverse relationship between bond yields and bond prices Bond Yield Curve Definition: The bond yield curve reflects the yield on government bonds depending on the maturity of the bond. Typical Bond Yield Curve. A typical bond yield curve looks like this…

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End of Recession?

Readers Question: When will the Recession end? Sometimes when it comes to making economic predictions, I am happy to stick my neck out. But, when it comes to predicting when we will see a sustained economic recovery, I find it quite difficult at the moment. In theory, the recession will have ended when we return to economic growth. However,, it is quite possible we will see positive economic growth but: Either growth will be very low (less than 1%) – with this sluggish growth, unemployment is likely to keep rising. A recovery…

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Inflation Rates and Housing

Readers Question: However I was intrigued by something I read on the internet regarding Conservative plans to include housing costs in the Bank of England’s inflation target. Mortgage interest payments are included in the RPI measure of inflation. However, the official measure of inflation is currently the CPI. The CPI excludes mortgage interest payments. It is important which measure is used. At the moment, RPI is negative. Using the RPI measure we have deflation of 1.6% However, the CPI still shows a positive figure. CPI is currently 1.8%. Current Inflation Rates [caption id=”” align=”alignnone” width=”388″…