placeholder

Regional Unemployment in UK

Readers Question: Why are there large differences in the unemployment rate across different regions of the UK? In the 1980s regional differences in unemployment were greater. To some extent regional differences in unemployment have narrowed in recent years. However, differences still exist. Some reasons include: Decline of Industry. Some areas relied on certain industries to provide a large % of jobs. If these industries close down then areas suffer from a high rate of unemployment. A good example, was when coal mines closed down in certain areas. It led to high…

placeholder

Multinational Corporations in Developing Countries

Readers Question: I have to debate why multinational corporations are good for developing countries, and I know the arguments for them being bad are strong so are there any really good positive arguments I could use to smash the opposition? Thankyou so much Arguments for Multinational Corporations in developing countries. They Provide an inflow of capital into the developing country. E.g. the investment to build the factory is counted as a capital flow on the financial account of the balance of payments. This capital investment helps the economy develop and increase…

placeholder

Shortage of Labour and Inflation

Readers Question: Discuss whether a widespread shortage of labour might be a major cause of inflation. Often a shortage of labour causes inflationary pressure. If firms are struggling to employ sufficient labour, workers are in a position to demand higher wages. This can easily lead to wage inflation which causes  inflation. Why Rising Wages Cause Inflation If wages rise, firms will try to pass on the cost increases to customers – leading to cost push inflation. If wages rise, workers have an increase in income leading to higher disposable income and higher spending….

placeholder

Credit Crisis

I wrote a brief explanation to the current credit crunch, breaking it down into 10 stages – including why It occurred and who does it  affect. Some Common questions on Credit Crisis Why Do US Mortgage Defaults Affect the UK? The US mortgage companies funded their mortgage lending by selling their loans onto other financial companies. This is known as rebundling debt; ironically, it was aimed at making the debt appear safer because the risk was shared amongst other financial institutions. (This is one reason why US subprime loans got a…

Forecast for Euro to Dollar

Forecast for Euro to Dollar

Many commentators feel that the Euro is looking overvalued against the dollar and Pound.On the futures market a majority of investors have taken a ‘short position’ on the Euro – meaning they expect it to fall in the coming months. Since 2007, the Euro has appreciated from 68p to 1 Euro to 96p to 1 Euro The Euro has appreciated from 0.68 to 1 Dollar to 0.79 $ to 1 Euro, in the past few months In recent months the Euro has been strong as the ECB have kept interest rates higher…

placeholder

Bond Yields and Price of Bonds

An explanation of the inverse relationship between bond yields and the price of bonds Readers Question: Why does buying securities reduce their yield? Suppose the government issued a £1000, 5 year treasury bond at an interest rate of 5%. This means that if you bought the treasury bill at £1,000 you will receive a fixed interest rate of £50 every year. You can hold onto a government bond until maturity. At the end of the fixed period, 5,10 or 20 years, the government will repay your £1,000. However, bonds are often bought and sold…

placeholder

Ricardian Equivalence

Definition of Ricardian equivalence This is the idea that increased government borrowing may have no impact on consumer spending because consumers predict tax cuts or higher spending will lead to future tax increases to pay back the debt. If this theory is true, it would mean a tax cut financed by higher borrowing would have no impact on increasing aggregate demand because consumers would save the tax cut to pay the future tax increases. This is related to two factors: Income Life cycle hypothesis Rational expectations on behalf of consumers. It is argued that…