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Financing a Business Start Up

Once you have researched a market and decided to set up a business, how do you provide the necessary finance to set up a business. 1. Personal Savings – If start up costs are very low, you may be able to set up business from own savings, e.g. small internet business. But, unless you have a very big bank balance, you won’t be able to spend too much. 2. Borrowing from Friends and Family – A potential source of cheap finance, though if things go wrong it can cause personal…

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Review of the Economic Decade

I wrote an essay here: Economics of the Naughties – a short review of the past decade from an economic perspective. It has certainly been an interesting decade. We have seen a period of seemingly great stability turn unexpectedly into the gravest crisis since the Second world War. The crisis has challenged many of the economic theories which dominated before the crisis. Just as the Great Depression revolutionised economics, this current crisis has been a major challenge to the prevailing free market ideology of many economists. Yet, it is one…

Income Gearing

Income Gearing

Definition of Income Gearing – this is the percentage of Post tax profits that are spent on obligatory debt interest payments Household Income Gearing – The Bank of England measure obligatory payments by households on paying interest and other regular repayments on debt. This is calculated as a proportion of post-tax income. What Factors influence Income Gearing? Rate of Interest. A rise in…

Global Overcapacity

Global Overcapacity

Readers Question: I do not understand something mentioned by an economist in his speech He said it was because of global overcapacity that deflation is a cause for concern.I can’t seem to make the connection. Can you please help out? Global overcapacity means that industries are producing more than global demand. Or it may mean that firms are operating at 50% capacity, leaving factories idle for periods of the time. Deflation occurs when there is a fall in the general price level. This is a basic economic idea that if supply…

UK Economy 2010

UK Economy 2010

2010 will be a difficult year for the UK economy. After the deepest recession since the 1930s, the outlook is for a sluggish recovery. Though recovery is welcome, it still leaves the problem of spare capacity, high unemployment and record levels of peacetime government borrowing. It will be a difficult tightrope between boosting economic growth whilst  keeping borrowing under manageable levels. Economic Growth Source: ONS The economy is expected to recover in 2010, but give the depth of…

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Recession and Government Finances

Readers Question: Indicate the problems which are created for the government’s finances as a result of having to help avoid an even deeper recession. In a recession, automatic fiscal stabilisers automatically cause a rise in borrowing. The UK recession hit tax revenues hard. Income tax receipts fell as top earners were made unemployed. Corporation tax fell as company profit decreased VAT receipts fell as consumers spent less A fall in house prices and fall in property transactions led to a marked fall in stamp duty. At the same time Government spending on unemployment benefits and…

Terms of Trade Effect

Terms of Trade Effect

Definition: The Terms of Trade is the average price of exports / by the average price of imports. It is a measure of a countries relative competitiveness. If export prices rise relative to import prices we say there has been an improvement in the terms of trade. – A unit of export buys relatively more imports. If import prices rise relative to export prices we say there has been a deterioration in the terms of trade. Effect of Devaluation on Terms of Trade. If a currency falls in value. Then we would expect…

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Difficulty of Reducing Debt

Most western economies are facing the prospect of record peace time government debt levels. The EU Maastrict Criteria stated that the maximum budget deficit member countries could run is a budget deficit of 3% of GDP. (By the way, I am glad this target for government borrowing has not been enforced. That would have been very damaging. See: Growth and Stability Pact) Unfortunately, this target looks a bit of a joke. To give a few examples: Ireland’s budget deficit runs at 14% of GDP Greece at 12% of GDP UK at 11-12% of…