The effect of tax cuts

The effect of tax cuts

Lower income tax rates increase the spending power of consumers and can increase aggregate demand, leading to higher economic growth (and possibly inflation). On the supply side, income tax cuts may also increase incentives to work – leading to higher productivity. However, the effect of tax cuts depends on how the tax cut is financed, the state of the economy and whether low tax rates actually increase productivity and the willingness to work. The effects of reducing income tax rate Increased spending. Workers will see an increase in their

Clever ways for firms to increase prices

Clever ways for firms to increase prices

Supermarkets and other retailers often seek ways to increase the price without losing customers. They have a few different options, depending on the good and its price elasticity of demand. In recent months, many supermarkets have managed cost increases by shrinking the size of the packet. Prices stay the same, but the price per gram of chocolate goes up. However, this practice of shrinkflation has come under scrutiny from the media and often leads to negative headlines when ‘exposed’. Ways to increase price of goods If demand is price…

The importance of international trade

The importance of international trade

International trade between different countries is an important factor in raising living standards, providing employment and enabling consumers to enjoy a greater variety of goods. International trade has occurred since the earliest civilisations began trading, but in recent years international trade has become increasingly important with a larger share of GDP devoted to exports and imports. World Bank stats show how world exports as a % of GDP have increased from 12% in 1960 to around 30% in 2015. With an increased…

Gravity theory – economics

Gravity theory – economics

In economics, gravity theory relates to how international trade between countries is influenced by Geographical proximity Economic size (mass) of the respective countries (M) Similarities in consumer preferences and economic development The gravity theory of trade suggests, ceteris paribus, an economy will gravitate towards trading with its closest neighbours and economies which are similar in terms of size, cultural preferences and stage of development. It is based on Newton’s law of gravity that there is gravitational pull of objects directly proportional to the mass of objects and inversely proportional to the…

Solutions to national debt

Solutions to national debt

Readers Question: Please is there any solution to national/public debt? National (public sector) debt is the outstanding level of debt owed by the government to the private sector. It is the accumulation of annual budget deficits. Do we need a solution? Firstly, it is worth evaluating whether we need an actual ‘solution.’ National debt has been a feature of economies for many centuries. The UK national debt goes back at least to the Seventeenth Century. Source: Reinhart, Camen M. and Kenneth S. Rogoff,…

The decline of Yellow Pages

The decline of Yellow Pages

For those born in the digital age, a paper copy of business listings may seem something of an anachronism. Why leaf through a telephone directory, when you can search online and get more information at the tips of your fingers? Yellow Pages have announced that their paper directory will cease publication in 2019, and it will be replaced solely by a digital service. I received a copy through the post yesterday. It is very thin compared to the directories I remember…

UK Budget Deficit

UK Budget Deficit

The budget deficit is the annual amount the government has to borrow to meet the shortfall between current receipts (tax) and government spending. Net borrowing for the UK 2016/17 is £45bn or 2.3% of GDP National debt or public sector net debt –  is the total amount the government owes – accumulated over many years. See: UK national debt (Sep, 2017 – £1,737 billion equivalent to 86.5% of GDP) UK Borrowing Budget deficit – annual borrowing This is the amount the government has to borrow per…

UK Debt Interest Payments

UK Debt Interest Payments

Debt interest payments are the amount the government need to pay to holders of government bonds. It is the cost of servicing public sector debt. In 2016/17 the OBR forecast £49.1bn – approx 2.5% of GDP In 2017/18, the OBR forecast UK debt interest payments will be £55bn The level of debt interest payments depends on: Outstanding levels of government debt. In 2017, UK national debt was £1,737 billion equivalent to 86.5% of GDP. Interest rates on debt. Bond yields can rise or fall depending on economic situation. In…