Author: Tejvan Pettinger

eurozone-growth-past-50-years

Effects of slower economic growth

Economic growth means an increase in national income/national output. If we have a slower rate of economic growth – living standards will increase at a slower rate. For example, in the post-war period, western economies grew at 2.5% to 4.% per year. However, since the early 2000s, growth rates have slowed down. This process of slower economic growth is sometimes known as ‘secular stagnation.’ The effects of slower economic growth could include:…

Understanding exchange rates

Understanding exchange rates

A summary for understanding exchange rates. Factors that affect exchange rates and the impact of exchange rates on the economy.TerminologyDepreciation/devaluation – fall in value of exchange rate – exchange rate becomes weaker (see also: definition of devaluation and depreciation) Appreciation – increase in the value of exchange rate – exchange rate becomes stronger.Example of Pound Sterling depreciating against the Dollar£1 used to equal $2. Now £1 is only equal to $1.75What does this Depreciation in the value of the Pound mean?

What happens in a recession?

What happens in a recession?

A recession is a period of negative economic growth. In a recession, we see falling real GDP, falling average incomes and rising unemployment.This graph shows US economic growth 2001-2016. The period 2008-09 shows the deep recession, where real GDP fell sharply. Other things we are likely to see in a recession1. UnemploymentThe rise in unemployment 2008-09 mirrors the fall in real…

economic growth 1981

Letter of 365 economists – did they really get it wrong?

The March 1981 UK budget was controversial. In a period of rising unemployment, recession and high inflation. The government pursued deflationary fiscal policy trying to reduce inflation. The chancellor increased taxes by a total of £4 billion, with the aim of reducing inflation and reducing the budget deficit. Tax measures includedA new 20% tax on North Sea oil was introduced. A one-off windfall tax on certain bank deposits was introduced, in the form of a 2.5% levy on deposits of banking businesses. No raising of personal allowances in a…

run-on-the-banks

Bank Runs

Bank run definition A bank run occurs when there is a sudden demand to withdraw money from a bank, that the commercial bank struggles to meet. The first signs of ‘bank panic’ will encourage other depositors to also try and withdraw their savings, causing a further ‘run on the bank.’ In a bank run, investors are trying to get back their deposits before the bank goes out of business and depositors can no longer access their deposits. A bank run occurs when savers become concerned about the liquidity of a bank and…

Does a lower budget deficit lead to lower interest rates?

Does a lower budget deficit lead to lower interest rates?

Readers question: Keeping a lower deficit of the National Budget would benefit Americans as interest rates would remain stable and allow new businesses to grow. Would you say this statement is correct? In theory, there is an argument that a rising deficit can cause a rise in bond yields and interest rates. Similarly, there is a theoretical case that a falling deficit can cause a fall in interest rates. Why an increase in budget deficit can cause higher interest ratesRisk of default – investors demand higher interest rates to compensate…

UK National Debt

The UK national debt is the total amount of money the British government owes to the private sector and other purchasers of UK gilts.In May 2019, UK public sector net debt was £1,806.1 billion equivalent to 82.9% of GDPSource: (page updated 5 July 2019)Source: ONS debt as % of GDP – HF6X | PUSF – public sector finances at ONS Budget deficit – annual borrowingThis is the amount the…

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How does US / China trade war affect EU, Asia and Africa?

Readers Question: To what extent does the trade war between USA and China actually impact on the economies of other nations? A trade war between the US and China is concerning for other countries because a trade war can precipitate a fall in global trade, and lead to lower investment, lower confidence and a drop in global economic growth. Since the US and China are dominant forces in the world economy (US accounts for 20% of global GDP, China 9%), the effects are likely to be significant. However, a bilateral trade…