Author: Tejvan Pettinger
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…
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…
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…
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…
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…
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…
Dynamic pricing is a method firms use to constantly adjust the price of goods/services depending on demand. For example, if there is a surge in demand, firms respond to the market data by increasing price. New technology has increased the scope for more variable dynamic pricing, and it is increasingly used by companies, such as airlines, taxi companies and hotels. Dynamic pricing enables a firm to set multiple different prices and maximise total revenue.
Dynamic pricing requiresA degree of market power in setting prices
Consumers with different elasticities of…
Funding free licence fees for over-75s cost the government £608m in 2013-14 – about a fifth of the BBC’s budget.
By 2021/22 funding free license fees for the over-75s would cost £745m. Under the new scheme, pensioners receiving pension credit will be eligible for a free license, but the rest of pensioners over 75 will have to pay.
Free tv licenses for over 75-year olds were introduced in 2000 by the Labour government who wished to reduce ‘pensioner poverty’. However, the government no longer wishes to maintain that subsidy. In 2015,…
