Banks are getting a lot of criticism at the moment and most of it is justified. What mistakes did the banks make? Bonuses which encouraged Risky Short Termism If managers gained short term profit for the bank, they would be in line for large bonuses. If they lost money, they didn’t get a pay cut. …
Readers Question: What does it mean when Bank of England cuts interest rates by 50 base points? A basis point is one-hundredth of a percentage point. If the Bank of England cuts interest rates by 0.50% from 1.5% to 1.0%. This is a cut of 50 basis points. Usually, interest rates are cut in small …
Readers Question: Evaluate policies which a government could adopt in response to falling behind mortgage payments The problems of mortgage defaults are explained here What can the government / monetary authorities do? Cut interest rates. The MPC can cut interest rates as long as inflation is not a problem. However, the government do not set …
Readers Question: How can a smaller government fiscal deficit cause a larger international trade surplus? A smaller fiscal deficit means the government is reducing its borrowing. Therefore tax revenues must be increasing faster than government spending. A trade surplus means that the value of exports is greater than the value of imports. Suppose the government …
Discuss the economic problems that might arise from large numbers of people falling behind with their mortgage repayments The problems of people falling behind with their mortgage payments include: Mortgage defaults will rise causing people to sell houses. If people are forced to sell houses the increased number of houses on the market will depress …
Readers Question: Why might the public ignore future tax liabilities when making spending decisions? A tax liability is a tax bill that you will have to pay the government in the future. In theory, if you have a large tax liability in the future, you will reduce current consumption to be able to pay the …
The Spanish economy is facing many difficult challenges. Housing Boom and Bust. Despite a relatively prudent banking sector, Spain experienced a real boom in the housing market. This was partly caused by foreign demand for holiday homes. House prices rose and there was also a boom in construction. Construction accounted for a large part of …
Readers Question: How would you go about at answering the interview question “Where is the middle of nowhere?” Take your pick: Number 23 Station Road, Milton Keynes Where Bernard Maddoff deposited investors funds for safe keeping. ‘The middle of nowhere’ It is a way of emphasising the essential nihilistic concept of an object that doesn’t …