Could UK economy enter into a Recession? (2007)

In many ways the economy is in a good position. The main economic indicators suggest a strong and sustainable economy, which offer good prospects for 2008.

  • Economic growth, at 2.6% is close to the long run trend rate.
  • Unemployment, according to JSA measure, is under 1 million. At 3% of the labour force this is fairly close to full employment. (although the more reliable Labour force survey suggests the true level of unemployment is higher.
  • CPI Inflation is 2.1%. This is almost exactly the government’s target of 2% +/-1

The main economic predictions forecast similar statistics for 2008. Economic growth is forecast to continue at around 2.5%. In the latest Bank of England inflation forecast, they predict inflation will rise slightly before dropping back to 2% at the end of 2009.

All these statistics and forecasts suggest that the government is correct to claim that the UK economy is in a very strong position for 2008.

However, there are several trends which suggest that this optimism may be misplaced.

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Reasons for Chinese Economic Growth 2000-2007

Readers Question: What is the most important reason why there is an improvement in the economic growth in the chinese out of the following policies. is it Government policy, education, investment from overseas, cheap labour or natural resources.

1. Cheap Labour

China has a large unskilled workforce willing to work for low wages. In the north many farmers struggle to make an income, therefore, they are willing to move south and work in manufacturing for low wages. Therefore, despite high growth, wages have remained low. This has meant Chinese exports have continued to be very competitive. Exports to the rest of the world are one of the main factors behind increased AD and China’s. Cheap labour has also helped avoid wage inflation, which could destablise economic growth.

2. Government Policy

The Chinese government have been keen to promote economic growth (they have been concerned about unemployment from privatised industries and agriculture). Therefore, they have kept the Yuan undervalued. This makes Chinese exports more competitive and has helped the exporting sector. The government have also kept interest rates relatively low. Although, it is sometimes difficult for small business to get loans. Low interest rates have also encouraged some irresponsible lending. Arguably the government have contributed to a boom and there is a danger that the government have allowed growth to be too high. This could lead to inflation and a downturn in the future.

3. Raw Materials.

China has good reserves of raw materials such as coal. However, for many raw materials they are net importers. This is true, particularly, for metals, oil and precious commodities. In fact demand from China is one of the main reasons behind the boom in commodity prices. Therefore, we could say China has experienced growth, despite having to import so many raw materials. The increasing price of oil and metals may be a constraint on future growth.

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Should we increase tax on cars?

Readers Question: over the next 10 years, should the government make greater or lesser use of measures such as road pricing or taxes on fuel to reduce road use? In the UK, road use creates many external costs. This includes increased pollution, congestion, and accidents. Therefore, the social cost of driving is greater than the …

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How Much Would You Pay for Cigarettes – $222?

When we buy a packet of cigarettes for $8, we may think that this is the personal cost. But, a new study claims the real personal and social cost of smoking a pack of cigarettes is closer to $200. pdf of report – Report by Kip Viscusi and Joni Hersch To arrive at these statistics …

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Preparing for Economics Interview at Oxford

Readers Question: what do I need for an interview of “Economics and Management” course or PPE course in Oxford ?

I have written one article here with some general advice for preparing for an interview at Oxford

For Economics and Managemanent or PPE. I would suggest the additional pieces of information

1. Read Outside Syllabus

Make sure you have read, at least, a couple of economics books which go beyond the A Level syllabus. This might be the popular Freakonomics, or something by Paul Krugman . There is no guarantee that they will ask you about what you have been reading. But, If you can’t point to any outside reading it will look bad.

2. Be Confident to Express Opinions.

If you were asked should the UK join the EURO, make sure you would be able to offer some convincing arguments one way or the other. At the same time, try to give the impression, you are aware things are not black and white.

3. Practise speaking / arrange an interview with someone.

In an interview you want to:

  • Avoid excessive hesitation
  • Answer the questions they ask
  • Be confident but not arrogant.
  • Appear interested in the topic
  • Look well presented

Don’t worry about being a bit nervous, but, it makes a big difference to have a mock interview, making it as realistic as possible.

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The Role of Aggregate Demand in Reducing unemployment

uk-unemployment-71-17-natural-rate-dd

Evaluate the importance of managing aggregate demand (AD) to bring about a sustained reduction in the rate of unemployment in the UK economy. In 1992 Unemployment in the UK rose to 3 million. A significant part of this unemployment this was due to the recession of 1992. In a recession, demand deficient unemployment will increase. …

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Chinese Yuan Dollar Forecast 2008

 

See also: Chinese Economy 2008 

For many years the Chinese Yuan was tied to the dollar, however in July 2005 the yuan was finally allowed to break away from the dollar. However, unlike most other currencies, the Chinese government still try to influence the level of the Yuan. They have tried to keep the value of the Yuan low, to enable Chinese exports to remain competitive. Chinese record growth is due mainly to its exporting sector. The Chinese government fear that if the Yuan is allowed to become too strong, growth will slow causing unemployment to increase.

As a consequence of the undervalued Yuan, China has one of the world’s biggest current account surpluses (10% of GDP) (surplus = value of exports > value of imports)

As of November 9th, the Yuan appreciated to 7.4108 versus the dollar

The Chinese Yuan has appreciated by a small amount since 2005

Graph to show last 5 years Dollar vs Chinese Yuan (remenbi)

yuan

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Economics for Business Students

Reader’s Question: What are the importance of economics to a business student? There is a strong overlap between business and economics. A Business student needs to take into account these various aspects of  Economics. At various times I have taught Business Studies in addition to Economics. Several topics are the same. These are the key …

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