economics

The Tortoise Economy

The Tortoise Economy

A tortoise economy refers to an economy that is barely growing – either economic growth is stagnant or growth is very slow. In particular, it has been used to describe a sluggish recovery from recession. In the aftermath of the great recession – 2007/08, many western economies experienced a very slow economic recovery. GDP was increasing, but it was an unusually slow economic recovery, and this reflected a weak economy (some argue artificially propped up by quantitative easing/loose fiscal policy) …

The strength of the German economy post-war

The strength of the German economy post-war

Readers Question – what explains the strength of the German economy post-war? In the aftermath of the Second World War, the German economy was devastated by years of war, price controls, rationing and the loss of patents and top scientists to the US. However, by 1950, the economy was transformed by investment, economic growth and an economic transformation that is referred to as Wirtschaftswunder – the ‘economic miracle.’ Causes of the post-war boom Social market economy. In 1948, food and goods were scarce, and a barter economy was prevalent. However, in…

j-curve-effect

J-Curve Effect

The J Curve effect a depreciation in the exchange rate can cause a deterioration of the current account in the short-term (because demand is inelastic). However, in the long-term, demand becomes more price elastic and therefore, the current account begins to improve. The J-Curve is related to the Marshall-Lerner condition, which states: If (PED x + PED m > 1) then a devaluation will improve the current account. The J-Curve is an example of how time lags can affect economic policy. It also shows the link between microeconomic principles (elasticity) and…

technological change in RBC

Real business cycle

 Summary Real business cycle models state that macroeconomic fluctuations in the economy can be largely explained by technological shocks and changes in productivity. These changes in technological growth affect the decisions of firms on investment and workers (labour supply). Hence changes in output can be traced to microeconomic and supply-side factors. Real business cycle models either completely reject or play down the role of aggregate demand in influencing the economic cycle. Real business cycle models suggest that government intervention to influence demand in the economy is generally counterproductive and…

luddite-fallacy

Evolutionary economics

Evolutionary economics is a branch of economics which views the economy through a dynamic model of constant change, adaptation, chaos and revival. Evolutionary economics was coined by radical economist Thorstein Veblen (1857-1929). Veblen was interested in psychological factors that often gave better explanations for economic behaviour than traditional rational choice theory. For example, Veblen noted the role of social hierarchy and how individuals could be motivated by conspicuous consumption (showing off you could afford designer clothes). Another important economist in developing evolutionary economics was Joseph Schumpeter. Schumpeter offered a…

job growth in America

America’s Rural – Urban Economic Divide

The political map of the US increasingly represents a divided America, and this political divide has roots in an increasing economic divide. In brief – rural areas tend to have lower average incomes (though also cheaper rent) higher rates of unemployment, declining population, reliance on one major employer and more concentrated on the primary sector – farming, mining and commodity extraction. By contrast, metropolitan urban areas have seen faster rates of population growth,…

dollar-96-08

Is a strong economy generally accompanied by a strong currency?

Readers Question: Is a strong economy generally accompanied by a strong currency? In short, a strong economy is generally characterised by a strong currency. When the economy is doing well, and at a boom period of the economic cycle it implies higher interest rates to keep inflation low. These higher interest rates will attract hot money flows and more demand for the currency. A strong economy will also increase confidence in holding that currency. A strong economy may also imply that in the long-term the economy is becoming more…