economics

Reasons for Youth Unemployment

Reasons for Youth Unemployment

A look at the economics reasons for high youth unemployment (16-25) in the UK.During the recession, youth unemployment rose at a faster rate than the main unemployment rate.  After peaking at 20% (1 million) in early 2012, youth unemployment has recently fallen to 12 % (2017) The reasons for youth unemployment are fairly similar to other causes of unemployment. They include:Lack of qualifications. Young people without any skills are much more likely to be unemployed (structural…

UK Inflation Rate and Graphs

UK Inflation Rate and Graphs

Current UK Inflation RateCPI inflation rate:  3.0% (headline rate) CPI – D7G7 at ONS (page updated 17 October 2017)Source: Raw data General inflation tables | CPI annual % change D7G7 at ONSOther measures of inflation(CPIH) CPI including owner occupiers’ housing costs – 2.8% (CPIH – L550) Factory gate prices (Output prices) 3.3% June 2017 (output prices) ONS See: Measures of inflationCost-push inflationary factors In 2017, UK has seen a rise in cost-push…

Monetary Policy vs Fiscal Policy

Monetary Policy vs Fiscal Policy

The aims of fiscal and monetary policy are similar. They could both be used to:Maintain positive economic growth (close to long-run trend rate of 2.5%) Aim for full employment Keep inflation low (inflation target of 2%)The principal aim of fiscal and monetary policy is to reduce cyclical fluctuations in the economic cycle. In recent years, governments have often relied on monetary policy to target low inflation. However, in recessions, there are strong arguments for also using fiscal policy to achieve economic recovery.Fiscal policy involves changing government spending…

UK – IMF Crisis of 1976

UK – IMF Crisis of 1976

In 1976, the minority Labour UK government of James Callaghan was ‘forced’ to borrow $3.9 billion from the IMF to stabilise the value of Pound. The loan was also accompanied with conditions to cut public spending and raise interest rates. It marked a symbolic break with the post-war economic consensus and was a reflection of persistent problems in the post-war UK economy. After the bailout, economic conditions turned around with an improvement in the current account, budget deficit and appreciation in Sterling. But, fundamental weaknesses remained with high inflation…

Deficit spending to boost economic growth

Deficit spending to boost economic growth

The current US administration have suggested they want to increase the US budget deficit to enable higher rates of economic growth. What does economic theory state about this idea? “We need to have new deficits because of that. We need to have the growth,” Mulvaney said. “If we simply look at this as being deficit-neutral, you’re never going to get the type of tax reform and tax reductions that you need to get to sustain 3 percent economic growth.” White House Budget Director, Mick Mulvaney. Source: Bloomberg Basically, this is an…

Irrational behaviour

Irrational behaviour

Classical economic theory assumes that individuals are rational. However, in the real world, we often see irrational behaviour – decisions which don’t maximise utility but can cause a loss of economic welfare. Irrational behaviour is not just isolated to a few ‘irrational individuals’ but can become the dominant choice for most people in society (e.g. Tulip mania/dot-com bubble). Irrational behaviour can lead to market failure, loss of economic welfare and personal issues such as drug addiction and poor health. Irrational behaviour has implications for formulating economic policy. It means economists…

Why Printing Money Causes Inflation

Why Printing Money Causes Inflation

Readers Question: One way to finance government spending is to print money, but printing more money leads to inflation. How economic theory justify this? Summary If the Money Supply increases faster than real output then inflation will occur. If you print more money, the amount of goods doesn’t change. If there is more money chasing the same amount of goods, firms will just put up prices. The Quantity Theory of Money The Quantity theory of…

Irresponsible tax cuts

Irresponsible tax cuts

The current US administration is proposing tax cuts which The Committee for a Responsible Federal Budget, estimate it will include $5.8 trillion of total tax cuts over the decade and a net cost of $2.2 trillion through 2027. The problem with these tax cutsIt is unclear how these tax cuts will be financed. An ageing population is putting upward pressure on government spending. Will increase the deficit and national debt at a time when economy is growing – it is the stage of the economic cycle when the deficit and…