Effects of slower economic growth

Economic growth means an increase in national income/national output. If we have a slower rate of economic growth – living standards will increase at a slower rate. For example, in the post-war period, western economies grew at 2.5% to 4.% per year. However, since the early 2000s, growth rates have slowed down. This process of slower economic growth is sometimes known as ‘secular stagnation.’ The effects of slower economic growth could include:…

Understanding exchange rates

Understanding exchange rates

A summary for understanding exchange rates. Factors that affect exchange rates and the impact of exchange rates on the economy.TerminologyDepreciation/devaluation – fall in value of exchange rate – exchange rate becomes weaker (see also: definition of devaluation and depreciation) Appreciation – increase in the value of exchange rate – exchange rate becomes stronger.Example of Pound Sterling depreciating against the Dollar£1 used to equal $2. Now £1 is only equal to $1.75What does this Depreciation in the value of the Pound mean?

economic growth 1981

Letter of 365 economists – did they really get it wrong?

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 Runs

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…

Dynamic Pricing

Dynamic Pricing

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…


The cost of free tv licenses for over-75 year olds

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,…


Labour market slack

What does it mean to talk of labour market slack? And how is it measured? Essentially labour market slack is the shortfall between the volume of work desired by workers and the actual volume of work available. Labour market slack also determines the difficulty or ease of employing more workers. When there is labour market slackness, there will be many applications for available jobs and firms will have no difficulty filling labour market vacancies. When labour market slack is reduced and the labour market ‘tightens’ – firms can face difficulties filling vacancies…


Reasons for the slow growth of wages

In recent years, many advanced (high-income) economies have seen a marked fall in unemployment but only very slow or even negative real wage growth. This phenomenon of slow wage growth, despite falling unemployment, is marked in countries such as the UK, Japan and the US. Reasons to explain this slow growth of wages includeLow productivity growth Hidden slack in the labour market Uncertain economic outlook A decline in union bargaining power Growth of monopsony power of employers Change in labour market with more part-time, temporary and zero hour…