economics

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Euro Economy in 2008

News that inflation in the Eurozone increased to 3.2% did little to cheer market sentiment in Europe. This rise in inflation leaves Europe in a difficult situation with the prospect of lower growth and higher inflation. In the US, the Fed has aggressively  cut interest rates from 5.25% to 3%. The Fed is hoping that the rate cuts will prevent a recession. However, the rise in Euro inflation means that the ECB has less scope for cutting to rates to help boost growth and support declining stock markets.

Mistakes of Lawson and Thatcher

Mistakes of Lawson and Thatcher

When I began studying economics as an A Level student I found it interesting to examine the mistakes of politicians. One thing that struck me was that politicians often seemed to have a very poor understanding of basic economics. Of course, it is easy to be wise after the event, but here I wrote an essay about the Lawson boom and the mistakes that were made. In a nutshell the problem with the Lawson boom was. They allowed the economy…

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Why is Government Reluctant to Boost Demand?

Readers Question. Explain how interest rates could be used to boost the economy. Why, then do the govenment frequently hesitate to take such steps. Interesting Question. Generally, lower interest rates help increase consumer spending, investment and economic growth. Lower interest rates help increase Aggregate Demand for various reasons. Lower interest rates make borrowing cheaper encouraging investment and spending Lower interest rates make mortgage payments cheaper, increasing disposable income of consumers. Less incentive to save. Therefore increased incentive to spend Lower exchange rate, making exports cheaper and boosting AD. Most people in the economy like to see…

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Economics of the Fire Service

Readers Question: Why the fire service is a public domain and how is the fire service a merit good I think you mean why is the Fire Service a public good? A public good has 2 aspects. Non rivalry – Once consumed doesn’t reduce the amount available to others Non excludability – Once it is provided you can’t stop anybody using from it. In a free market public goods are often not provided because there is difficulty getting everyone to pay for it due to the free rider problem The fire service shares some aspects…

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Can Tax Cuts avoid a recession?

About £77 billion was wiped from the value of leading FTSE 100 companies over fears of a US recession. The FTSE 100 index is now down to its lowest level in 19 months. In particular, stock markets were unimpressed by President Bush’s plan for tax cuts. In American politics tax cuts are often seen as the ‘solution’ to many economic ills. Reagan, Bush and many other politicians have hoped tax cuts both increases labour productivity and boosts demand. Some have even gone so far as to suggest that tax…

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AD and Vertical LRAS

Readers Question 2. Imports. What if the extra J of 30 (that is supposed to boost AD to the right) is met completely by imports, when the AS is vertical (LRAS). you cant produce any more, so imagine the extra demand is supplied by importers. equilibrium cant go beyond LRAS, and prices shouldnt go up, because demand has been met externally, not domestically. AD hasnt moved, it cant move! Yet more is going round the circular flow than before! There is a difference between a nominal increase in AD and a real increase in…

Why is UK Debt Rising?

Why is UK Debt Rising?

The graph below show that UK debt is rising as a % of GDP    Net Debt refers to the total amount of money the Government owes to the private sector. If the Government spends more than it receives in tax then it runs an annual budget deficit; this means it has to borrow from the private sector, by selling bonds and gilts. The National Debt is the cumulative amount of debt the government has. Since 2003, the UK economy has been growing at 2.5%…

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Problems with US Economy

I wrote a lengthy essay on the US economy and why it is facing many economic problems. What went wrong with the US Economy? The Main Problems with the US Economy are Twin Deficits – Current account deficit and budget deficit Housing Market Crisis Rising Inequality Falling Dollar and falling confidence Impending Recession High Levels of Debt and Growing debt default Another Problem with the US economy might be: The economics of the Presidential Candidates  My Other Blog Economics Essays I use for writing longer essay, it is updated perhaps once a day. If you find…