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saving-rate

The Paradox of Saving

Looking at graphs for the saving ratio, I noticed a paradox. When people felt it was a good time to save more, they actually saved less. When people felt it was a bad time to save, they actually save more. Is it a Good Time to Save? As part of the GFK consumer confidence survey. They ask a question – In view of the current economic situation – Is it a good time to save?

Causes of deflation

Causes of deflation

Readers Question: What is the cause of deflation? Deflation involves a fall in the price level –  a negative rate of inflation. From a very basic standpoint, there are two main potential causes of deflation:A fall in aggregate demand (AD) A shift to the right of aggregate supply (AS) – i.e. lower costs of production through improved technology.Deflation usually occurs during a deep recession, when there is a sustained fall in demand and output. This deflation may occur in the…

Difference between SRAS and LRAS

Difference between SRAS and LRAS

Readers Question: What is the difference between short run aggregate supply  SRAS and Long run aggregate Supply LRAS?Essentially, the SRAS assumes that the level of capital is fixed. (i.e. in the short run you can’t build a new factory) However,  in the short run you can increase the utilisation of existing factors of production, e.g. workers doing overtime. In the short run, an increase in the price of goods encourages firms to take on more workers, pay slightly higher wages and produce more. Thus the SRAS suggests an…

business-objectives

Business Objectives

A business has a variety of potential objectives from profit maximisation to cultivating good relationships with various business stakeholders. Economic theory often assumes that firms are rational profit maximisers. However, in the real world, there are many other objectives that a firm can pursue.Profit Maximisation. The most basic model of a firm assumes firms wish to maximise their profit. They will do this by increasing revenue (price * quantity sold) and reducing costs. Higher profits enable a firm…

AD / AS Diagrams

AD / AS Diagrams

Diagrams showing how shifts in aggregate demand (AD) and aggregate supply (AS) affect macroeconomic equilibrium – real GDP and price level (PL) Includes short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS)  and classical and Keynesian view of LRAS curves. A simple macroeconomic equilibrium where AD = AS. Increase in AD when economy is close to full capacity This shows an increase in AD when the economy is close to full capacity, causing a significant rise in price level.

The decline of the UK Coal Industry

In the 1930s, George Orwell volunteered to spend time down a coal mine to find what life was like for coal miners. For the six foot, middle class, old Etonian, the experience of going down a mine was a real shock. The experience left him sore and full of admiration for those who worked down the mine. But, as Orwell remarked, coal was essential to the British way of life. ” Our civilization, pace Chesterton, is founded on coal, more completely than one realizes until one stops to think about…

vertical-integration

Vertical Integration

Vertical integration occurs when a firm controls different stages of production. For example, in the brewing industry, you haveProduction – Brewing of beer. Distribution – beer transported to local markets. Retail – Beer sold in pubs and shops.To remember vertical integration – think of going up the supply chain. Horizontal integration, by contrast, is at the same stage of production think of other business at the same stage of production, e.g. different pub companies, different brewers.A large brewer…

Why UK stayed out of the Euro

Why UK stayed out of the Euro

Why didn’t the UK Join the Euro? Joining the Euro would give the UK various advantages:predictability of exchange rates with Europe Easier for consumers to compare prices (price transparency) Lower transaction costs Encourages investment because of greater stability in trade.However, despite these potential benefits the UK decided not to join and shows no indication of joining in the future. Main reasons for not Joining the Euro1. Loss of Independent Monetary Policy Joining Euro also causes a loss of an independent monetary policy….