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Recession In US and Euro Zone

How would a recession in the US and EU affect the UK economy? Over 75% of UK trade is with the US and EU. Therefore, a recession in these countries would have a significant impact. Firstly, UK exports to these countries would fall. Therefore, the UK is likely to have a fall in AD, (or at least lower growth) Therefore, the UK would experience a lower rate of economic growth. The impact of this fall in exports will depend upon several other factors. The impact will depend upon other factors affecting UK…

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Interest Rates to Fall in 2008

Yesterday, the Bank of England kept interest rates constant at 5.75% for the fourth consecutive month. However, it looks increasingly likely that the base rate will fall in 2008, possibly to 5%. Every three months the Bank publish an inflation report, which is a forecast for inflation over the next couple of years. Despite recent factors causing cost push inflation (oil prices, fuel prices) the outlook for inflation is forecast to be benign. The Bank predict that CPI inflation will be close to the government’s target of 2% by 2009. Other economic…

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Preparing for Economics Interview at Oxford

Readers Question: what do I need for an interview of “Economics and Management” course or PPE course in Oxford ? I have written one article here with some general advice for preparing for an interview at Oxford For Economics and Managemanent or PPE. I would suggest the additional pieces of information 1. Read Outside Syllabus Make sure you have read, at least, a couple of economics books which go beyond the A Level syllabus. This might be the popular Freakonomics, or something by Paul Krugman . There is no guarantee that…

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The Role of Aggregate Demand in Reducing unemployment

Evaluate the importance of managing aggregate demand (AD) to bring about a sustained reduction in the rate of unemployment in the UK economy.In 1992 Unemployment in the UK rose to 3 million. A significant part of this unemployment this was due to the recession of 1992. In a recession, demand deficient unemployment will increase. This is because as firms close down they have to lay off workers. Other firms, may stay in business by not hiring new workers or laying off…

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How a Falling Dollar Affects the US and the Global Economy

Evaluate the economic implications for the global economy of falling dolla ? (30) The US dollar has fallen significantly in 2007. This follows several years of continuing dollar weakness. With no seeming end in sight for the falling dollar, it is a good question to ask the economic implications for other countries. 1. US exports become cheaper more expensive. Therefore there is an increase in demand for US exports. This helps boost US AD 2. US consumers find Imports more expensive. Therefore there will be a fall in demand for imported…

What Determines Exchange Rates?

What Determines Exchange Rates?

Readers Questions – Explain how exchange rates are determined ? (20) Exchange Rates are determined by supply and demand side factors. For example, Increased demand for sterling will cause an appreciation in the Sterling exchange rate. These are some of the most significant factors in exchange rate determination:  1. Interest Rates. If interest rates increase in the US then it becomes relatively more attractive to save money in US banks and in US bonds. Therefore, there is higher demand for…

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Monopoly Power in Electronic markets

Readers Question: describes how markets for electronic goods and software are sometimes dominated by a single type of product, which incorporates the technology developed and controlled by one of the firms in the market. Do you agree that this reduces competition and is bad for consumers and producers? Justify your answer. (15)  AQA unit 1 A difficult question for AS level The firm with the patent can charge monopoly prices for using the technology. Therefore, this leads to higher prices for consumers and less competition, because new firms may not be able…

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The MPC and setting of Interest rates in UK

Readers Question: To what extent does the government influence the monetary policy committee when they set the interest rates? The Bank of England Monetary Policy Committee (MPC) is responsible for setting interest rates and trying to achieve a target rate of inflation.In the UK, The Monetary Policy Committee has independence in setting interest rates. The government appoint members to the MPC. In theory they could appoint members who are more sympathetic to the ‘government’s point of view’. In practice they don’t. Nor do the government threaten to remove members for choosing…