A look at the relationship between economic growth and exports.
Readers Question: How would an increase of economic growth lead to an increase in exports? Also, does the increase only happen just in a fixed period of time, or increase in one period is likely to affect the future?
Economic growth doesn’t necessarily lead to an increase in exports, although it often does. I don’t fully understand the last question.
What determines export growth?
1. Demand from other countries. Demand for UK exports will depend on the rate of economic growth in other countries. The UK’s main export targets are EU countries. Therefore, if there was growth in the Eurozone, we would expect an increased demand for UK exports. A recession would cause a fall in demand for UK exports.
Note: UK exports do not depend on UK domestic demand.
2. UK competitiveness If the UK can boost general competitiveness and productivity then UK exports will become more competitive and should increase.
3. Exchange rate A depreciation in the Exchange rate should make UK exports more competitive and should increase demand. The exact effect of a depreciation depends on the elasticity of demand for exports.
Real wage inflation means an increase in average earnings adjusted for inflation. See also: Real wages Rising real wages means an increase in living standards and greater purchasing power of consumers. In the past decade, many economies such as US and UK have witnessed stagnant real wage growth. A rise in real wages would be …
Definition: Economic inactivity means that people (aged 16-64) are not involved in the labour market – they are neither working or actively seeking employment. Economic inactivity includes students, early retirees and the long-term sick. There are 8.5 million counted as economically inactive in the UK. The unemployed who are seeking working and willing and able …
In the UK, house prices have shrugged off both the credit crunch and the longest recession on record. After a blip in 2007-08, house prices are at record levels. It means that UK house prices are relatively very expensive; UK house price to earning ratios are amongst the highest in the developed world. Unfortunately, there …
The throw-away economy refers to the prevalence of consumer goods which only last for a short period of time. When they stop working / no longer relevant, we throw them away and replace them with new goods.
This is in contrast to an economy where resources are more scare – and if a good is purchased, we expect to make it last a considerable time – repairing if necessary.
For example, in the past, if our socks had a hole, we would sew them up (‘darning’ your socks). But, these days, if socks get a hole, it is more convenient to throw them away and buy some cheap socks instead.
If average wages are £10 an hour. Why spend 30 minutes sewing your socks, when you can buy a new pair for £3? In the past, wages were much lower compared to prices. If you only earnt £1 an hour, then it is worth sewing your socks to save buying a new pair for £3.
Therefore, rising real wages make a throw-away economy more likely.
Repair shops
TV repair. Photo Katie Chao and Ben Muessig – Flickr
In the past, there were many TV repair shops – if your tv or electronic goods broke down, you would try to have them fixed. In today’s world, if a TV broke down, we would be liable to throw away the TV and buy a new one. It is not so expensive and electronic goods are always offering new features. After a couple of years, your electronic goods can feel ‘outdated’ pretty quick. I have a stack of CDs I don’t play in CD players any more.
The problem of the tin openers
Broken tin opener from a Pound Shop
The inspiration for this post has been the number of tin-openers we have got through in the past 12 months. We have bought four tin openers, all of which have ceased working after a short period of use. In each case, we have thrown it away and bought a new one. The first two were from Sainsburys and Asda. They cost about £4 and looked fairly robust. But, after a few weeks, they stopped working properly, and then failed completely. My lodger uses the tin-opener most, so I told him since I paid £5 for a tin-opener and it stopped working, he might as well go get one from a Pound shop. The first tin opener did open one can of Heinz soup then it snapped. 99p to open one tin! That is called a false economy!
He took it back to the 99p shop and the workers laughed. They obviously got returned tin openers all the time. He got a replacement, but that broke straight-away, even before opening a tin.
The most common method for measuring living standards is using GDP per capita. This is national income divided by population and gives a rough guide to average incomes. High real GDP per capita indicates citizens are able to purchase more goods and services. World Map of GDP per Capita GDP per Capita. Source: Source: IMF …
HS2 is a proposed new railway line linking London Euston to Birmingham and in the second phase – Manchester, Leeds, Sheffield and eventually Scotland. Supporters of high-speed rail argue it is necessary to meet the UK’s rapidly growing demand for travel. High-speed rail will provide the greenest, safest and most efficient form of transport. The …
Some potentially common mistakes in economics. 1. Confusion of rates of change and actual levels What happened to the UK price level between May 2011 and Feb 2015? The answer is that prices rose at a slower rate. There was a fall in the inflation rate. Prices were still rising just at a lower rate. …
