Economics help blog – Page 62

UK Balance of Payments

16 February 20206 February 2020 by Tejvan Pettinger

The balance of payments is the record of a country’s transactions / trade with the rest of the world.

The balance of payments consists of:

Current Account (trade in goods, services + investment incomes + transfers)
Capital Account / Financial Account (capital and financial flows, net investment, portfolio investment)
Errors and omissions. It is hard to collect all data so some is missed out.

In theory there should be a balancing between capital and current / financial account. If there is a current account deficit, there should be a surplus on the capital / financial account.

UK Current Account

The UK has had a persistent current account deficit in the past 15 years. This is caused largely by the deficit in trade in goods, and recently a deterioration in investment incomes.

In Q3 2019, the UK current account fell to £15.9 billion or 2.8% of gross domestic product (GDP)
In 2019, as a whole – the UK’s current account deficit was close to 4% of GDP at current market prices.
The UK has had a persistent current account deficit in recent years.

Source: ONS Balance of Payments | Current account as % of GDP

Liquidity Trap – definition, examples and explanation

5 February 20205 February 2020 by Tejvan Pettinger

Definition of a liquidity trap: When monetary policy becomes ineffective because, despite zero/very low-interest rates, people want to hold cash rather than spend or buy illiquid assets. A liquidity trap is characterised by Very low-interest rates Low inflation Slow/negative economic growth Preference for saving rather than spending and investment Monetary policy becomes ineffective in boosting …

What is the optimal inflation rate?

9 December 20215 February 2020 by Tejvan Pettinger

The optimal inflation rate is often considered to be around 2%. For example: The UK target inflation of 2% +/-1 The ECB target inflation of less than 2% US Federal Reserve target inflation of less than 2% (But from 2020 are likely to make inflation target symmetrical like the UK) Why Central Banks wish to …

Why are branded drugs more expensive?

3 February 20203 February 2020 by Tejvan Pettinger

Readers Question why are generic drugs cheaper than brand names? An example from 2020. At Boots a tablet for relief of IBS (diarrhoea) Boots own brand (Loperamide Hydrochloride 18* 2mg) = £5.99 (£0.33 per 1 unit) Immodium (Johnson & Johnson)(Loperamide Hydrochloride 18 * 2 mg) = £9.29 (£0.51 per 1 unit) Both have exactly the …

Geographical unemployment

10 March 20203 February 2020 by Tejvan Pettinger

Geographical unemployment occurs when people are without work because of immobilities in firms and workers moving to/from depressed regions. For example, London may have a booming job market with vacancies, however, an unemployed man in south Wales may be unable to take the job because of difficulties in moving to London. Alternatively, a firm may …

List of government spending as a % of GDP

9 December 202131 January 2020 by Tejvan Pettinger

Countries with the highest government spending as a share of GDP. The countries with the highest levels of government spending as % of GDP are predominantly Western Europe and Scandinavia in particular. The countries with the lowest government spending as a % of GDP tend to be poor developing economies. The one notable exception is …

Hedonic adjustment and Inflation

1 February 202031 January 2020 by Tejvan Pettinger

Hedonics is the science of trying to work out how much product quality has changed and adjusting inflation to take account of the fact more expensive products are not just inflation, but also improved quality. It is used in the US and UK calculation of inflation. If a TV increases in price by 10%, and …

Benefits of Monopoly Power

29 January 202029 January 2020 by Tejvan Pettinger

Monopoly power occurs when a firm has a dominant position in the market. A pure monopoly is when one firm has 100% of the market share. A firm might be considered to have monopoly power with more than 25% market share. The main benefits of monopolies include Economies of scale – lower average costs and …