The fiscal multiplier effect occurs when an initial injection into the economy causes a bigger final increase in national income. Suppose the government pursued expansionary fiscal policy. The aim of expansionary fiscal policy is to increase aggregate demand (AD) and boost the rate of economic growth. This could involve the government increasing public sector investment …
Readers Question: Does the Rahn Curve support the empirical evidence? If not, why not? Can you prove that there is a relationship between the level of Government Spending and GDP growth? The Rahn Curve suggests that there is an optimal level of government spending which maximises the rate of economic growth. Initially, higher government spending …
In the UK and US there is often a mistrust of the government’s inflation figures. People often feel that their cost of living is rising faster than official CPI statistics. In developing countries like Venezuela and Argentina, there is even greater mistrust as government’s have an incentive to modify inflation rates and have the power …
A look at the economic impact of an increase in the supply of female workers in labour markets. In summary: Increased female labour market participation will lead to increase in supply of labour, and in theory, could lead to lower wages. However, a gradual increase in female labour market participation is often in response to …
Readers Question: Is there an economic term for the phenomenon of ignoring (or turning a blind eye to) future risk, assuming that the current situation will prevail? I refer to the situation we currently see of both borrowers and lenders who are being caught by interest rate rises, having seemingly assumed that interest rates would …
Readers Question: Why do foreigners often hold U.S. dollars? How does the holding of dollars by foreigners affect the welfare of American? The Dollar still is the world’s reserve currency. With about 67% of the world’s currency reserves held in dollars. Up until the First World War, the British Pound was the most widely accepted …
Economies are constantly evolving. Industries which once employed thousands of people can later become uncompetitive and unprofitable. The UK has seen the rise and fall of many manufacturing industries. Industries such as cotton, wool, coal and ship-building were once key aspects of the UK economy, employing thousands of people in dense areas, but over time …
Readers Question: Why does specialisation necessitate an efficient means of exchanging good and services, such as the use of money as a medium of exchange? Specialisation in the labour market means workers concentrate on specific jobs. Rather than learn every trade – electrician, plumber, manager, doctor, teacher – it is more efficient and practical if …