One of the great challenges of Monetary and Fiscal Policy is knowing exactly where the economy is. If output is falling, then this justifies an easing of monetary policy (lower interest rates, or in the UK’s current situation more quantitative easing). Recently GDP statistics showed an unexpected 0.4% fall in GDP. This was a key …
Question: Why do we have a VAT rate of 17.5% on many ordinary goods and a tax rate on petrol / tobacco of over 50% – yet when people propose a tax of 0.01% on currency transactions it is denounced as unfair and economically damaging? At the G20 summit, Gordon Brown, proposed a version of …
Readers Question: Is it a good idea for the Baltic states to adopt the Euro before they have met the convergence criteria? Latvia and Lithuania have a target date of 2013 for joining the Euro. Estonia by Jan 1 2011. The four main convergence criteria for the joining the Euro are: Low inflation Low Government …
Fear is a powerful emotion which can have significant economic implications. Often real fears are ignored in a wave of over-exuberance. Sometimes, if people had greater fear of getting into debt and falling asset prices e.t.c, the economy would be less prone to bubbles and the consequent mess. Perhaps fear isn’t the right word. – …
Readers Comment: I believe if you want to solve the recession then look at footballers. they earn millions and for what/kicking a ball around!! I think their wages should be cut down to say 75k a year and the remaining money should be used wisely. This recession illustrates that economic policy often involves making decisions …
Champagne is a very good example of a luxury good. (a change in income causes a bigger % change in demand) Furthermore, supply of Champagne is limited to certain regions of France. With this monopoly power over supply, French wine producers have been able to set very high prices. Champagne can easily go for over …
Readers Question: What is the difference between depression economy and underdeveloped economy? A depression economy suggests the economy is experiencing a deep recession, characterised by falling output and rising unemployment. An economy experiencing a recession could have a high GDP per Capita or a low GDP per capita. E.g. UK and the US have both …
Readers Question: What did Keynes mean by ‘In the Long Run we are all dead’ – From ‘In the Long Run we are all dead’ For Keynes, the short run was important and due to the instability of the macro economy, government intervention may be necessary to kickstart the economy. Classical economists tend to be …