The principal-agent problem is a situation where an agent is expected to act in the best interest of a principal. But, the agent has different incentives to the principal, leading to a conflict of interests. A principal delegates an action to another individual (agent), but there are two issues. Firstly, the principal does not have …
In the post-war period, there has been a relative decline in the size of UK manufacturing. UK manufacturing used to account for over 50% of the size of the economy. Now, manufacturing accounts for around 12-15%. However, although there has been a degree of ‘de-industrialisation’ the UK still produces more in absolute terms than previously. …
Readers Question: What is the difference between a recession and deflation? A recession is a period of negative economic growth. The official definition is a decline in output (Real GDP) for two consecutive quarters. Usually, in a recession, you will get a fall in the inflation rate. From 2010, there is a fall in the …
Readers Question: Does the level of real income grow as the economy grows? Can we say that real income grows as the economy grows? If yes, what factors surround it? Summary In a period of positive economic growth, usually, you would expect a rise in real wages and higher pay. However, it is not guaranteed. …
The Indian Rupee has fallen in value against a basket of currencies since independence in 1947. In recent years, the Indian Rupee has continued to depreciate in value. Indian Rupee value against US Dollar In 1990, you could buy $1 for 16 Indian Rupees. By 2013, the value of a Rupee had fallen, so that …
Readers Question: Should the government provide more welfare support programs such as child tax benefit and unemployment insurance in order to decrease economic inequality? This is a classic dilemma that governments face. To simplify the argument. Higher welfare benefits help to reduce inequality and reduce relative poverty. Higher benefits will give those on low income a better …
Readers Question: how to illustrate the world financial crisis by using the graphs of aggregate demand and aggregate supply? The financial crisis has essentially caused an unprecedented fall in aggregate demand. Aggregate demand has fallen because: Bank lending decreased due to the credit crisis and shortage of bank funds. The shortage of bank lending has …
An economic downturn implies a fall in real GDP. A downturn also includes that period just before a recession – with a fall in the rate of economic growth and a widening output gap. A downturn will also include a period of negative economic growth and recession. An economic downturn is part of the economic …