Austerity can mean different things. See: definition of austerity. But, for this article, I will take austerity to mean a squeeze on public sector spending. In real terms (adjusted for inflation), government spending is rising. However, despite an overall rise in government spending, some departments have seen spending fall or at least shrink as a …
Definition of Rational expectations – an economic theory that states – when making decisions, individual agents will base their decisions on the best information available and learn from past trends. Rational expectations are the best guess for the future. Rational expectations suggest that although people may be wrong some of the time, on average they …
Readers Question: Evaluate the potential cost and benefits to the UK economy of adopting the Euro.” Costs of Joining the Euro Loss of independent monetary policy. In the Euro, interest rates are set by ECB but may be inappropriate for UK economy. For example, the 2008 recession hit the UK harder than other European countries …
A budget surplus occurs when government tax receipts are greater than government spending. It means the government can either save money or pay off existing national debt. It is worth noting, that budget surpluses are quite rare in the past 120 years. Politicians have sometimes attempted to enshrine budget surplus into law but what are …
Demand management policies are efforts to influence the level of aggregate demand (AD) in an economy. The two main types of demand management policies are: Monetary Policy Fiscal Policy To some extent, the exchange rate could be used to influence aggregate demand, but in practice, it is rarely used as a tool to influence aggregate …
During the years 1997-2007, there was a significant rise in government spending, though as a % of GDP the rise was less marked. Source: ONS Public Sector Finances MF6U – October 2014 Government spending as a % of GDP A more meaningful comparison is to look at the share of government spending as a % …
Inflation – is defined as a persistent increase in the general price level. The inflation rate is a key statistic and has important consequences for industry. In particular, high rates of inflation often discourage investment and lead to lower long-term growth for the following reasons: How inflation affects industry Uncertainty. High and volatile inflation creates uncertainty …
To what extent can supply side policies reduce unemployment? To try and reduce unemployment, the government can provide interventionist supply-side policies, such as better training and education or it can try free-market policies, such as increasing labour market flexibility. However, there is a limit because supply-side policies are ineffective in dealing with cyclical (demand-deficient unemployment) …