The confidence fairy refers to the criticism that cutting government spending will lead to renewed confidence and economic recovery. In response to the economic crisis of 2008, many economies faced large budget deficits – due to cyclical factors (e.g. falling tax revenue in recession) and also underlying structural deficits (e.g. growing welfare bills). Some countries …
The aggregate supply curve shows the total supply in an economy at different price levels. Generally, the aggregate supply curve slopes upwards – a higher price level encourages firms to supply more. However, there are different possible slopes for the aggregate supply curve. It could be highly inelastic (vertical) to very elastic. It is important …
In the nineteenth century, the UK was characterised by high levels of income inequality. However, from the start of the twentieth century until 1978, there was a steady fall in inequality and reduction in poverty (both relative and absolute). However, the 1980s saw a sharp rise in inequality which has not been reversed in the …
Readers Question: What is the difference between short run aggregate supply (SRAS) and Long run aggregate supply (LRAS)? Essentially, the SRAS assumes that the level of capital is fixed. (i.e. in the short run you can’t build a new factory) However, in the short run you can increase the utilisation of existing factors of production, …
The World Trade Organisation (WTO) is committed to improving free trade amongst its member countries. However, its role has been controversial – creating polarised views. These are some of the criticisms of the WTO Free Trade benefits developed countries more than developing countries. It is argued, developing countries need some trade protection to be able …
A fixed exchange rate occurs when a country keeps the value of its currency at a certain level against another currency. Often countries join a semi-fixed exchange rate, where the currency can fluctuate within a small target level. For example, the European Exchange Rate Mechanism ERM was a semi-fixed exchange rate system. Summary The idea …
Living standards vary significantly across the globe. Wealthy economies, such as the US have an average GDP per head (at PPP) of $59,495 in the US (IMF 2017) This compares to an average annual income as low as $808 Burundi. (IMF 2017) There are many reasons for these divergences in income including – historical trends, …
