Readers Question: I’m currently reading ‘Crisis Economics’ (by N.Roubini) at the moment and I don’t get some stuff in the book. When it was talking about the current account balance, the book referred to it as a balance between national savings and national investment, but I don’t quite understand this. The Current account on the …
Fiscal policy involves changing the level of taxation and government spending to influence the rate of economic growth. Expansionary fiscal policy is used to stimulate aggregate demand and boost the rate of economic growth. It involves higher spending, lower taxes and will result in higher government borrowing. Expansionary fiscal policy will be used in a …
Outline some of the problems the economy might face in recovering from a period of recession. To recover from a recession there needs to be either a rise in AD or a readjustment in prices and wages. An increase in aggregate demand will increase GDP and help the economy recover from recession. Low Consumer …
An adverse supply-side shock is an event that causes an unexpected increase in costs or disruption to production. This will cause the short-run aggregate supply curve to shift to the left, leading to higher inflation and lower output. Diagram showing supply-side shock SRAS shifting to the left causes a higher price level and lower real …
The 1930s economy was marked by the effects of the great depression. After experiencing a decade of economic stagnation in the 1920s, the UK economy was further hit by the sharp global economic downturn in 1930-31. This lead to higher unemployment and widespread poverty. However, although the great depression caused significant levels of poverty and …
Readers Question: Could you comment on This BBC programme on Q.E. The programme highlights several criticisms of Quantitative Easing, especially the Q.E. adopted by the Bank of England. Since 2009, the Bank of England’s balance sheet has quadrupled, and now a third of all government bonds are now held by Bank of England. The programme …
UK interest rates were last raised over a decade ago – July 2007, but it is widely expected that this week the MPC will vote to raise base interest rates from their current low of 0.25%. The logic for an interest rate rise is that – inflation (3%) is above the 2% target, fall in …
A key factor in determining inflation is people’s expectations of future inflation. If firms and consumers expect future inflation then it can become a self-fulfilling prophecy. If workers expect future inflation, they are more likely to bargain for higher wages to compensate for the increased cost of living. If workers can successfully bargain for higher …