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 % …
Readers Question: how can the government avoid public sector failure? Firstly, it makes a change to consider a question like this. Usually, the question is – Why is the government inefficient? Why do we get government failure? Should we privatise public services? But, here we can examine whether the tendency to government failure can be …
People often refer to the idea of a Twin Deficit, especially in the US. The twin deficit refers to Government borrowing – government spending greater than tax revenues. Government borrowing creates an annual budget deficit and increases national debt. Current account deficit (imports greater than exports) on Balance of Payments US current account deficit 5% …
Readers Question: Does Government debt matter? Do high fiscal deficits threaten economic stability? Summary Many worry that high levels of government debt could cause economic instability. In certain occasions, countries with high debt have seen investors lose confidence, leading to higher bond yields and putting pressure on the government to slash spending, for example, several …
One of the most popular topics on this blog is government debt. UK National debt and list of countries sovereign debt. To many people the sums involved are so large, there seems something instinctively wrong, even dangerous, about allowing the government to borrow so much. As Mrs Thatcher said, she was brought up a grocer’s …
Under certain circumstances, the government might want to intervene in the foreign exchange markets to influence the level of the exchange rate. Methods to Influence the Exchange Rate Reserves and Borrowing. If the value of an exchange rate is falling and the government wants to maintain its original value it can use its foreign exchange …
Should the government leave house prices to market forces, or actively intervene to prevent a house price crash? Arguments for intervention Falling House Prices Could cause a recession If house prices fall, it will cause significant problems for the UK economy. There will be a fall in consumer wealth, and declining house prices can lead …
Readers Question: Between markets and concerted central banks intervention, e.g in currency and shares, which forces are likely to prevail? Market forces can be very strong in influencing the value of currency or shares (or bond yields). Governments and Central Banks can try and influence the value of the currency and bond yields. In certain …