One of the great challenges of Monetary and Fiscal Policy is knowing exactly where the economy is. If output is falling, then this justifies an easing of monetary policy (lower interest rates, or in the UK’s current situation more quantitative easing). Recently GDP statistics showed an unexpected 0.4% fall in GDP. This was a key …
Readers Question: Is it a good idea for the Baltic states to adopt the Euro before they have met the convergence criteria? Latvia and Lithuania have a target date of 2013 for joining the Euro. Estonia by Jan 1 2011. The four main convergence criteria for the joining the Euro are: Low inflation Low Government …
Readers Question: Is it possible the phenomenon to have a relationship between GDP and house prices where an increase of the mean GDP to lead to decreased house prices? Yes, An interesting phenomena is that UK house prices have shown an increase during 2009 – despite a prolonged recession. Typically, in a recession, you would …
Fear is a powerful emotion which can have significant economic implications. Often real fears are ignored in a wave of over-exuberance. Sometimes, if people had greater fear of getting into debt and falling asset prices e.t.c, the economy would be less prone to bubbles and the consequent mess. Perhaps fear isn’t the right word. – …
Readers Question: What effect does expansionary fiscal policy have on the fishing sector? If successful, expansionary fiscal policy will increase Aggregate demand and increase the rate of economic growth. In a recession, expansionary fiscal policy could play a significant role in increasing level of living standards and levels of consumption. Expansionary fiscal policy involves changes …
The Baltic Dry Index is a measure of the international price for sending commodities by sea. It is calculated by combining the price of different shipping sizes for dry commodities. Commodities include metals, grains, crude oil. The Baltic Dry Index developed in the mid-eighteenth century. It gained the name Baltic Dry index partly because at …
An interesting graph showing relationship between the output gap and levels of government borrowing. A negative output gap indicates GDP is below full capacity and there is unemployed resources. Therefore, in a deep recession, like 2009, the output gap will rise. In a boom, we will have a positive output gap as firms struggle to …
Readers Question: I would like to know more on the issue of who exactly benefits from the UK national debt that my great grandchildren are going to be paying. It is helpful to think of the three aspects of the government debt Structural deficit – related to above inflationary increases on health and education and …