Firms generally prefer inflation to be low and stable. If inflation rises above 3 or 4%, firms may see a rise in costs and uncertainty. Inflation can also cause firms problems of rising costs, falling profitability, and a decline in international competitiveness. However, inflation is not necessarily damaging for a firm – especially, if they …
Question: How will Brexit affect the UK budget deficit / national debt / public finances? One of the low points of the Brexit campaign was when the chancellor of the exchequer George Osborne announced a vote for Brexit would lead to higher taxes and lower spending straightaway. Dubbed the ‘punishment budget’ it probably had the …
One of the great achievements of the twentieth century is a dramatic rise in life expectancy. For examples, life expectancy in the US has increased from 45 in 1902 to 75.7 in 2004 (link). However, increased life expectancy combined with declining birth rates have caused many to worry about the cost of an ageing population. …
Interest rates have been cut to a record low of 0.25% – essentially due to grim economic news from the short-run demand side shock of Brexit. Economic theory states that in normal circumstances, lower interest rates should boost aggregate demand (AD). To give a quick recap, lower interest rates should in theory: Reduce the incentive …
Economic uncertainty refers to how firms and consumers are unsure about the future direction of the economy and usually react in a more conservative behaviour (i.e. less spending and investment) Economic uncertainty usually causes a lower rate of economic growth, until the uncertainty is resolved. UK economic uncertainty Measuring uncertainty There is no easy …
There have been a couple of thoughtful pieces from Paul Krugman challenging the consensus that Brexit will have very high short-term economic cost. Krugman’s argument is: There is uncertainty, but uncertainty on itself is not enough to create a significant demand side shock. In fact, when the uncertainty is resolved, we could have a mini-boom …
The UK saw net migration of 330,000 in the last year. If net migration were to fall significantly – how would this affect the UK economy? Net migration is generally difficult to predict, but there are good reasons to assume this is likely to fall in future years. Net migration will likely fall because: Climate …
There have been numerous economic predictions springing from a possible Brexit including recession, unemployment, falling Pound, falling stock markets, collapsing house prices, inflation and the end of civilisation as we know it (I’ll leave predictions of world wars e.t.c. for someone else to grapple with). But, what is the economic theory behind these economic predictions? …