Readers Question: 1. I read somewhere that accommodative monetary policy (in other words, quantitative easing) does not automatically result in higher inflation. For higher inflation to occur, the output gap must be crossed. i.e. idle factories back in business, unemployment rates down, etc. However, I don’t think the hyperinflation in Zimbabwe was preceded by increasing …
Readers Question: What is the impact of debt on the housing market in the UK? If the UK is in such a debt crisis, what impact has this had on the housing market. Firstly, a debt crisis could imply both government debt and household debt. The UK is facing a combination of both (see: total …
Is this the future of a world without oil? Readers Question: What would a world without oil look like? Oil is currently the most important commodity. It is vital to transport (air, sea, road and rail) and also the production of goods like tar and plastic. Without oil, society and the economy would look quite …
Readers Question: Why is the current recession in Europe so bad? The recession in the Eurozone is one of the deepest recessions on record. For example, Greece are expecting 2013 to be the sixth consecutive year in recession (with on and off quarters of recovery)- this is one of the longest recession on record. Output …
Readers Question: Does low inflation always mean low-interest rates? Generally low inflation will lead to low-interest rates. Although in practice there may be some divergence. The UK has an inflation target of CPI = 2%. Therefore, interest rates are used to achieve this target. If inflation falls to below 2% the MPC will cut rates …
Readers Question: There just seems to be many paradoxical actions taking place in markets and economies at the moment. How do we explain? Paradoxes of UK economy Low interest rates have not increased spending / economic growth Despite recession, inflation has been above target. Despite recession and depreciation of Pound, current account deficit increased in …
What are the Global Imbalances? US ran a large and persistent current account deficit (imports higher than exports) of up to 6.5% of GDP in 2006 Diagram of Current Account Surplus / Deficit in US and rest of world source: (1) 2. China ran a large current account surplus, accumulated foreign reserves, kept Yuan undervalued …
Perfect competition is a market structure with the following features Many buyers and sellers – 1000s of firms. Freedom of entry and exit into the market Homogenous good Perfect information In a way, stock markets are an example of perfect competition. There are hundreds of buyers and sellers. When buying shares you can choose from …