Readers Question: To what extent are higher government debt levels a constraint on economic growth? There has been much debate about the extent to which high levels of government debt might slow down rates of economic growth. In particular, a 2010 paper “Growth in a Time of Debt,” by Carmen Reinhart and Kenneth Rogoff seemed …
A current account deficit occurs when the value of imports (of goods, services and investment income) is greater than the value of exports. There are various factors which could cause a current account deficit: 1. Overvalued exchange rate If the currency is overvalued, imports will be cheaper, and therefore there will be a higher quantity …
In the nineteenth century, the UK was characterised by high levels of income inequality. However, from the start of the twentieth century until 1978, there was a steady fall in inequality and reduction in poverty (both relative and absolute). However, the 1980s saw a sharp rise in inequality which has not been reversed in the …
Investment influences the rate of economic growth because it is a component of aggregate demand (AD) and more importantly influences the productive capacity of the economy. (LRAS) An increase in investment should be a boost to economic growth. Readers Question: Discuss the importance of investment in increasing economic growth. Investment means expenditure on capital spending, …
The concept of hidden taxes is that taxpayers may remain unaware that they are paying the tax because it is included in the price and the tax is not visible. Examples of hidden taxes include Indirect taxes – VAT, sales tax, excise duty, Insurance tax, air passenger duty. Corporation tax – a tax on company …
Readers Question: How much are US economic policies are responsible for its current account deficit? At one stage, the US current account deficit reached 6.5% of GDP, which was one of the highest in the industrialised world. Since the early 1980s, the US has been running a persistent current account deficit. Reasons for the US …
In 1967, the UK government of Harold Wilson devalued the Pound from $2.80 to $2.40 (a devaluation of 14%). It was a major political event because the government had tried hard to avoid a devaluation, but felt forced into the decision because of a trade deficit, a weak domestic economy and external pressures from creditors. …
The aims of fiscal and monetary policy are similar. They could both be used to: Maintain positive economic growth (close to long-run trend rate of 2.5%) Aim for full employment Keep inflation low (inflation target of 2%) The principal aim of fiscal and monetary policy is to reduce cyclical fluctuations in the economic cycle. In …