As output falls, you would expect a rise in unemployment. If output is lower, firms will need less workers. Okun’s law is a look at the relationship between falling output and rising unemployment. As a rough rule of thumb, in Okun’s original statement of his law, he found a 3% increase in output corresponded to …
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 …
A good thing about studying economics is that new issues crop up. A year ago, few people would have heard of quantitative easing, but, now it is has become an important part of UK monetary policy. Because it is relatively untried, there is a degree of uncertainty how it will work and whether it will …
Readers Question: What is Sensex and impact on economy? The Sensex is the leading measure for the Indian Stock Market. It is based on the 30 Largest trading companies on the Bombay Stock Exchange BSE (India’s primary financial market) Like other indexes, the Sensex is recalculated at various times to change the 30 largest trading …
Many argue that on simple purchasing power parity, the Chinese currency the Renminbi is undervalued by approximately 30%. This is a source of friction in the US, with firms claiming they lose out to a cheap Chinese currency which can undercut US goods. The Chinese government wish to keep the currency undervalued because: A weaker …
Readers Question How do you explain the long boom in house prices from the late 1990s? There were several reasons for the long boom in house prices between 1994 and 2007. Low Interest rates. In the early 1990s, UK interest rates reached 15% and were in double figures for several months. After the 1991 recession …
Readers Question: Why does the federal reserve buy treasuries? Isn’t that just taking money from one pocket and putting it in another? There are a few reasons the Federal Reserve is buying treasuries. With recession and falling velocity of circulation, the Money supply adjusted for velocity of circulation is showing deflation. Therefore buying Treasures and …