Readers Question: Discuss the impact of a decrease in government spending? If the UK government cut government spending, it would have a significant impact on both aggregate demand (AD) and the supply side of the economy – depending on which areas of public spending were cut. Firstly, government spending (G) is a component of Aggregate …
What policies can a government use to reduce pollution? Pollution is a negative externality – a cost to society. To reduce pollution, the government can use four main policies – tax to raise the price, subsidise alternatives, regulations to ban certain pollutants and pollution permits. Government policies to reduce pollution Tax. e.g. Carbon tax, which …
Definition: The Life-cycle hypothesis was developed by Franco Modigliani in 1957. The theory states that individuals seek to smooth consumption over the course of a lifetime – borrowing in times of low-income and saving during periods of high income. The graph shows individuals save from the age of 20 to 65. As a student, it …
Definition – External economies of scale occur when a whole industry grows larger and firms benefit from lower long-run average costs. External economies of scale can also be referred to as positive external benefits of industrial expansion. Individual firm experiencing economies of scale from a larger industry Why do external economies of scale occur? Cluster …
Readers Question: Does job creation come from public or private sector? The public sector is government (national and local). Public sector jobs include doctors, police, teachers and civil servants. The private sector is private enterprises – retail, manufacturing, local services. Public sector jobs as a share of total employment UK 23.5% (2013) US 14.6% (2008) …
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 …
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 …
Global economic imbalances refer to an unfair distribution of resources between different countries or it may refer to a one-sided trade situation. Global economic imbalances include Balance of Payments. Unbalanced trade between different economies, e.g. US trade deficit with China Unemployment levels, e.g. high unemployment in southern Europe versus low unemployment in US, UK. Poverty …