Readers Question: What effect do interest rates (either a rise, fall or steadying) have on both monetary and real wages? I think I’ve got my head around it, but I’m looking for a nicely explain summary (understanding that there are probably a million of contributing factors that can lead to a million outcomes!) You are …
Definition of Participation Rate. The participation rate is the number of people working or actively seeking work as a % of the working population (16-65). The participation rate is similar to the concept of being ‘economically active’. If a person drops out of the labour market, they are considered economically inactive and no longer participating. …
Sustainable economic growth implies that the growth rate can be maintained over the long term. Sustainable growth involves both Environmentally sustainable growth – e.g. not exploiting scarce resources. Sustainable growth in terms of low inflation and a balanced economy. Sustainable economic growth The long-run trend rate of economic growth is the rate of economic growth …
The Covid recession is very expensive for governments. Not only are we experiencing the usual cyclical fall in tax receipts, but there has been unprecedented government spending – such as the furlough scheme for workers, loans for business and a large rise in welfare payments. Government borrowing will increase to record peacetime levels. In April …
There are a few different reasons firms may put up prices, but in each case, a business will weigh up the pros and cons. Potential reasons for increasing prices An increase in costs of production. A general increase in the price level (inflation) Competitors are increasing the price. Firms believe demand has become more price …
Oil prices tend to be volatile for a few reasons. Demand varies with the economic cycle. Changes in the price of oil can be magnified by speculators who buy forward contracts Supply is quite inelastic in the short-term. Therefore, a small change in demand can have a significant impact on the price. Firms and consumers …
In a recession, you would usually expect a fall in the inflation rate due to lower demand and lower economic activity. The inflation rate fell in major recessions like 1929-32, 1981, 1991 and 2020.. However, it is not guaranteed inflation will fall in recession. For example, we could have a period of stagflation – rising …
The Covid virus has created circumstances where many economic rules, teachings and assumptions don’t apply in the same way. GDP is no longer everything. In economics, GDP is usually the most visible goal, with economic policy often focused around maximising economic growth. The virus forces us to shift priorities – rather than worrying about GDP, …