Can Governments Increase the Rate of Economic Growth? Governments often seek to increase the rate of economic growth. Higher growth rates improve public finances, increase economic welfare and help reduce unemployment. However, it is debatable how much the government can actually increase the rate of economic growth. The greatest potential for increasing economic growth occurs …
The UK economy faces a few paradoxes. Low Growth – High Inflation. Firstly, after a deep recession the economic recovery is weak. In theory, high unemployment and low growth should lead to low inflation. However, due to rising energy and food prices, we have inflation above target. This presents a conundrum for the Bank of …
Readers Question: Where is the US economy headed? Is it inflation or depression? Recently, Goldman Sachs predicted a rough year ahead for the US Dollar. They forecast the dollar may fall against Pound Sterling to $1.85 in 12 months. Against the Euro, they forsee it to fall to $1.55 in a year’s time. Exchange rates …
Readers question: Nor do I understand how they can weaken their currency through government intervention, if they are not intervening. Is it only US that is complaining about the value of the Yuan? The main thing is that Chinese Central Banks, with the support of the Chinese government are purchasing foreign assets, such as US …
Readers Question: How can the U.S. economy be growing, even at 2%+, when the unemployment rate is so high. The unemployed don’t pay taxes, and obviously can’t spend their earnings. The US economy may be growing by 2%, but, it is still along way below potential output. It is merely recovering from a deep recession. …
To many people’s surprise, UK house prices have risen quite strongly in the past 12 months. If we look at the experience of Japan, United States, Ireland or Spain, it seems the experience of Britain is unusual. Countries like Japan and the US had a boom and bust in house prices, similar to the UK. …
This graph illustrates the difference between actual GDP and potential GDP. It also indicates how much Real GDP growth has lagged behind potential growth. This means the US economy currently has substantial spare capacity. This is reflected by a rise in unemployment and factories operating below full capacity. The Real potential GDP illustrates the long …
One of the great challenges of Monetary and Fiscal Policy is knowing exactly where the economy is. If output is falling, then this justifies an easing of monetary policy (lower interest rates, or in the UK’s current situation more quantitative easing). Recently GDP statistics showed an unexpected 0.4% fall in GDP. This was a key …