Its funny, i finally finished my A levels last week and know that i will never use any of the knowledge that i learnt for them. What i can be sure though, is that i will use the economic theory which i learnt many times over. Not only is this because i will be taking a degree which is predominantly economics based but also because my economic knowledge can be applied to almost every real life scenario which occurs.
Take this article which ive just read, http://www.bbc.co.uk/news/uk-politics-13918113
Now if i were sitting in an economics lesson there would be several points which we would already have picked up on.
The first is that, as the title of the article suggests, China could prove an invaluable market for UK exports which could stimulate economic growth, employment and the revival of UK industries which were previously in decline. "Up to £1 billion worth of business deals are expected to be announced during Mr. Wen's 3 day tour". This increase in trade could help prevent the UK from slipping into a much feared double-dip recession, which is looking ever more likely if you listen to small firms at present.
The second point is that this article demonstrates the impact of globalisation in the world. Economies have become integrated through increased trade and multi-national corporations taking advantage of economies of scale and this can be seen in the article as China's leading automaker has bought out MG Rover and is continuing to build cars at the Longbridge factory.
The final point links in with the second and comes under the title of comparative advantage. The chinese show a comparative advantage (i.e. can produce goods with the lowest opportunity cost) in manufacturing car parts whilst the UK shows a comparative advantage in assembling the car from the parts. Globalisation has allowed this comparative advantages to be exploited which will benefit both the chinese and british economies.
At least ome of my A levels has proven useful then...
Sunday, 26 June 2011
Tuesday, 14 June 2011
Inflation, inflation, everywhere
Right, i havent really been paying that much attention to the news in the last week or so as i've had my head buried in the school books. However, today i decided to read last weeks edition of "The Economist" and also checked out the economy section of the BBC website. What i've found is that across the world there appears to be rising inflation, on the BBC website there are current articles which suggest that inflation in the UK, China and India is well above the desired targets and this is very worrying. CPI inflation in the UK has held steady at 4.5%, well above the 2% target whilst inflation in China is at a 34 month high of 5.5% and India at 9.06%. "The Economist" hints that inflation in Brazil is now rising too fast and has now reached the level of 6.5%.
The reasons for the rising inflation seem to be similar throughout the world, rising fuel and food prices and it makes sense as well. With increased trade due to globalisation, rising production costs in one country are quickly going to be passed on to other countries. What's worrying however is that monetary policy, the main instruments which aim to control inflation are seemingly having little impact. The article in "The Economist" went into a little more depth than A level economics prepares you for but i got the gist that monetary policy wasnt working. The Chinese central bank has risen interest rates four times since october to rein in inflation and obviously it has been unsuccessful.
The question now is what can governments do? Apparently the Brazilian government should implement a tighter fiscal policy (again it was explained a little more complicatedly than that) but will that really reduce cost-push inflation. I doubt it but maybe that is not the aim. The impact of rising, unexpected inflation is quite worrying. This will force workers to demand real wage increases to counter any future rises in inflation. This could lead to unemployment rising as firms shed workers to keep costs low which would in turn lead to a worsening budget deficit as tax revenue would fall and more people would be claiming unemployment benefits. Could the governments try to improve the flexibility and efficiency of the labour markets to try and reduce inflationary pressures. The public sector pay freeze will be putting a squeeze on alot of families which should, in theory reduce demand pull inflationary pressures.
I'm not sure what the answer is, but feel that something needs to be done quickly, otherwise this could spell doom. Surely, Mervyn King must be contemplating an increase in the bank rate soon?
The reasons for the rising inflation seem to be similar throughout the world, rising fuel and food prices and it makes sense as well. With increased trade due to globalisation, rising production costs in one country are quickly going to be passed on to other countries. What's worrying however is that monetary policy, the main instruments which aim to control inflation are seemingly having little impact. The article in "The Economist" went into a little more depth than A level economics prepares you for but i got the gist that monetary policy wasnt working. The Chinese central bank has risen interest rates four times since october to rein in inflation and obviously it has been unsuccessful.
The question now is what can governments do? Apparently the Brazilian government should implement a tighter fiscal policy (again it was explained a little more complicatedly than that) but will that really reduce cost-push inflation. I doubt it but maybe that is not the aim. The impact of rising, unexpected inflation is quite worrying. This will force workers to demand real wage increases to counter any future rises in inflation. This could lead to unemployment rising as firms shed workers to keep costs low which would in turn lead to a worsening budget deficit as tax revenue would fall and more people would be claiming unemployment benefits. Could the governments try to improve the flexibility and efficiency of the labour markets to try and reduce inflationary pressures. The public sector pay freeze will be putting a squeeze on alot of families which should, in theory reduce demand pull inflationary pressures.
I'm not sure what the answer is, but feel that something needs to be done quickly, otherwise this could spell doom. Surely, Mervyn King must be contemplating an increase in the bank rate soon?
Thursday, 2 June 2011
Revision Links
I was trawling through text books earlier as i tried to find explanations as to how trade barriers work amd after having no luck in finding anything i decided to try the internet. It staggered me as to how many economics related videos there were on youtube and i think they provide not only an excellent revision resource but also explanations that even "Average Joe" can understand. Here are a few which i found particularly useful (U6 students can thank me later!)
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