Economic issues

economic advantages and disadvantages of lower migration

+ less pressure on housing + less pressure on local council's services

Derived demand

- Business demand that ultimately comes from (derives from) the demand for consumer goods. - Demand for land is not for the land, it's for the uses it can be put

notes on types of currencty

- we have not had a managed currency since 92, and have been able to float - Chinese government was criticised for pegging renmibi to dollar, making goods artificially cheap

Impact of energy price increases on inequality

- As energy prices rise, fuel poverty rates will rise amongst the poorest in society. Those with low disposable income will see their discretionary income fall significantly, because things like heating are essential for a comfortable quality of life. This would mean they have less money to invest in asset building goods - like buying shares or university education. This traps the poor in a cycle of poverty, perpetuating income inequality. - Additionally,as firms find they have higher costs of production because of the rising energy prices, they may pass that increased cost onto the consumer in the form of higher prices. This higher price may not have so much of an income on those with high incomes as it only represents a small proportion of their discretionary incomes, but for those on low incomes, the discrepancy in purchasing power means it will significantly decrease their discretionary income, widening inequality.

Household debt

-

2 factors affecting supply of oil

- One could be a change in new technology - Another could be subsidies, although unlikely, if the government gives more money, they'll produce more - Change in indirect taxes

PMI

- PMI in August fell to 47.4 from 18 in July

overheating

- experiencing high level of economic growth that's inflationary - aggregate demand rising faster than aggregate demand

Consequences of rise in NLW on labour market

- Can afford childcare and transport, so more likely to work. This will increase supply, which could have one of two effects. If there's a current labour market deficit in supply, prices will go down; if it's a surplus prices will rise - Redundancy may be the case at first - in diagram, there will be a minimum price that's above equilibrium increased

How could lower inward migration mean higher wages

- Population growth at a lower rate - supply shift to the left

Reasons for globalisation

* Containerism - Costs of ocean shipping have come down due to containerism, bulk shipping, and other things - Lower cost of transporting products around the global economy helps to bring prices in the country of manufacture closer to the prices in the export market - Makes markets more contestable internationally * Technological Change - Through the internet, cost of transmitting and communicating information is lowered - Boosts trade in knowledge products over the internet * Economies of Scale - Because of economies of scale (bulk buying and spread costs) efficiency goes up - A domestic market may therefore be seen as too small * Opening up Of Global Financial Market - Removal of Capital controls in countries facilitating FDI - IMF encourages trade * Differences in tax systems - Corporations want to benefit from lower unit costs, and so countries reduce tax to get more FDI * Less protectionism - Old forms of non tariff protectionism like import licensing and foreign exchange controls have been dismantled - Borders have risen, tariffs have fallen * Deregulation * Surge of worldwide capitalism after collapse of socialism and communism in Soviet and China

Is income inequality rising always undesirable

+ a portion of society is trapped out from using certain goods and services, which are produced with the view that certain individuals can afford it. Inefficiency as it's not the most equitable distribution of goods that brings benefit to as many people as possible + In order to try and get themselves to that standard of living, people may dip into savings and take out loans. If this drives people into debt, govt will have to give out more in benefits, and in the long run, they'll see less consumption + poor mental health as a result of resentment, poor performance at work and bad productivity + lower economic growth because richer people have higher MPS than poor - Government may not have to intervene once certain individuals have amassed a certain level of wealth. "Big Society"; charitable donations etc can be made - Aspiration? More likely to enrol in education etc - trickle down

policies to improve UK productivity

+ government could mandate targets for all firms, incentivising workers to work harder + subsidise costs of training + better healthcare and social care + stem research + tax credits to firms for capital investment +northern powerhouse

is growth sustainable

+ has huge workforce; large market potential because of emerging middle class + growing investment in technology + yuan still worth less; growing export led growth + investment in human capital raises productivity + returns on investment in africa and pakistan + injection of money by chinese central bank + end of one child policy - assets bubble - banking crisis - tariffs/ trade war - population/ demographic issues - pollution/ climate change - rising wages have made china less competitive - middle income trap - inflation

Fiscal stimulus

- "Fiscal" is term relating to government spending and revenue collection - "Fiscal stimulus" therefore means the way that the government spends its revenue to spark aggregate demand, triggering economic growth - Example could be subsidies to firms -

Global economic growth

- % increase in total value of aggregate production of goods and services by the world all together, the combined efforts of all countries - Sometimes, some countries will contribute to this more than others, for example america is 1/4 of global equality - % GDP growth

benefits of brexit potentially

- 39 mill divorce bill

fixed exchange rate disadvantages

- A fixed exchange rate can be expensive to maintain. A country must have enough foreign exchange reserves to manage its currency's value. - A fixed exchange rate can make a country's currency a target for speculators. They can short the currency (To go short on a currency means that you sell it, hoping for a decline in the market price.), artificially driving its value down. That forces the country's central bank to convert its foreign exchange, so it can prop up its currency's value. If it doesn't have enough foreign currency on hand, it will have to raise interest rates. That will cause a recession. - That happened to the British pound in 1992. The pound was pegged to Germany's mark, but Britain had higher inflation than Germany, and the already-high interest rates in the UK left its central bank with little wiggle room to adjust for inflation differences. George Soros kept shorting the pound until the U.K. central bank gave in and allowed the pound to float. In 2015, it happened when Switzerland had to release the Swiss franc from its fix to the euro, which had plummeted in value. - One disadvantage of a pegged currency is that the value of the money is kept artificially low creating an anti-competitive trading environment compared to a floating exchange rate. Domestic manufacturers support this argument in the United States in the case of the yuan peg to the dollar. These manufacturers consider those low-priced goods, partially the result of an artificial exchange rate is costing jobs in the United States. - The central bank of a country with a currency peg must monitor supply and demand and manage cash flow to avoid spikes in demand or supply. These spikes can cause a currency to stray from its pegged price, which means that central banks will need to hold huge volumes of money to avoid excessive buying or selling of their currency that is considered volatile. Currency pegs affect forex trading by artificially stemming volatility. - The currency peg means cheap Chinese goods for U.S. consumers, a development that can help keep overall inflation at a modest level. The benefits of less expensive goods extend to businesses. U.S. companies that use less expensive imported items from China to make goods enjoy reduced production costs. With lower expenses, firms can either lower the prices for consumers, increase their profits or both. - In a fixed exchange rate system, a country's central bank typically uses an open market mechanism and is committed at all times to buy and/or sell its currency at a fixed price in order to maintain its pegged ratio and, hence, the stable value of its currency in relation to the reference to which it is pegged. To maintain a desired exchange rate, the central bank during a time of private sector net demand for the foreign currency, sells foreign currency from its reserves and buys back the domestic money. This creates an artificial demand for the domestic money, which increases its exchange rate value. Conversely, in the case of an incipient appreciation of the domestic money, the central bank buys back the foreign money and thus adds domestic money into the market, thereby maintaining market equilibrium at the intended fixed value of the exchange rate. -Central banks require to hold large reserves of gold and foreign currency to use for intervention in the market to defend fixed exchange rates.1. The government cannot use monetary policy to achieve domestic goals

Pros of fixed currency

- A fixed exchange rate provides currency stability. Investors always know what the currency is worth. That makes the country's businesses attractive to foreign direct investors. They don't have to protect themselves from wild swings in the currency's value. They are hedging their currency risk. - A country can avoid inflation if it fixes its currency to a popular one like the U.S. dollar or euro. It benefits from the strength of that country's economy. As the United States or European Union grows, its currency does as well. Without that fixed exchange rate, the smaller country's currency will slide. As a result, the imports from the large economy become more expensive. That imports inflation, as well as goods. - For example, the U.S. dollar's value is 3.75 Saudi riyals. If the dollar strengthens 20% against the euro, the value of the riyal, which is fixed to the dollar, has also risen 20% against the euro. To purchase French pastries, the Saudis pay less than they did before the dollar strengthened. For this reason, the Saudis didn't need to limit supply as oil prices fell to $50 a barrel in 2014. The value of money is what it purchases for you. If most of your country's imports are to a single country, then a fixed exchange rate in that currency will stabilize prices. (but it doesn't bc you can't control external events in the country ur pegged to) - One country that is loosening its fixed exchange rate is China. It ties the value of its currency, the yuan, to a basket of currencies that includes the dollar. In August 2015, it allowed the fixed rate to vary according to the prior day's closing rate. It keeps the yuan in a tight 2% trading range around that value. - China has to manually adjust the exchange rate of the yuan to the dollar. This is advantageous to China, but not for the U.S. That's why the U.S. government has pressured the Chinese government to let the yuan rise in value. That action would effectively make U.S. exports cheaper in China, while Chinese exports would be more expensive in the U.S. In other words, it's an attempt by the U.S. to lower its trade deficit with China. 1. Less uncertainty and exchange rate risk increases the volume of trade and cross border investments. Firms know movements in exchange rate won't affect profitiability 2. Policy discipline on government as inflationary growth policy is not an option. They can't just devalue the currency to get back competitiveness, so they have to look at increasing labour productivity etc 3. Firms can engage in FDI without currency risk4. Inflation controlled is it is consistently kept high

Overview of pound sterling

- A floating currency - Value is allowed to fluctuate according to the relative strength of the supply and demand for sterling on foreign currency markets - The sterling-dollar exchange rate will be weighted more heavily than the sterling- dollar exchange rate because the UK trades more with the USA than with Japan

2008 financial crash

- After collapse of Lehman brothers, sterling depreciated by over 20% and this did help stimulate a 23% increase in exports by 2013 - But GDP fell and sterling did not recover - but because QE only benefitted the richest, then it hasn't been able to change the UK economy into one that's highly tradeable and focuses on things like manufacturing

High housing prices

- Apart from a minor correction during the financial crisis of 2008-9, housing affordability (median house prices as a share of median earnings) has fallen - House prices as a share of earnings have doubled in Manchester, Lancaster, and Boston

How to make a PPP adjustment for comparing GDP

- Build a basket of comparable goods and services and look at the prices of that basket in different countries - One to do this is the Big Mac Index to see if a currency is under or over-valued against the US dollar - Big Mac in the UK prices at 3 pound, and in Egypt it's 1.45 pounds - Pound is undervalued against dollar cos if it were at PPP levels, rate would be 1:1.68, but right now it's 1:1.24

Explain why building trade links with China is a key economic objective of the UK government.

- China is a major investor in the UK economy. Building trade links could see further investment from Chinese banks and businesses - China's industrial development offers opportunities for UK firms to gain contracts in China, such as UK water companies gaining the contract to build purification plants in Shanghai - Building trade links would be a major source of export income for the UK - UK universities benefit from lucrative fee-paying students from China - worth an estimated £1bn in 'exports' of tuition for foreign students. Building links could increase this - Emerging Chinese middle class could buy UK manufactured goods, bringing in valuable export revenues - Building stronger trade links with China may offset the economic fallout from Brexit - UK has pledged to match the US government's 10-year multi-entry visa for Chinese tourists, this will bring an extension of the spending power of Chinese tourists in the UK. - Credit example of Chinese investment in UK businesses - for example China Equity £50m investment in Aston Martin to develop electric sports car. London black cabs made by Chinese carmaker Geely has put £50m into research and development in Coventry factory - Credit possible negative impact - Chinese manufacturers often ignore UK 'intellectual property' and patent law - There are fears over the possibility of China 'dumping' cheap imports in the UK, for example steel

China globalisation strategy

- China's approach to globalisation has been cautious. Initially China protected its huge home market which hardly makes it a typical example of globalisation at work. Since joining the WTO (World Trade Organisation), China has opened itself to more trade. However international trade remains a small proportion of the overall Chinese economy. - China's strategy has been to offer a low-wage manufacturing base to attract foreign investment. The coastal area of China has done far better than the vast inland provinces. China's rapid economic growth has led to overcapacity in many industries. The impact has been felt in other countries with corporate profits falling and the formation of defensive mergers to eliminate competition. - In 2014 economic growth was 7%. Halfway through 2015 the annualised growth in factory output was 6%. Investment in fixed assets (often property) has grown at 11%. - These figures are a slowdown, but nowhere near a recession. - China has responded to market conditions by cutting interest rates and taking steps to boost domestic demand and increase imports. They claim to be moving towards a more market-based economic system by offering shares in giant state-owned conglomerates to private investors

Explain why trade wars would be detrimental to the global economy.

- Credit definition - an economic situation where countries raise protectionist barriers against each other to protect domestic industries from foreign competition - It can take the form of imposing tariffs and quotas on foreign trade as well as currency manipulation to favour domestic industries - Trade barriers can either make trade more difficult and expensive or prevent trade completely - Trade wars hurt consumers who would be faced with price rises in goods - Trade wars would also hurt many domestic producers because in a global economy supply lines cross borders. Tariffs on imported components would increase the costs of the manufactured good - making it more expensive and thus less competitive - High tariffs on imported food will particularly impact on the poor, who spend a disproportionate amount of their income on necessities - Some economists argue that a global trade war would accelerate automation as companies would be forced to cut internal costs - resulting in mass unemployment - Credit counter-argument that some economists argue that in the short run domestic companies would benefit being sheltered from foreign competition

Other factors leading to depreciation in pound

- Days after the Brexit, Mark Carney chose to loosen monetary policy by cutting interest to 0.25% and by creating an additional 100 bill pounds of cash through quantitative easing - Hot money outflows - UK's economy has largely been deindustrialised by globalisation. As a result, there are not many domestically-produced substitutes for most of the manufactured goods that we routinely like to import, but no longer produce - When imports get more expensive, theoretically, UK consumers should switch to UK produced goods - - But the UK gave up on mass producing these goods many years ago - Imported inflation -current account is shit - Hard to get the rate of short run economic growth

2 factors affecting demand for oil

- Fall in the price of complimentary goods. For example, if more people worldwide are now able to afford cars; then more people will need oil for the car, raising demand at every price level - Rise in global incomes. If, because of factors like globalisation of firms allowing for outsourcing, more jobs are creating and average incomes rise worldwide, greater consumption also means greater energy consumption, and therefore, gas will be more in demand.

Discuss the potential advantages and disadvantages to the UK of building stronger trade links with the USA.

- If there was a free trade deal with America this would mean cheaper imports into the UK such as American cars . - The UK could build on its variety of exports to the US - In addition, the US and the UK are each other's largest foreign investors. This investment would be further stimulated by stronger trade links. - The US is the second largest foreign supplier to the UK. A freer trade relationship could reduce the cost of those imports Similar culture and language Disadvantages - The UK would possibly have to end its ban on chlorinated chicken in order to satisfy American farmers - If the UK were to deviate from EU norms in a deal with America on genetically modified foods it would risk tougher customs checks with Europe - More limited access to the EU would also diminish its appeal to America - There are administrative cost implications. - There is concern that a trade deal might force the UK government to privatise the NHS - opening up the UK health service to American health care businesses. - Beef fed with growth hormones is a practice used in the US. It is currently banned in the EU on the basis of health concerns. The UK may have to approve such meat - The costs of harmonising non-tariff barriers safety standards - such as the difference in car windscreen wiper safety standards

Pound and dollar

- In early September 2016 Federal Reserve Chair, Janet Yellen announced that the American central bank would scale-back its programme of QE by $10 bill per month. The same year, the Fed tightened monetary policy by raising interest rates - Hot money went into the US

impact of falling china car sales on global carmakers

- Reduces carmakers revenue and profit. They may cut output + capacity - cut workers - price war -may cut back on research on development; less green tech, more climate change

China productivty

- Still about 12% that of the US

Impacts of falling oil prices on importing country's balance of payments

- In terms of current account, as prices fall, demand of firms will expand and therefore it's possible that there may be a current account deficit if more is imported than the country exports (assuming importing country is non-oil exporting too) - Will be able to produce lower cost goods because of lower costs of production, so this can be mitigated as more across the world in international markets demand these goods - As we import more, supply of currency increases, and therefore, it devalues. This therefore means that the budget deficit can be further tackled

Privately owned property

- In the UK, privately owned property is either freehold or leasehold - Freehold ownership means that the land is owned as well as the property on the land and leasehold means land is not owned, and the owner buys the right to use the land and property for a period of time, usually over 100 years when the lease is first granted

Consequences of NLW on businesses

- In the short term; it will possibly put a strain on costs and drive down profits. Wage differentials will mean that once the lowest incomes rise the highest have to rise even more; so at first it could lead to a fall in profits - However, as all consumers have higher incomes, they'll start to spend more to make up for this - Because workers will be better able to get the basic necessities, they will be healthier and happier, meaning greater productivity so greater output and therefore revenue and profit - In line with inflation, so no strikes and no disrepute to the firm? - cutting costs to maintain profits - higher price products - but impact of higher demand does depend on PED -

Reducing investment in oil extraction and exploration

- Initially, aggregate demand is stunted so GDP can go to a halt - However, climate change is slowed down and therefore fewer health issues for the population, greater productivity and less strain on health services - As new green technology needs to be developed, initial boost in employment is seen

Interest rate trends

- Interest rates, which had been averaging around 4.5%, started to fall dramatically in late 2008, to reach their lowest level on record - Since then, BoE base rate has remained at 0.5% - Mortgage rates did not fall so dramatically, as lenders looked to maintain their liquidity and increase their profitability - Also, many borrowers were on fixed-rate mortgages, and could not take advantage of low rates in the short term - Average variable rate mortgages from banks and building societies fell to 3.8% in early 2009, and continued to fall to reach 2.4% by early 2018

Brexit and the politicisation of sterling

- It was claimed that foreign investors would lose confidence in the uK economy. These investors would then sell their UK assets, because in a post-Brexit environment, rates of return on UK assets would crash - post-Brexit capital flight means sale of sterling to other countries, and so sterling supply shifts to the right. Pound depreciates. -

Why is climate change a market failure

- Market failure is basically innefiency, operating at a point where not at equilibrium Because it is the consequence of a negative externality - Negative externality is inefficiency because of deadweight social welfare loss, which could have been stopped if they operated at the real equilibrium diagram

Marshall Lerner Curve

- Marshall and Lerner, set out to determine the exact conditions under which a devaluation/depreciation of a currency would improve the current account. They came up with the Marshall- Lerner condition which state that: "A CURRENCY DEVALUATION WILL ONLY LEAD TO AN IMPROVEMENT IN THE BALANCE OF PAYMENTS IF THE SUM OF DEMAND ELASTICITIES IS GREATER THAN ONE" - Over time, the Ped value of both exports and imports will increase as consumers in both the foreign and domestic markets change their spending habits in accordance with the change in prices, as contracts are renegotiated and they adjust to the new reality - Marshall Lerner condition is met - Sone firms may be bound by contracts (with suppliers from these expensive importing countries), so these changes may take up to two years to come to fruition.

Why won't UK pound depreciation improve balance of payments?

- Massive reliance on international supply chains - `increase in protectionism - demand for imports have become more price inelastic and exports are now elastic. Springford finds that 10% reduction in UK export prices lead to 4% rise in xports

Mortgage approvals

- Mortgage approvals are a more than useful barometer to the health of the economy - When approvals are low, the economy is usually on a downturn. It should be noted that the sale of houses is very slow between October and February in any given year

Signs of globalisation

- Multinational companies have always been in the vanguard of globalisation, for example Ford in the USA and BP in the UK. Now the process has accelerated, expanded, and is inclusive of newly industrialised countries so that examples include Tata of India owning the UK's Jaguar brand. - Global brand recognition was once the territory of a few iconic brands such as Ford or Coca Cola which, for many years, would have been largely unrecognised in China, the world's most populated nation. Now the list of global brands extends, and the opening of formerly planned economies to markets and private enterprise has made them truly global. - In the car industry, components are sourced from around the globe. Throughout business, globalisation has seen a willingness to source parts and products from around the world, and the cost savings are passed on to the consumer as competitive prices. Firms choose low cost locations around the globe, or outsource services such as call centre work, to India, for example. - Another feature is the emergence of more free trade areas in the style of the EU and the extension into common standards and the free movement of labour. The clichéd example in the UK is the Polish plumber.

Black Wednesday

- On the 16th September 1992, the UK crashed out of the Exchange rate mechanism of the EU under which the pound sterline was tied to the German Mark - There was an 18% fall in the value of sterling on a trade-weighted basis and about30% against the dollar during the following six months - Beterrn 1992 and 1997 the value of UK exports increased by 53%,and in this time there was a trade surplus - Ever since then there's been a persistent trade deficit

Causes of low productivity in the UK

- Outdated technology, and technical capital that worker's haven't been trained to use - Diseconomies of scale: mismanagement; gaps in communication - Poor health and wellbeing of a labour force: burnout - Poor incentives, if they see wages aren't rising, they may not be encouraged to reach certain targets - low investment in training - labour hoarding during recessions

Does the UK have a productivity problem?

- The UK ranks low in GDP per hour worked — lower than USA/France/Germany/Canada. However, the UK has higher productivity than Italy/Japan. - The UK has only seen a 2% rise in overall productivity since 2008. However, this is part of a general trend among developed countries rather than a problem unique to the UK. - The UK government has set up a National Productivity Investment Fund in an attempt to close the UK's productivity gap with its competitors at £31bn over 5 years - Not all of the UK suffers from low productivity. London has very high productivity levels due to concentration of highly productive sectors. London has excellent infrastructure and communication networks etc. - There has been a significant increase in low productivity service-sector jobs. - It has been argued that the UK suffers from a highly uneven digital infrastructure. UK productivity could be greatly improved if 5G was spread out evenly across the whole of the UK. - Financial services productivity has been falling in recent years, which has impacted overall productivity figures. - The UK lags in robotics adoption compared to other developed economies. - It has been argued that the UK has too many 'zombie' firms. - It has been argued that long hours in retailing results in 'dead time': long periods when there is nobody in the store and very little productivity being generated (David Smith — The Sunday Times). - It has been argued that the UK has a high number of family firms that are too conservative and lack innovation. This is in contrast to Germany's Mitellstand family-owned firms who are seen to drive productivity gains in the German economy. - Output per hour and output per worker have both stagnated since the recession of 2007-08

Economist article on the state of the pound

- The day after the EU referendum, stirling fell by 8% against the dollar - Investors have sold sterling assets in the expectation that the Bank of England will loosen monetary policy to cope with the looming economic slowdown - On July 5th the bank reduced capital requirements for banks to stave off a credit crunch - This will create 150 billion pounds of extra lending capacity - The "trade weighted" sterling index, which is adjusted for the currencies of Britain's other trading, is still about 5% higher than it was at the peak of the financial crisis

General betterment

- When general increase in land values arises from the general growth of demand in society - Maybe this isn't equitable, because the benefits go privately to the landowners

Evaluation of housing reform efforts

- White paper includes a proposal of "maintaining existing strong protections for the Green Belt". A bolder proposal might have been to build more on green belt land - Some of this is wasteland - Council tax is regressive (not on income, on size and value of housing); existence of stamp duty keeps transactions low, VAT discriminates in favour of new building rather than converting existing homes - No policies to tackle inefficient allocation of housing space (bedroom tax may have been an attempt)

Why is improving budgetary position an important objective

- Years on years will mean foreign debt. This limits future spending abilities so want to cancel this. Won't able to create economic growth; austerity - Surplus money will give a country a security net so they know they'll have enough money to bailout their banks. Germany in the recession - Not able to reach current objectives - It means those on benefits can't have real incomes that rise in line with inflation - want to decrease intergenerational unfairness - To get a good credit ratings. In february fitch put negative outlook on UK's AAA rating because of brevet. This means that banks don't wanna set up shop, and UK firms get a worse name too - reduce possibility of "crowding out" (may feel they can get more subsidies else where for example) - lower ratings mean higher interest needs to be paid.increases interest burden - 6-7% debt is unsustainable

Credit rating

- a person's reputation for paying bills on time - moody; standard or poor - fitch

Market failure

- a situation in which the free market, operating on its own, does not distribute resources efficiently

How does falling business investment impact productivity

- be stagnant, as we don't get new technology. could cause an active fall as if a firm is growing and gets new workers but not the capital to support it, over-specialisation, and lack of proper management - Less profit because products aren't of such a high quality, and therefore, maybe have to cut costs. a way they might try this is keeping training for new workers down - less investment on training of workers will mean less productivity forever

2 possible policies to reduce regional disparities

- could give grants like the LDA; means tested to take into account local costs of living - grants for firms to set up in disadvantaged areas

Tax credits

- deductions from a taxpayer's tax liability that directly reduce his or her taxes due - a means tested benefit to make sure only people paying taxes are those who can afford it - child tax credits are an example

Unemployment

- easy to exploit, no strikes - greater pool of workers to choose from - demand push inflation? - hard to know get long term unemployed into work + double whammy + GDP growth + fewer social issues

Supply side policies

- economic policies designed to stimulate the economy by increasing production - these are policies which often seek to incentivise or facilitate work, such as the national living wage or free university tuition in scotland, which both can break down economic barriers

Globalisation in UK impact

- evidence of manufacturing and call centre jobs being outsourced by UK companies; - the presence of new brands on UK high streets and supermarkets; - the extent that the migration of workers in and out of the UK has increased; - the effect on the UK labour market and wages of the free movement of labour in the EU; - an analysis of the causes of the UK's low inflation during the economic expansion between 1992 and 2007; - examples of investment by foreign multinationals in the UK and --- - examples of companies leaving the UK; - the deregulation of the City of London in the "Big Bang" and the growth of London as an international financial centre; - the impact on major parts of the Scottish economy (e.g. financial sector, whisky industry, seasonal agricultural employment).

Four features of globalisation outlined by IMF

trade and transactions; capital and investment movements; migration and movement of people; the dissemination of knowledge.

how to reduce income inequality

- free tertiary education - free public transport ( people more likely to have private vehicles are richer)? - more benefits, london living allowance, adjusted minimum wage - paid apprenticeships (subsidise these for firms) - nationalise natural monopolies (so super rich can't make money from it) - adjusted interest payments on loans taken by poorer people - pay ratio - Improving healthcare - reducing health inequality (often because of environmental conditions) would lead to greater employability. -

why has current account fallen even though sterling fallen

- growing protectionism - some things are still not available in the UK. they're more expensive, worsening balance of payment -

why does lower investment = lower growth

- less consumption - less profits, less national income - less exports, no one wants it - less productivity, so CoP may be high, no corporation tax

productivity, inflation, etc

- low productivity may lead to lower wages which is actually deflationary

Low productivity growth's impact on govt finance

- no corporation tax because profit margins very low - less spending as maybe products don't get any better and can't lower the price - no wage bonuses? - more unemployment with lower economic growth - govt spending to correct low productivity will take its funds

other reasons for low wage growth

- other increasing costs of production (pound as fallen in comparison to the euro) - inflation may have made it difficult to do this - less investment, so less increase in value+ quality of work - recession (quarter of negative growth that we're in) may mean that firms aren't getting the revenue to pay their workers - outsourcing - decline of trade union membership - growth of zero hour contracts - flexible labour market= easy hiring and firing - migrant labour availability - gig economy

How could moving to a higher wage economy improve budgetary condition

- people pay higher in income tax and fewer rollouts of benefits - people with greater incomes are likely to spend money on big ticket items, large quantities of VAT come to the government - More people will invest rather than spend; this will fuel aggregate demand and get economic growth. Firms will expand, paying more in corporation tax - Public services used less

reasons for regional economic inequalities in the UK

- places like London where rent is very high because of foreign investment has high levels of poverty - areas where former industries shut down, people are occupationally immobile, so can't work or reinvest in the area [COUNTY DURHAM] - some areas are more concentrated with ethnic minorities (white flight) - some areas aren't very economically endowed naturally, like rural places, so no industries have grown in these places - high levels of crime in areas means cycle of poverty, intergenerational poverty, people near crime more likely to be criminals and be unemployed - footloose capitalism, FDI withdrawn [brigend to happen by 2020] - different types of jobs available

2 economic policy areas to stop CO2 emissions

- taxing known polluters; using scientific technology to measure level of emissions will incentivise these industries to adopt green methods in order to avoid this tax and reduce long term costs of production even if they don't do this, they will still produce less as they realise only a certain amount is even profitable for them higher prices may even mean consumers switch to green choices, which means inevitably these firms may have to go bust - target to have all cars on electric energy by 2020 is an example technological trickle down can come about from this no more exhaust fumes from diesel burning cars

Discuss the potential consequences of Brexit on the UK economy.

- the UK may have the ability to negotiate trade deals independently - new treaties could be tailored more to UK interests, for example, financial services which could lead to higher economic growth - UK would be able to develop its own employment legislation. This could increase UK international competiveness - UK businesses would not have to adhere to costly regulation set by the EU - controlling migration may lessen strains on some areas of the UK's public services - UK may no longer need to pay in the EU budget, deliver a net £9bn saving - Although the UK would have to honour short term commitment of the 'divorce agreement' - some economists such as Patrick Minford estimate that gains from a full Brexit will be £135bn - around a 7% boost to GDP - when the UK leaves the EU, the UK's waters may exclusively become the UK's again, under the United Nations Convention on the Law of the Sea. The UK fishing industry argues that UK's fishing fleet is unfairly disadvantaged by the current Common Fisheries Policy and that taking back control of UK waters will deliver a boost to the fishing industry BUT - the UK has benefitted from substantial FDI due to its member ship of the EU - This may diminish in future years as foreign firms may choose not to locate in the UK because they may not benefit from access to EU market. - it may make it more difficult for the UK to export into its biggest market - This would lower UK growth if nor replaced by exports to other markets - Brexit 'fog' of uncertainty may result in lower investment by UK firms as they may not want to commit funds until the long term impact becomes clear - This could further impact on UK productivity - Brexit may lower the number of EU nationals moving to the UK to work This may have a negative impact on a number of industries, such as construction and the hospitality sector - Bank of England/Treasury have produced reports that suggest any form of Brexit will result in reduced economic growth, with worst case scenario being 8% reduction - sterling may drastically fall in value making imports more expensive. This may result in higher inflation as the UK is a net importer - MNCs may withdraw operations from the UK and set up in the EU (Panasonic to Holland etc) - some UK farmers argue that that if Common Agricultural Policy (CAP) subsidies were withdrawn, many of them would go bankrupt

Discuss the economic arguments for and against protectionist policies.

- to protect domestic jobs - infant industry argument - developing countries may need to protect new industries - tariffs on imports raise revenue for the government - balance of payments - reducing imports can help current account - to prevent dumping - other countries can sell goods below market price (but this won't necessarily happen with america, consumers have more income so can afford more expensive and differentiated products) - Allegations of chinese intellectual theft - 'blue collar' manufacturing jobs in developed world have come increasingly under threat - recent evidence for the US suggests that adjustment costs for those employed in sectors exposed to import competition from China are much higher than previously thought (The costs associated with making any changes. For example, one must consider adjustment costs for hiring a new employee, or the costs of lost production in the event of layoffs. All companies have adjustment costs, especially when they seek to achieve greater efficiency.) - some economists argue that the benefits of free trade have been uneven across the world. 'Elephant graph' by World Bank economists suggests that the richest have grown richer and the low earners in developed economies have lost out, and the very poorest in developing economies have got no better off at all - downward pressure of wages as firms aim to lower wage costs Against - rising costs of imports including raw materials for businesses/finished goods for consumers - reducing trade barriers leads to trade creation - retaliation and trade wars - less competition for domestic firms - less incentives to cut costs and improve efficiency - many argue that free trade has a powerful role in creating jobs specialisation leads to higher world output - the restriction of trade can have a negative multiplier effect - it is illegal under World Trade Organisation rules to impose trade barriers

Importance of the housing market

1. A house represents the largest single item of consumer wealth 2. Changes in house prices can have considerable effects on the ret of the economy

Exchange rate problems with GDP

1. Exchange rates can be volatile from month to month and from year to year - A large depreciation in the value of the Argentinean peso against the US dollar might imply Argentinean living standards have fallen even though their economy might actually be going quite quickly 2. Exchange rates are more relevant to products that are traded between countries rather than non-traded products - Manufactured goods tend to sell for similar prices in most parts of the world -Non traded services such as domestic cleaners, haircuts and academic tutors tend to have different price differences - Calculations of GDP based on market exchange rates tend to over-estimate the cost of living in poorer developing countries. This is called the Balassa-Samuelson effect. - The Balassa-Samuelson effect suggests that an increase in wages in the tradable goods sector of an emerging economy will also lead to higher wages in the non-tradable (service) sector of the economy. The accompanying increase in prices makes inflation rates higher in faster-growing economies than it is in slow-growing, developed economies. - According to the Balassa-Samuelson effect, this is due to productivity growth differentials between the tradable and non-tradable sectors in different countries. High-income countries are more technologically advanced, and thus more productive, than low-income countries, and the advantage of high-income countries is greater for the tradable goods than for the non-tradable goods. According the law of one price, the prices of tradable goods should be equal across countries, but not for non-tradable goods. Higher productivity in tradable goods will mean higher real wages for workers in that sector, which will lead to higher relative price (and wages) in local non-tradable goods that those workers purchase. Therefore, the long-run productivity difference between high- and low-income countries leads to trend deviations between exchange rates and PPP. This also means that countries with lower per capita income will have lower domestic prices for services and lower price levels. It implies that the optimal rate of inflation will be higher for developing countries as they grow and raise their productivity

Summary of housing crisis

1. Housing market is failing because of a combination of too much demand, and not enough supply 2. Means UK house prices have risen rapidly, so more houses are needed to bring prices down to affordable levels 3. However, there are other reasons for housing failure, such as rising room per household and the tax system 4. recent government proposals should increase the supply of housing in future 5. It's uncertain whether the government's reform will go far enough to correct market failure, or whether the problem will be solved by falling future housing demand

Why is housing supply inelastic?

1. Lack of available land, house builders are usually unable to build on green belt land, for example 2. Planning regulations, which prevent or delay building 3. NIMBYism. People often acknowledge that new homes are required, as long as they're not built near where they live. Can lead to public campaigns to prevent new builds, lengthening te time taken to build 4. Skills shortages, resulting from unemployment of construction workers during the financial crisis 2007-08 and a shortage of building materials due to rising demand

Reasons for Chinese productivity growth

1. Resources shifts - There's been a huge shift of resources out of relatively low productivity agriculture into more productive work in manufacturing industry and construction. Over half of the Chinese population now live in urban areas 2. New technology and innovation - The willingness of Chinese businesses to adopt and exploit new production technologies and process innovations. Mobile telephony has expanded at a rapid rate 3. FDI effects - High levels of foreign direct investment into China has also boosted productivity- new manufacturing capacity and technology has lifted efficiency and may well have led to productivity spill-over effects among supply-chain businesses. For example, in April 2012, Samung electronics, the world's biggest memory chip maker, unveiled plans to invest 7 bill dollars to build its first chip factory in China 4. Openness and global competition - The Chinese economy has become more open- trade is accounting for a rising share of national income- global competition is a timilus for efficiency improvements 5. Better infrastructure - Heavy state spending on critical infrastructure has improved the overall efficiency of the economy for example in reducing transport delays and increasing communication speeds 6. Management - Restructuring of state-owned businesses has been a factor behind better productivity. The Economist magazine reported recently that "sophisticated methods of control, more productive use of assets and rapid globalisation have boosted productivity" 7. Improved wages - There is strong pressure for mean wages to rise in China especially as the latest 5 year plan emphasises the need to boost domestic demand. Will a number of years of rapid wage acceleration provide a boost to worker productivity?

Problem with measuring against PPP

1. Types of product. Rice is not homogenous everywhere 2. Differences in QUALITY of a good or service are reflected in price variations 3. There's a difference in consumption weights. Basket could be a much bigger price because people like chocolate more than bread 4. Many goods and services are not bought and sold in markets and therefore do not have official prices- in many countries there is a large informal and/or subsistence sector 5. Quality of economic data varies across countries- many nations don't have sophisticated methods of collecting information

Demand determinants for land

1. type and quality of soil 2. other physical attributes (does it get overgrown etc) 3. environmental aspects 4. accessibility 5. potential for return from alternative uses (substitute effect) 6. tastes and affluence in society 7. inflation (but this is the same as just price) UK SPECIFIC 1. Low interest rates. Carney cut it to 0.25% 2.Lower unemployment 3. Demographic factors: rising population and a declining average household size, caused by people marrying later on (so single for a while), and rising divorce rate 4. Help to buy scheme, where government lends the borrower a % of the money required to buy a house. Acts like a mortgage subsidy 5. Supply for housing hasn't shifted enough. Public builds very few houses, and private sector isn't building enough Productivity in the UK construction sector has only grown a quarter of that of the whole economy over the last 25 years 6. Buy to let

Capital requirements

A capital requirement is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital adequacy ratio of equity as a percentage of risk-weighted assets.

What is a credit crunch

A credit crunch is a sudden reduction in the general availability of loans or a sudden tightening of the conditions required to obtain a loan from banks.

Pegging currency

A fixed exchange rate tells you that you can always exchange your money in one currency for the same amount of another currency. It allows you to determine how much of one currency you can trade for another. For example, if you go to Saudi Arabia, you always know a dollar will buy you 3.75 Saudi riyals, since the dollar's exchange rate in riyals is fixed. Saudi Arabia did that because its primary export, oil, is priced in U.S. dollars. All oil contracts and most commodities contracts around the world are written and executed in dollars.

Rentier capitalism

An economy in which market and political power allows privileged individuals and businesses to extract a great deal of such rent from everybody else

Discuss whether inward foreign direct investment (FDI) is always beneficial to the UK economy.

Beneficial: - UK has been major destination for investment into Europe China has stakes in many British brands from Weetabix to Aston Martin; Nissan in Sunderland - Investment can deliver productivity gains - UK can benefit from improved knowledge and expertise - production techniques, marketing, legal guidance etc - Capital inflows can also create jobs. Credit promise of new jobs from Japanese purchase of ARM - FDI may also lead to higher wages achieved through productivity gains - UK suffers from a current account deficit - investment from China helps address this - FDI seen as being more stable that volatility of 'hot money' - This extra economic activity will create tax revenues for the UK government from VAT and income taxes Not beneficial: - Foreign companies may gain competitors' intellectual property, pricing information and trade secrets - Concern over Chinese economic model - pursuing an aggressive trading strategy, eschewing foreign investment while exploiting cheap labour to price out competitors abroad - Foreign investors do not always have long-term interests of recipient company at heart, leading to 'footloose' investment - Profits made in the UK by a foreign firm may be repatriated to the head office, which is likely to be overseas. MNCs with interests in the UK may therefore pay no or very little corporation tax to the Treasury - Foreign investment in 'strategic industries' such as steel / defence industry can cause concerns - Foreign firms compete with domestic firms, which may lead to job losses, particularly if the MNC enjoys higher productivity and the economies of scale associated with large corporations

derived demand

Business demand that ultimately comes from (derives from) the demand for consumer goods.

automatic stabilisers

Factors that automatically, without any actions by the government, work toward stabilizing the economy by reducing the short term fluctuation of the business cycle. Two important automatic stabilizers are PROGRESSIVE INCOME TAXES and UNEMPLOYMENT BENEFITS.

Positive wealth effect

Following a rise in house prices, the ratio of the market value of the property to the debt on that property, typically in the form of a mortgage, rises creating an increase in equity - This can trigger housing equity withdrawal (previously called mortgage equity withdrawal) and can be a significant boost to consumer spending

Advantages of gloablisation 10c

Improvements in standards of living - There is plenty of evidence to show that countries that have embraced capitalism and free markets and have enjoyed large-scale foreign direct investment have prospered. - More jobs - Standardised products - Multiplier effect - Economies of scale mean cheaper products -Examples from recent history include Taiwan, Brazil and Singapore. One claim is that three billion people have been lifted from poverty in the last 50 years alongside increasing globalisation. Improvements in life expectancy - With economic growth comes the tax base that enables government to make wholesale improvements to sanitation, drinking water supplies and health care leading to greater life expectancy. - Government may have used foreign aid to make initial progress, and this can be the start of the virtuous cycle of economic growth and investment in public welfare. - One figure quoted is that 85% of the world's population now live to at least 60 years old. This represents a rapid improvement in the outlook for many people who previously lived in abject poverty. Improvements in literacy rates - Spending on basic education and improving literacy rates is vital if a poor country is to achieve economic take-off. When government has no funds and little to tax this is a difficult process to initiate. - Foreign aid will play a major part, but if a country encourages entrepreneurship and is open to foreign investment then new funds do become available to families and to government that can be invested in the education of the next generation. It can be argued that globalisation speeds up this process. Dramatic reductions in costs of production - Globalisation reaps the benefits of the trade theory of comparative advantage writ large. Goods and services can be produced in the most efficient, lowest cost locations, where the four factors of production plus transport costs to market are minimised. Modern communications allow UK call centres to operate in India and for multinational firms to manufacture in Vietnam. The result is that costs and prices are contained and reduced, increasing standards of living globally. The spread of new technology - Modern technology reaches less developed countries rapidly. The term "intermediate technology" was in use to describe the need to supply poorer countries with technology that was basic and could be operated and repaired by local people. Globalisation, it could be argued, enables countries to pass quickly through this halfway house stage in economic development. Modern communications and improvements in literacy and education allow up-to-date technology to reach open economies. Multinational firms bring with them multinational advanced technologies. Improved environmental performance - When people are poor and starving, there is little funding to deal with environmental issues. As economic growth increases, so does the possibility of diverting some of this increased income into protecting the environment. Modern technologies are often less polluting technologies. Increased environmental awareness is a feature of globalisation. Improvements in working conditions - Companies moving to developing countries bring jobs, higher wages and usually better working conditions compared with domestic companies. Wages are lower in developing countries than those in advanced economies, but experience in countries like Taiwan shows that as countries develop economically wages improve and the "sweat shops" and labour intensive industries change to more capital intensive and knowledge-based industries. Multinationals generally bring working conditions and workplace standards that are higher than those provided by local firms and they pay more. Greater knowledge of and respect for other cultures - Higher levels of migration increases the awareness and, generally, the tolerance of other cultures. Extension of democracy - The gradual improvement in human rights and the development of democratic systems of government have generally progressed alongside globalisation. -Creates a middle class yeah Increased international cooperation - The level of interdependence in the world economy has strengthened institutions such as the World Trade Organisation and the World Bank. - Governments have cooperated to establish international rules for the conduct of the global economy. - They emerge and regulate

Impact of shift in global division of labour

Induced high income economies to specialise in skill intensive sectors, where there was more potential for faster productivity growth

Deflation

Is term giving to a period of generally falling price level of goods and services

Impact of elasticity on import and export expenditures

It the demand for imports is price elastic, then depreciation should mean a fall in expenditure imports - Japanese technology and German cars are highly sought after because of reputation - If we don't want to compromise on these goods, we will continue to purchase them at a higher price (they are inelastic)

Zombie firms

Low interest rates have allowed these firms to exist because the cost of their borrowing has been abnormally low. These firms are generally inefficient and have low productivity , their continued existence lowers the average productivity of the UK . If these firms had failed the unemployed resources would have switched to a more productive use, thereby raising average productivity. - needs bailouts to even operate

supply elasticity

Number of producers: ease of entry into the market. Spare capacity: it is easy to increase production if there is a shift in demand. Ease of switching: if production of goods can be varied, supply is more elastic. Ease of storage: when goods can be stored easily, the elastic response increases demand. Length of production period: quick production responds to a price increase easier. Time period of training: when a firm invests in capital the supply is more elastic in its response to price increases. Factor mobility: when moving resources into the industry is easier, the supply curve in more elastic. Reaction of costs: if costs rise slowly it will stimulate an increase in quantity supplied. If cost rise rapidly the stimulus to production will be choked off quickly.

Discuss whether trade rather than aid is a more effective means of promoting economic growth in developing economies.

PRO-TRADE - Foreign aid to LEDC's is wasteful and creates a damaging culture of dependency - Aid is often subject to vested interests and fails to improve living standards - Supporters of trade point to the Asian 'tiger' economies who have been able to dramatically increase economic welfare through increasing trade - Trade provides a long-term basis for international co-operation - If the developed country goes through a bad economic period, the aid budget may be cut - Aid is often misspent on military or 'white elephants' this has been called 'bad aid' - Trade establishes a strong impression in the international market - The promotion of trade can have a positive multiplier effect - Once an industry is established and trading other companies can provide services/components to that industry boosting the economy further (ancillary industries) - Trade can boost employment - Trade helps foster transferrable skills as TNCs bring technology and training when they trade in LEDCs - Credit reference to China's emphasis on trade with Africa, not aid - China and Pakistan trade and FDI,but this has lead to debts ANTI-TRADE - Traps these countries into providing low cost and low value goods, no chance to diversify as technology is sourced from elsewhere - Market failure can lead to an under-provision of important infrastructure such as education. Aid can overcome such failures and help the economy grow. - Developing economies may not be in a position to benefit from trade. Their comparative advantage may lie in primary products which are subject to fluctuating commodity prices which are the most protected by the EU and US eg American cotton subsidies - The infant industry argument holds that developing countries may actually be hindered by free trade - Aid can help overcome capital shortages and debt repayments - Aid is not always provided in the form of money and is sometimes provided through expert advisors and is therefore more effective - Trade requires investment first. Aid can deliver this - Aid is often focussed on target groups and specific problem - Aid can create sustainable development as a local level

Disadvantages of globalisation

Problems associated with the restructuring of economies - In the short term, countries will lose uncompetitive industries as they are opened up to international competition. This will cause painful economic readjustments and higher unemployment in the short term. Widening gap between richest and poorest countries - In 1960, the top richest fifth of countries in the world were 30 times richer than the poorest fifth. This gap had risen to 85 times richer by 1995. Globalisation as a process has thrown up winners among those countries that can adapt, but those nations that lack the basic infrastructure to attract foreign investment have failed to progress. Advanced economies have certainly done well out of globalisation, but further down the pecking order the outcomes are more mixed. Destruction of traditional agricultural communities - A traditional way of rural life can vanish forever and local customs and culture may fade. Urbanisation does come with rising living standards and people are tempted away by the promise of prosperity. This is possibly bad news for tourists and social anthropologists, but generally considered progress by those that are no longer dependent on a good harvest in order to eat. Movement of skilled workers to the richest countries - As the migration of labour is freed up and gathers pace, so some countries lose skilled workers to advanced economies that pay better. However, many return home with capital and ideas. Many send money home to family. Easier spread of disease - One example of this arises from the tobacco industry. Markets in advanced economies began to shrink in the face of adverse publicity regarding the health problems associated with smoking. - Multinational companies stand accused of profiting by expanding into countries where government regulation was minimal and anti-smoking publicity barely existed. - A rise in deaths due to lung cancer can be expected in these countries whereas the advanced economies will continue to see falls in such deaths. Exploitation of workers - There is little doubt that workers employed by multinationals in developing countries enjoy lower wages, conditions and protection than those employed in advanced economies. Health and safety standards are weaker and long hours are worked. The pay received for sewing a garment may be less than 1% of the retail price it attains in the advanced economy. Use of child labour - Even when multinationals make clear that they do not want child labour employed they are unable to monitor the activities of their suppliers closely at all times. Investigative television reporting revealed that the sequins on the cheap clothing of one major UK discount chain could have been sewn on by children. Unskilled workers in advanced economies face competition - For UK workers, having knowledge and skills has never been more important. Unskilled and semi-skilled jobs have been exported to developing countries along with swathes of manufacturing. Wages in unskilled jobs come under pressure from foreign workers who can undercut them. COULD be good as more people begin to enrol at uni, but this places people into debt for places where uni is not free, and competition is higher Recessions may become global - When the world economy is interlinked, the danger of a recession affecting the whole globe at the same time is greater. When Europe and the USA start buying less, then China will produce less and so recession is quickly exported. This would be the theory, but you may care to check whether China's economy shrunk in the aftermath of the 2007-08 financial crisis. Environmental damage - Weak and corrupt government can leave the door open for environmental damage to forests and agricultural land. For example, mining can be very polluting and modern fishing methods may ruin stocks.

Marshall Lerner condition 2

States that currency depreciation will only move a country's current account balance towards surplus if the price elasticity of demand for the country's imports and exports is above onr - Keynesian mainstream tends to assume that ML condition will always be met - This was true was sterling depreciated after BoE's decision to slash the interest rate and begin quantitative easing in March 2009 (financial services become more inelastic?)

structural deficit

federal revenues at full employment minus expenditures at full employment under prevailing fiscal policy

Determinants of housing supply

supply is frequently inelastic because of time lags and legal complexities and, in the case of new-builds, because of the difficulty of obtaining planning permission 1. Availability of factors, land may be very limited in the short run. Availability of land and availability of labour 2. Costs 3. Government legislation - conversely, relaxation of regulations, as happened in the London Docklands, is likely to encourage building. Government can also tighten or relax restrictions on building in rural areas such as the green belt