You are welcome to ask questions on Economics. Though you might also like to try google custom search (top right) to see if the topic has been covered before.
I am looking to explain economic principles / ideas/ recent developments in economics. I can’t promise to answer, but will try if it meets the criteria below.
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- I aim to try and simplify economics; as a rough guide I would aim at an understanding similar to a good British A Level student.
- I am looking to explain economic principles / ideas/ recent developments in economics.
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I studied PPE at Lady Margaret Hall college, Oxford University, and currently work as an Economics A Level teacher. I have also examined several different economic units for Edexcel AS and A2.
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How does the paper transactions e.g CDS, Futures, affect the real value of commodity price? What is the ratio of current value of paper trades vs actual delivery of transactions.? Is it correct to say the current prices of commodities do not reflect actual demand, since many contracts placed are futures?
Can the number of future contracts placed on a commodity affect its current price?
For example, if suddenly huge amount of 1 year futures are placed for oil at USD10, will the current price of oil plunge?
Yes commodity trading leaves effect on prices of commodity. But it purely does not fix rates as major pricing phenomena depends on fundamental demand of commodity.
Hi there..i am having some slight trouble with an assignement ( i am first year economics student). I have picked the essay question of ‘Discuss whether the Uk government could do more to reduce youth unemployment’. I wsa wondering how I should go about constructing this essay. In the fist half of my essay, should I be talking about the benefits of reducing youth unemployment/cost of not doing so.. of course in conjunction with using examples of current policies that the government are using that are not effective and so may need adapt newer efficient policies. Thank you for your time
You should discuss the decision of government that could decrease unemployment in youth.
Hi,
The Bank of England uses fan charts to show their inflation forecasts. Would you be able to explain how they decide on the uncertainty, the risk (or the balance of risks assigned to each prediction), and the probability for the different rates of inflation they show on the fan charts? Is it mechanical or more analytical and based on instincts?
Thanks
Bank of England uses fan chart to forecast inflation rate. The Fan Chart is basically used to improve presentation: to focus attention on the whole of the forecast distribution, rather than on small changes to the central projection. Bank of England also gives measure of risk related to uncertainty by taking previsions experience. It assume a central value means which has most probability according to it.
I am doing a report in english class about why people would want to change the driving age. And I was hoping ya’ll could help.
How can tax cuts stimulate the economy when government has to borrow the money?
It seems to me that with a tax cut, the government is adding money to the economy but is also removing money from the economy by borrowing to finance the tax cut. So where is the stimulus?
Thank you.
Govt can stimulate the economy by cutting taxes although practically it is only used in recession. It is not necessary for government to fund all tax cuts from taking loans. It also can make paper or electronic money without any liability.
All this is matter or demand. As you know , there is no natural value in economics. It is our needs which make any thing valuable and it is economic cycle which keeps creating money and jobs.
Major reason of slowdown is decreasing demand . As you whole economy is based on demand and demand is also based on income and vice verca. This is economic cycle.
By cutting taxes , govt leaves extra money for tax payers. By cutting income tax rates, tax payers may have more money. They will spend more. This spending will create more demand. This more demand will create more jobs and will make business more profitable. By cutting sale taxes etc it will make cost of products less for customers. Due to less cost, they will consume more and govt also can increase margins of companies.
So in recession governments try to increase aggregate demands by different approaches. Tax Cuts are common used by governments for this purpose.
If you are singer, your success will depend on demand of your songs. If you are shopkeeper, you can make money only if there people buy from your shop. If you are a pilot , you will get job only if Air Company need your skills i.e. it demands your skills.
Hi,
I was wondering if anyone could help me with how Quantitative easing can possibly reduce a budget deficit? and what are the downsides of quantitative easing?
Thank you.
Main purpose of Quantitative Easing is not decreasing budget deficit, but to stimulate the economy. When economy is slow , govt may pump money in economy to encourage economic activities. It may help economy for getting growth. By this growth may increase tax collection and thus decreasing budget deficit of Government. Although practically it increases deficit of government in short run. It is not used in normal economic conditions and not in long run. Supply of more money can up inflation rate. This will also decrease value of currency.
Hi Professor,
I have one simple question about tariff and FX reserves. For example, why is China holding massive of USD as FX reserves. I believe is due to China’s trade surplus, therefore China has loads and loads of USD/T-bond on hands. But I don’t understand how it works out? Please kindly to answer my concern, Thank-you!
sincerely,
Keith.
Yes China has huge foreign exchange reserves , most in the world. This is due to China ‘s huge export. Dollar is a major currency in world business possibly US Dollar may be biggest portion of Chinese reserves.
It is like China has given loans to US in US currency. China may not like to hold huge reserves of $dollar. Due to huge amount it is not easy for China to convert these dollars into other assets. Although China is continually doing work on this.
Hi. I would like to ask whether China’s holdings of US bonds is a strategy to manipulate China’s currency or is it nothing more than just a safe investment from China? If China’s investments in the US treasuries is for the purpose of devaluing their own currency, could you please explain to me in simple term how this works?
It is not any political strategy as it is more related to finance matter . It is just due to investment. Personal thinking of Chinese leaders may also be a reason . This does not has any major relation with devaluation of Yuan although it may have very little effect on value of Yuan. It is a debt investment by China as China has huge surplus money. Investment is very big and large economy of US is suitable for such a huge amount. Most of international trade is made in US Dollar.
Thank you for your reply. I read a report produced by the Congressional Research Service titled ‘China’s Holdings of U.S. Securities: Implications for the U.S. Economy’ and it stated that one of the reasons why China favour US securities is because ‘in order to maintain the exchange rate effects that lay behind the acquisition of US dollars, those dollars must be invested in dollar denominated securities’. I was wondering if you could possibly explain what this means. If you would like to read the report, the website is http://www.fas.org/sgp/crs/row/RL34314.pdf. The statement is on the seventh page. Thank you!
Hello Henry
I just watched 7th page. I think he wrote this because if China buys securities payable in any other currency there are two effects- China has huge dollar reserves in hand. For buying other currency securities China has to convert $Dollar into other currencies like Euro etc. This will increase dollar supply , thus it will decrease exchange rate of dollar which China do not want. His other meaning may be – if China buys these securities this can make dollar more stable because if demand of dollar denominated securities decreases this will make bad effect on dollar and deficit may increase . This will also deprecate value of dollar.
Looking at the deficit/debt problem in the US, I wonder why it is necessary for the federal government to borrow all of the money it needs through the fed via bond sales?
A simplistic example I was thinking about – Let’s say that the total amount of currency in the economy is $1. Someone uses this $1 purchasing materials, and creates goods worth $2 for resale. Since there is only $1 worth of currency in the economy, it’s basically created deflation since money is worth twice as much now
Assuming we wanted the relative value of money to stay the same, we’d need an additional $1 in currency available. In this case, the government could create $1 without borrowing, based on the amount of goods created. But the way I understand it is that the government borrows $1 via the bond market instead. Why borrow instead of simply create?
In the real world, given the amount of goods created within the country it seems like the government could pay off quite a bit of the debt by creating money (Ie: Printing & paying with this) without worrying about impacting inflation.
Hi,
I would like to ask whether the budget cutting in most European countries encourages consumption of domestic goods and reduces the demand for imports from China for example?
Individual country deficit may decries but overall European deficit may not decrease due to packaged given by European Bank. Overall exchange for Euro may remain low. This will increase cost of import and decrease demand of Chinese products at limited level.
Budget cut by individual countries may decrease demand , but it will decrease overall demand not matter Chinese product or European products. If Chinese products remains lower cost than naturally people would not left them buying. Overall demand will be decreased. Actually depreciation of Euro against Chinese yen will make effect on sale of Chinese products. Although other things like better technology , fashion , trend etc will also play an important role in future.
Instead of massive bailouts in the U.S. to mitigate the subprime crisis why could ARM’s not be renegotiated/converted to alleviate defaults? In other words, why does ‘too big to fail’ mean big banks can’t at least absorb some of the subprime fallout? ie fail partly, reorganize, etc. Isn’t there a moral hazard problem with simply bailing out institutions that make bad financial decisions?
David
Bail outs are being given for saving national economy. Main purpose of giving bail outs to big institutions is not just to save them but to decrease bad effects on economy due to their failure. Yes there is moral hazard problem. Govt wastes tax payers money to help those who are responsible for all this.
Practically although sometime bailout is necessary but there should not be any benefit for business houses. In general all what did happen in America, could be changed if Banks show transparency. Banks do not show real picture until situation become to bad to hide.
All does not happen in one day. It is a long procedure and regulatory institutions and rating agencies ignore it.
It is morally wrong to save companies who are responsible for their bad conditions. This also gives wrong message to them and creates problem of moral hazard.
why are economists concerned with the study of theory underlying the firm?
Firm is an economic entity . So it is part of economic study.
Many aspects of economics are concerned with firms .
Firms play important role in economy and there is wide theory related to firm in economics.
Hello,
I was wondering, what are some of the policies and possibilities a country can use to increase the value of their currency? Specifically countries who would be trying to “overthrow” the US dollar like China, India, Brazil, Russia etc.
Thank you
Duke
Exchange rate of currency mainly is determined by demand and supply of particular currency. There are many natural factors that make effect on supply and demand and there are may unnatural factors like central banks or state ‘s interference in supply or demand.
In general countries like India, China etc do not have strong currency like US and these countries are not trying to overthrow US currency. Practically Chinese government tries to maintain low exchange rate of its currency against US dollar.
Hi,
I have a question: what are the pros and cons of setting and enforcing a living wage in the uk?
George
Living Wage is set by govt according to compulsory needs of common person without any extra income . Govt fixes wage by keeping in mind how much money is needed for housing , food, cloth, necessary utilities etc.