Economics help blog – Page 100

Monetary and Fiscal Policy in the UK

20 January 201818 December 2017 by Tejvan Pettinger

Readers Question: What do you understand by the terms ‘monetary policy’ and ‘fiscal policy’? Explain with reference to a country of your choice:- a) How these policies have been used by the government to try to achieve its objectives Definition – monetary and fiscal policy Monetary policy is managed by the Bank of England. They have …

Profit satisficing

18 December 2017 by Tejvan Pettinger

Profit satisficing is a situation where there is a separation of ownership and control. As a result, the owners are likely to have different objectives to the managers and workers. In short, owners wish to maximise profits, but workers and managers may not. It is an example of the principal-agent problem. The shareholder is the principal. …

The Paradox of Saving

17 January 201815 December 2017 by Tejvan Pettinger

Looking at graphs for the saving ratio, I noticed a paradox. When people felt it was a good time to save more, they actually saved less. When people felt it was a bad time to save, they actually save more. Is it a Good Time to Save? As part of the GFK consumer confidence survey. …

Problems of Quantitative Easing

18 January 201814 December 2017 by Tejvan Pettinger

A look at some problems and limitations of quantitative easing. Readers Question: 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? The Bank of England has pursued a policy of quantitative easing. This has involved creating £275bn of …

Gross Fixed Capital Formation

11 November 202114 December 2017 by Tejvan Pettinger

Definition: Gross fixed capital formation is essentially net investment. It is a component of the Expenditure method of calculating GDP.

To be more precise Gross fixed capital formation measures the net increase in fixed capital.

Gross fixed capital formation includes spending on land improvements, (fences, ditches, drains, and so on) plant, machinery, and equipment purchases; the construction of roads, railways, private residential dwellings, and commercial and industrial buildings. Disposal of fixed assets is taken away from the total.

gross-fixed-capital-formation-uk — Gross fixed capital formation – UK

The fall in Gross Fixed capital formation has been a significant contributor to the recent UK recession. (contributions to UK growth)

Should low inflation be the primary objective of economic policy?

23 January 201811 December 2017 by Tejvan Pettinger

The UK government has given the Bank of England an inflation target of CPI 2 % +/-1. The Bank of England is responsible for using monetary policy (e.g. interest rates) to achieve this goal of low inflation. But, as well as targeting inflation, the Bank of England also has a wider remit of considering objectives …

Does Fiscal Policy solve unemployment?

10 January 201810 December 2017 by Tejvan Pettinger

us-unemployment-05-17-fiscal-stimulus-act

Readers Question: Is the fiscal policy effective/the best policy to deal with unemployment? It is an interesting question and one that is likely to generate different views from within the ranks of economists. To give a very rough overview: Keynesians say yes, fiscal policy can be effective in reducing unemployment. In a recession, expansionary fiscal policy …

Impact of National Debt on Economic Growth

12 January 20188 December 2017 by Tejvan Pettinger

Readers Question: What is the impact of persistent national debt on economic growth? Source: IMF (2012) In summary, there is no obvious link between national (public sector) debt and levels of economic growth. Both UK and US finished the Second World War with high levels of national debt – but this did not prevent rapid …