Over the last 12 months the collapse in the price of oil has ensured that oil has been a permanent feature in financial news coverage.
However, just when you might have expected coverage to die down, continued price falls have ensured coverage has intensified. The prolonged nature of the price falls has also ensured the focus away from the consumer positives of lower petrol prices to the impact on the investment behaviour and sustainability of oil firms. This is a particular issue for the UK economy due to the importance of the North Sea oil industry .
This week EzyEconomics News uses demand and supply theory to analyse recent price falls and theory of the firm analysis to explain how firms involved in the supply of oil have been able to avoid going out of business.
Nobody seems to be able to make their mind up about interest rates. Although the Federal Reserve (US Central Bank) very recently raised the US bank rate and signalled a series of subsequent rate rises, a few weeks of financial market turmoil has changed everything.
Even the Bank of England’s final piece of forward guidance in 2015 “we will raise rates next year” has been reversed. The new guidance for 2016 has already evolved to encourage the expectation that rates are unlikely to rise.
Part of the reason for this is that interest rates and monetary policy in the major economies are in unprecedented territory. In this environment it is easy for the governors of central banks to appear unsure. As a result is it hardly surprising that A-level students become confused by the direction of monetary policy and the impact it might have on the real economies of the world.
In this week’s edition of EzyEconomics News Jack Matthews takes a look at some of these issues using AD/AS analysis. He also showcases how students might evaluate recent and prospective monetary policy in the UK. This should help students to understand why there is so much uncertainty in the direction of monetary policy in the US and UK and provide some invaluable "forward guidance" for answering exam questions on monetary policy.
Anyone tuning in to the Chancellor’s Autumn Statement could be forgiven for not working out the overall direction of fiscal policy. The flood of numbers and projections were enough to confuse anyone and the intention was possibly to achieve exactly that!
Is Fiscal policy contractionary, expansionary, or is it becoming less expansionary? The simple answer to this question is that, even though austerity is a frequently used term, fiscal policy is actually expansionary and will remain so at least until 2019/20. It is hardly surprising that very few people have a firm grasp of the position. As Fiscal Policy lies at the heart of the A-level macro course we thought it was worth spending some time on this subject.
In this week’s EzyEconomics news Jack Matthews attempts to make sense of it all by using A-level style AS/AD analysis. He also looks ahead to consider just what the long-term economic impact of the £1.75 trillion of unpaid debt successive governments will have borrowed on our behalf by 2019-20 (the year when we might actually begin to start paying off this debt). Although this and similar numbers are often glossed over, it actually amounts to an almost unbelievable £27,000 per capita on top of the money consumers and firms borrow in their own right.
This means the reality is that economic growth in the future will be slower than it would be otherwise. Jack takes time to explain and evaluate the economic phenomena that will drive this long and prolonged slowdown.
In no time at all the UK will be voting on whether to remain in the EU. The opposing campaigns have already been launched and the debate is beginning to heat up.
What has become clear at this early stage is that although membership of the EU is clearly an economic issue there has been a complete absence of any of the theoretical analysis A-level economics students are taught to learn and apply in exams.
In many ways this makes the forthcoming debate quite dangerous for students if it unduly influences answers in exams. The danger is that essays descend into a simple list of advantages and disadvantages without any attempt to apply AD/AS analysis to support the points made.
In this week’s edition of EzyEconomics News, Jack Matthews considers the opposing views on what exit could mean for the UK economy. He showcases how to apply AD/AS analysis to make sure students don’t fall for the “sucker punch” of drafting an answer to an EU question heavily influenced by political and media rhetoric without bothering to include any theoretical analysis.
Hopefully students starting to think about exams next summer will already be focusing on extended writing skills. Knowledge is obviously a key foundation for exams but this will only take you so far unless is supported by good technique. Out of all the skills that you need many students find evaluation the most challenging.
This week Jack Matthews takes a look at a 5-step process you can use in extended essays to guide and prompt effective evaluation in just about any answer to a macro question. Apply this process and you will increase the likelihood that your answer will contain the multiple evaluations that support A and A* grades.
Using a process like this will help prevent the all to common situation arising from an unstructured approach. This normally means students don’t have an effective plan, start writing without too much thought and then suddenly remember to include some cursory evaluation towards the end of their answer.
This type of unstructured approach rarely produces satisfactory outcomes and should encourage students to make sure they work intensively to overcome any limitations in this area. If you are going to start working on this skill then now is the time to do that rather than in 6 months time when exams are rapidly approaching.
One of the challenges of becoming an economist concerns developing a broad focus. This is particularly important as politicians and the media love to slip the blinkers on when it comes to debating economic issues. This has been highlighted recently by the lively debate caused by the revelations of the corporation tax certain organisations haven’t been paying!
While on the face of it not paying much corporation tax might seem like bad behaviour, corporation tax is just one of the many taxes that exist to alter economic incentives, redistribute income and fund the cost of merit and public goods. VAT on sales and income tax on salaries, bonuses and dividends to name a few. As economists (provided we do not allow our own politics to cloud our judgment) we should be more interested in the overall tax paid rather than on the amount of individual tax components.
We should also keep thinking about the circular flow of income and how tax changes alter the balance between injections and leakages. After all we should be focussed on increasing investment so that the productive capacity of the economy continues to rise leading to sustainable real growth in the economy. Even if companies don't pay any corporation tax at all (the Government could decide to abolish it!) and use the money instead to invest or create jobs, would that be such a bad thing?
Taking a holistic economic view of the position, the issue is not about whether the taxes should be higher, it should be about whether economic activity can be improved by adjusting the taxes. This will only happen if the government can spend the tax revenue more wisely than the corporations would if they retained the value of the taxes within the business. Who would you back?
This week’s edition of EzyEconomics News, Jack Matthews takes a thought provoking look at this debate to try and present a more balanced and multi faceted analysis of this hot subject.
If you need some interesting material to kick start the term, then where better to start than People’s QE. Extensive news coverage since the idea was first floated means that many students have heard of it but how many actually know what it is or what it might achieve?
Jack Matthews focuses on this subject in this week’s EzyEconomics News. He provides some general context on QE, explains how the new proposal differs from previous flavours of QE and why some politicians believe just creating money to spend may not be as insane as it actually sounds. It might just provide a basis for future sustainable economic growth rather than stoking the fires of inflation.
This lecture avoids getting drawn into the technical swamp that surrounds QE and focuses on making it accessible and relevant for A-level students. It achieves this by using the circular flow of income, production possibility frontiers and AD/AS analysis to explain People’s QE.
This week Jack Matthews looks at the recent slump in global commodity prices. Over the last 12 months oil and iron ore prices have declined by over 50%, copper by 21%, aluminium by 18%, sugar by 17% and coffee by almost 40% (why have none of my favourite coffee bars reduced their prices!).
Jack uses some basic macro and micro approaches to analyse and evaluate the causes of this slump - demand side weakness, supply side strength or a combination of the two. He also considers the likely outlook for commodity prices.
The new national living wage has been in the news. This is partly because the old national minimum wage has just risen, but also because the Government believes it will offset the negative aspects of changes to the UK welfare system.
This week’s edition of EzyEconomics News analyses and evaluates the economic impacts of the forthcoming introduction of the national living wage. It will consider whether the changes will simply lead to unemployment or whether our chancellor is a canny chap and that the end result will be inflation within target and higher growth and employment.
The rumblings generated by the recent football transfer window have inspired this week’s edition of EzyEconomics News.
It looks at the impact the principal agent problem and misaligned incentives have on the market for professional footballers and houses.
Apart from considering the general background to this issue if also looks at some economic research (Rutherford, Springer and Yavas) that measured the possible extent of this distortion in the housing market.
This edition of EzyEconomics News considers how to approach extended essays and various evaluation techniques. It concludes with a suggested blueprint to make sure that effectively structured answers can be produced by students within the time allowed in exams.
Although it focuses on the AQA structure, the techniques and suggestions for structuring answers will work effectively across exam boards provided appropriate adjustments are made to reflect board specific time allocations.
This video focuses on key aspects of analysis. Although the video refers to the AQA exam board the skill is applicable to all exam boards. The only significant difference between boards is how they award marks for this skill.
This video focuses on key aspects of good analysis and effective logical chains of reasoning.
This week's edition looks at the basis of inflation measurement in the UK and the recent publicity concerning the decline in the UK's inflation rate.
This week's edition looks at the Chancellor's Autumn Statement. It highlights the main changes announced and showcases how to analyse and evaluate the changes in stamp duty.