Revision: The Pound Falls to 5 Year Low against the Euro
Today’s revision note is on exchange rates and is designed for AS students - the pound has slipped to a five year low against the Euro. It is perhaps the result of the Euro’s strength against the US dollar rather than any fundamental collapse in market sentiment against sterling.
read more...»Bhutan and Gross National Happiness
Is there a trade off between wealth and well-being? I missed this Newsnight report from Mark Easton which appeared on BBC2 last month - but came across it whilst revising my work schemes for our new courses next year. This is a terrific eight minute video on life in the absolute monarchy of Bhutan - a country without traffic lights and which has banned plastic bags and adverts for Pepsi and Coca Cola. The video clip is excellent perhaps as an introduction to discussion on living standards or even the basic economic problem.
Tim Harford’s essay on happiness which was published a couple of years ago is still well worth a read.
The Rock and his Millions
Geoff’s entry today here prompted me to write something topical for once, so I’m going to follow up on this enlightening review. Despite everyone clamouring for change (from more staffing to a rehaul of the entire system), nobody actually knows what actual reforms are going to be implemented, aside from how we’re promised that things will be “better”. Somehow it reminds me of a certain someone’s campaign, but let’s not get into that. Instead, I’m going to discuss the theoretical side of how this discovery may affect the future.
read more...»The Cost of Fraud
Fraud could be costing the economy upwards of £20 billion a year according to the City of London Police. Fraud is merely one aspect of corruption in the economy - my graphic comes from a talk on on business corruption given at the Keynes Society by John Burbidge-King
CEO of Interchange Solutions Ltd. Fraudulent behaviour has many causes and mild fraud can often be rationalised if the person or people who commit it manage to create at least one step between them and the cash it involves. But the consequences for business in the long run can be severe.
“Tolerance” of corrupt practices indicative of other deeper problems
Created share volatility ~ loss of shareholder value
Adverse investor attitudes ~ lower capital market and credit market ratings ~ potential impact on insurance cover/premiums
Business distraction and diversion of resources in unearthing the culprits
Negative Impact on brand/reputation
Worrying for employees, customers and business partners
Government failure and the Rock
Well here is one for the file on classic examples of regulatory (aka government) failure in the market. The Financial Services Authority (FSA) has admitted that it gave too few resources over to monitoring the problems building up at Northern Rock - covered in this BBC article and also this piece in the Financial Times. The FSA seems to have been assuming that the Bank of England stood ready to bale out the Northern Rock and there were failings in the oversight of the Rock by supervisory teams sent to look at the Rock’s flawed business model. None of this will be any comfort to the shareholders and also to the thousands of Rock employees who will lose their job. Robert Peston is brilliant on this issue - here is his latest blog which lays bare the blundering at the FSA and the shocking incompetence of their senior management.
Revision: Commodity Prices and Economic Effects
In recent years we have seen a sharp rise in the prices of many internationally traded commodities such as oil, gas, iron ore, palm oil, rubber, copper and many foodstuffs. This revision note looks at some of the demand and supply-side explanations for this and also covers some macroeconomic consequences for various countries. This five page revision note available in pdf format (below) will also highlight some micro and macro concepts from the AS and A2 specification and offers ideas for scoring more highly using evaluation.
Commons Library Research Papers
The House of Commons Library research papers are made available for free download and viewing on the web. I have used these several times in recent months - for example there is a monthly digest of economic statistics; regular information on social trends and information on specifics such as aviation and climate change control and recent changes to the tax system. A recommended site for teachers. Here is the link.
Demand for recycled steel
One of the beneficial side effects of the boom in commodity prices is that the economcis of recycling materials has changed. This BBC video clip looks at the booming market for recycled steel, 95% of an old war ship can be used again as it is ripped apart in a shipyard in Belgium.
On the other hand, the soaring price of copper and other metals has seen a rise in theft - this article from the Guardian last week says that up to two dozen people have died in crime related to the stealing of copper in the USA over the last two years: “With copper prices rising from 80 cents a pound five years ago to $4 a pound, the wiring and pipework to be found in transport, buildings and electrical infrastructure is suddenly attractive booty for thieves.” Schools, hospitals and churches have not been immune to the rise of copper stealing - it is all a question of incentives!
Predictably Irrational on Facebook
Check out these videos!
The new Predictably Irrational Facebook group is here!
Revision: Household Saving
This revision focus looks at household saving - the decision to postpone consumption
At AS level, changes in the household savings ratio can have significant effects on the level of aggregate demand (in the short term) and also on the funds available to finance investment. There has been a trend decline in the savings ratio in many countries (in the United States, the personal sector savings ratio has touched zero!) and AS economists ought to be able to use an aggregate demand / supply framework to analyse some of the effects for variables such as GDP, employment, inflationary pressures and the balance of payments.
Is the low level of household saving a cause for economic concern in the longer term? if so, what might be done to increase saving? How does globalisation impact on the significance of saving for economic growth? This 3 page revision focus document (available in pdf format) covers some of these issues.
OCR 2888: New SMMT report on CO2 emissions
The Society of Motor Manufacturers and Traders have released a new report on progress in cutting CO2 emissions from the motor vehicle industry. This looks like good background material for teachers and students preparing for the OCR 2888 paper, it focuses on how there has been a big shift in the new car market towards vehicles that come in under the 140g/km emissions level.
They claim that:
Average new car CO2 has fallen 13.1% since 1997, to 164.9 g/km
Total CO2 emissions from all cars in use has fallen by 4.8% since 1997
Almost a quarter of all new cars registered in 2007 were under 140g/km and over 10% were under 130g/km
There are record numbers of model ranges available to consumers, providing choice to meet a broad spectrum of consumer demands
Here is the link to download the report as a pdf file
The Weekend Papers
Paul Ormerod wrote a superb piece in the News Review in yesterday’s Sunday times, although a fairly hefty article it is worth sitting down and having a read. The piece gives you a potted history of the financial crisies that hit during the 20th Century and draws comparisons and links to the current global financial shock:
As the worsening financial crisis evokes the Great Depression, this economist explains how ‘lunatic’ risk-taking got us into this mess – and why the guilty will get away with it
Ormerod writes:
Big recessions really hurt. In the Anglo-Saxon world, we have forgotten what they look like. Between 1930 and 1933, annual output of the American economy fell by nearly 30%. This dry statistic disguises what big recessions feel like. A similar one in Britain today would destroy 8m jobs. More than one in four employees would be thrown out of work.
Following the credit crunch theme, also an excellent set of articles in The Observer yesterday:
http://www.guardian.co.uk/business/creditcrunch
Revision: Innovation
Innovation has been defined by the OECD as “The transformation of an idea into a new, improved product, process or service.” This revision mind map looks at the micro and macroeconomic importance of innovation. Successful innovation can be a driving dynamic of a modern, competitive economy. A range of supply and demand-side policies can be used to foster innovative behaviour. Of key importance is the type of market structure in which innovation within the private sector can be encouraged. We must not forget too the potential for innovation in the public sector and in collaborative ventures between countries.
read more...»OCR 2888 - June Case Study - Broad Themes
This is the first in a series of blog posts relating to the OCR A2 Economics Case Study, Economics in a European Context. This summer the pre-release case study materials focus on the EU automotive industry and many of the economic and environmental issues that link to this important industrial sector. I have been working on our toolkit for this paper (due out in a few days) and below I have tried to capture some of the broad themes that I feel are covered by the case study materials. Please do add your own ideas through the blog!
read more...»Ethical Economics: Partie Deux
[This is the concluding half of my two-parter on ethics within economics. The first half, introducing some of my insights can be found here.]
read more...»Asking questions of Joseph Stiglitz
Today’s Independent carries an interview with Joseph Stiglitz who answers questions from readers. Well worth ten minutes of your time.
Interrelated markets and climate change
An article in The Times recently explored the economic implications of reducing demand for oil and energy in the West.
read more...»Caveman economics
I am greatly enjoying Predictably Irrational by Dan Ariely - who spoke at the LSE last week (there was a long queue of my students wanting to buy the book). Today’s Mail on Sunday previews another example of the new genre of popular books on behavioural economics written by Professor Pete Lunn from the Economic and Social Research Institute and given the enticing title Basic Instincts: Human Nature and the New Economics. It is published by Marshall Cavendish next month, few details available yet. I will keep my eye out and add to the blog when they are more widely known.
Revision: Expectations in Economics
Expectations are forecasts or views that decision makers hold about future prices, sales, incomes, taxes, or other key variables. Our expectations also shape today’s decisions – since expectations can become a “self-fulfilling prophecy.” There is no doubt that expectations play a really important role in determining consumer and business decisions. From speculative behaviour in commodity markets, to the carry trade in foreign exchange and to expectations of changes in tax policy, how our expectations are formed and the factors that might cause them to change matter a great deal. Students can score higher marks for critical evaluation if they bring in the concept of expectations into their discussions.
I have attached a revision mind map in pdf format on expectations in economics. There are many applications of the concept in both AS and A2 micro and macroeconomics.
The mind map includes sections on
Speculative behaviour in markets
Adaptive Expectations
Rational Expectations
Behavioural Economics
Expectations and Government Economic Policy
Expectations of inflation
Microeconomic applications of expectations
Mindmap file
Expectations.mmap
Pdf version of the mindmap
Expectations_in_Economics.pdf
A revolution at the Fed?
The current edition of Business Week has a special on Ben Bernanke’s leadership of the US Fed Reserve. As he drives real official policy interest rates into negative territory, this set of articles is good background reading for students in the UK who want to understand a little more some of the differences in approach between the Fed Reserve and our own Bank of England. How big a risk is the Fed taking that its enormous efforts to inject liquidity into the US financial markets and bolster confidence with aggressive rate cuts, will create further problems down the line?
Fashionable changes in preferences
A few weeks ago I blogged about information failure and the demand for plastic bags. This BBC news video clip considers just how powerful fashion statements can be in altering our preferences - there are signs that high street retailers are moving decisively away from the default option of offering a plastic bag to all customers.
Sachs pins blame on Greenspan
The easy money policies of the early years of this decade are one of the root causes of the credit crunch according to an article by Jeffrey Sachs in today’s Guardian. “Much blame for the current economic turmoil can be placed squarely at the door of Alan Greenspan and the Fed…Monetary expansion generally makes it easier to borrow, and lowers the costs of doing so, throughout the economy. It also tends to weaken the currency and increase inflation. All of this began to happen in the US.”
The rest of the article is here
Dioxin contamination and illegal dumping of waste
The Independent’s front page this morning offers a classic tale of externalities. For years residents of Campania have been found to be less healthy than residents in the rest of Italy. Mortality rates, particularly from some forms of cancer, are higher in the areas around Naples where the rubbish crisis is at its most severe. Now allegations are surfacing that the illegal dumping of waste in an area where waste management is under the control of the Mafia has caused excessive levels of dioxins to be found in Buffalo milk, one of the prime ingredients of mozzarella cheese beloved of pizza lovers around the world.
“The topping on a billion pizzas, the magic ingredient in a million salads, is at the centre of a major food scare involving pollution, corruption, the Mafia and southern Italy’s remarkable crisis in waste management.” In a separate piece, the Indy reports that “A recent report by Italy’s small business group estimated that the Mafia is the biggest business in Italy, with organised crime netting Mob bosses the equivalent of more than £63bn a year, or 7 per cent of the country’s gross domestic product.”
BBC news: Toxin scare hits mozzarella sales
New York Times: Italy’s Mozzarella Makers Fight Dioxin Scare
Revision Mind Map: External Economic Shocks
This is an important topic at A2 and you can also bring in useful ideas in AS macro papers too. A revision mind map is attached together with the original mind map for colleagues who might want to amend and develop further.
Notes to students:
All economies that are partof the global trading system are exposed to one or more exogenous shocks
They can be either demand or supply side
They can be positive or negative in terms of their impact on prices, output, jobs and living standards
It is important to be able to use AD-AS analysis to show some of the effects of shocks
Evaluation is key in these sorts of questions - how large is the shock? is it temporary or longer-lasting?
Consider how policy-makers can respond to shocks and understand the importance of economic flexibility in dealing with the aftermath
External_Economic_Shocks.pdf
Global_External_Economic_Shocks.mmap
Getting real…?
Despite continuing problems in the financial sector, UK consumers are defying the odds and doing what they know best - shopping.
read more...»Congratulations to Tiffin Girls School
Tiffin Girls’ School are celebrating their win in the 2008 Bank of England / The Times TwoPointZero competition. Many congratulations from everyone at Tutor2u. Read all about their triumph here
Flair for economics
1st: The Tiffin Girls’ School, Kingston-upon-Thames.
Nancy Chen, Georgia O’Donnell, Neshma Shah, Teresa Song
2nd: Loreto College, Coleraine, Co Londonderry
3rd: Leeds Grammar School, West Yorkshire
Other finallists: Peter Symonds College, Winchester, Hampshire; Tonbridge School, Tonbridge, Kent; Wolverhampton Girls’ High School, Wolverhampton
Now the attention switches to the Royal Economic Society’s Young Economist of the Year competition, there are just under two months to go before entries must be submitted for judging.
Tutor2u VLE in Economics
As the summer revision and exam season approaches, I will be spending a lot of time developing new resources for the Economics VLE available through Tutor2u.The system already provides a full range of study resources, online tests and assignments, glossaries and revision aids organised on a topic by topic basis for four separate courses: AS micro and macro and A2 micro and macro. I will also be developing the European Union and Housing modules in the coming days. Details of the VLE and group and individual subscription rates are available here.
Ethical Economics
First and foremost, the title is not an oxymoron. We dismal scientists get a pretty bad rep for being dispassionate. In fact, I was recently asked to give the most soulless example of an economic judgement that I can think of. I put forward the following:
read more...»UK Housing Market Update (March 2008)
Data for March 2008 shows a further deceleration in the pace of house price inflation and a sharp drop in the volume of completed property transactions. There are signs of a tightening of mortgage lending with some smaller building societies restricting the number of mortgages they are prepared to lend out. The value of new home loans is certainly falling and the share of fixed rate mortgages in the property market is sliding. I have attached a six chart summary of developments in the housing market used in discussion with my AS Economics students.
Revision Mind Map: Monetary Policy
Designed for AS and A2 Economics students, this mind map is attached below in mmap and pdf format.
