Posts from the ‘Economics’ Category

Building a Future for Chocolate

January 30th, 2014 at 12:25 pm by Geoff Riley

Here is a short video on the challenges and opportunities facing cocoa producers across the world but especially in sub Saharan Africa which accounts for 70% of global production. Supply is struggling to keep pace with rising world demand and there have been some structural declines in production in several countries.

The FT’s Emiko Terazono reports from Ghana on how chocolate manufacturers and traders are striving to boost cocoa supplies, which are coming under pressure from climate change and urbanisation amid growing demand for confectionery in emerging markets. Farmers are being encouraged to develop supplementary incomes and invest in sustainable production methods.

  • There are 720,000 cocoa farmers in Ghana
  • Ghana and neighbouring Ivory Coast – together produce almost 60 per cent of the world’s cocoa supplies
  • Poor returns from cocoa farming has made farmers vulnerable to illegal miners offering cash payments to secure their land
  • Chocolate sales are expected to reach a record $117bn worldwide in 2014, according to Euromonitor – a rise of over 6% on the 2013 level
  • Bad weather and ageing trees and low capital investment have hampered cocoa farm yields and led to a global supply-demand imbalance
  • In theory, higher prices incentivise cocoa farmers to meet growing demand for chocolate in emerging markets
  • But rising costs of fertiliser and other operating costs have hit the funds available for expansion

FT Video

Ghana’s export map

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Does Facebook have a Future?

January 30th, 2014 at 11:47 am by Paul Ormerod

So farewell, then, Facebook! That is the conclusion of a highly technical
paper by two Princeton researchers, John Cannarella and Joshua Spechler, which
received a lot of publicity in the press last week. The authors conclude that “Facebook
will undergo a rapid decline in the coming years, losing 80 per cent of its
peak user base between 2015 and 2017”.

The natural reaction of an
economist to such a prediction is to ask whether the scientists have taken
positions in options on Facebook’s future share price. If they prove to be correct, they stand to
make a fortune. It is easy to be cynical
about this kind of prediction, but a couple of important points can be drawn
from the theme of the paper and the approach which is used.

Facebook currently has over 1 billion users
worldwide, and a market capitalisation of around $130 billion. It might seem implausible to many that this
giant company might collapse so rapidly.
But this is exactly what happened to MySpace, the most visited website in
the world from 2005 to early 2008. By
2011, it had all but disappeared. 

giant firms fail. This is the lesson of
economic history, ever since companies operating on a truly global scale began
to appear in the late 19th century. 

Of the world’s top 100 non-financial companies a century ago, in 1914,
all with market capitalisations of many billions in today’s prices, most have
either gone bankrupt or are mere shadows of their former selves. Some of them disappeared very quickly. Even the largest company can collapse.

The second point is about
why people choose one thing rather than another. 

Economists try and explain
this by referring to the observable attributes of the alternatives, such as
price and quality. If a service like
Facebook is fantastically popular, it must be because the product not only
provides features which many people want, but because it does so much more
effectively than its rivals. A dominant
market leader can only be displaced, on this view of the world, if either a
superior rival emerges, or if there is some unforeseen and sudden shift in
consumer tastes.

This is not at all the
approach taken by Cannarella and Spechler. 

Their model takes no account at all of the features of Facebook or its online
social network competitors. Instead,
the decision whether to start using Facebook, to carry on using it, or to
abandon it, is made solely by taking into account what your friends are doing. The approach provides a startlingly good
account of the rise and fall of MySpace.

This is just one example of
the mathematical models which are now being used to explain, very successfully,
many aspects of consumer behaviour on the internet. Factors such as price and quality can be
added to them. 

But the main driver of an
individual’s choice is, quite simply, what other people are choosing. Marketing departments and ad agencies
increasingly need top quants just as much as they need creatives.

Ormerod is an economist at Volterra Partners LLP, a Visiting Professor at the
UCL Centre for Decision Making Uncertainty, and author of Positive Linking: How Networks Can Revolutionise the World

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OCR F585 – Global Economy – Latvia’s Internal Devaluation

January 29th, 2014 at 9:33 pm by Virang Dal

Much has been made of Latvia’s internal devaluation, so much so that it has featured in OCR’s Global Economy pre release. Most commentators have reacted negatively to the effect of Latvia’s internal devaluation; here’s why:

Many would say looking at figures and charts that Latvia’s internal devaluation has been a marked success. Latvia, a country scarred by a desperate banking crisis and deep recession had no choice but to rely on net exports to escape from the pits of a 24% fall in GDP as a result of economic crisis.

By aiming to reduce nominal wages and prices through deflationary tightening of fiscal policy (austerity), thus also fulfilling stricter IMF government finance conditions, the Latvian government embarked in a policy aimed at increasing the competitiveness of its exports (domestic goods) and hopefully, simultaneously easing the pressure to purchase imports as consumers switched to more competitive domestic goods.

From the outside, it looks like Latvia was successful, the current account deficit moved to surplus roughly during the period of internal devaluation, recovery soon followed with production up.

But is this really the whole story? And can internal devaluation really be credited for this so called ‘recovery’? Many, myself included, argue not and here’s why;

Advocates of internal devaluation argue using the counter factual, stating that if Latvia hadn’t adopted this policy, the end position of Latvia’s economy would have been much worse.

Soaring government, private and personal debt was crippling the economy, investors were quickly losing confidence in the country with arguments that regular devaluation with expansionary monetary policies would have simply made the situation worse. Well it is hard to argue the situation in Latvia could have been worse after internal devaluation;

  1. Real incomes losses have been staggering post internal devaluation, difficult to imagine how any other policies could have done any worse! Coupled with this, there have been huge social and economic costs of the policy. Unemployment sky rocketed to 20.5%, income inequality increased significantly and emigration took off; all considerable factors contributing to the the shrinking of the Latvian economy. It is important to note that this was the intention of the policy to lower the real exchange rate by lowering wages but crucial is to note that internal devaluation deepened the crisis but had no real role in pulling Latvia out
  2. Deflationary pressures increased the real burden of debt (of which there was plenty in Latvia!) The IMF raised this as a major concern yet remained adamant that Latvia maintain austerity measures. This pushed up real interest rates (reaching a peak real figure of 12.2% at the beginning of 2010)  trapping the economy in a downward cycle.

So what changed and how did Latvia escape, bottoming out at a loss of 24% GDP?

Simply, fiscal tightening was abandoned in 2010 and monetary policy became expansionary as external shocks increased inflation in Latvia. Suddenly competitiveness and net export growth was no longer even a potential driver of growth.

Though going against the intentions of internal devaluation, this inflation now was crucial for Latvia as it reduced the real value of debt, pushed down real interest rates and fundamentally, as it was accompanied by expansionary monetary policy, confidence flowed back into the economy from investors and consumers.

Advocates may argue that the recovery was caused by export growth as a result of Latvia’s REER (real effective exchange rate) falling by 21% from its peak in 2009 but actually this was matched by an equal rise in import expenditure cancelling out any net trade gains.

Crucially any improvements in Latvia’s trade position occurred before any depreciation in Latvia’s REER (before internal devaluation) so even the transformation of current account deficit to surplus cannot be attributed to internal devaluation.

The costs of internal devaluation have outweighed any dubious benefits of the policy; massive social and economics costs, emigration and the worst economic crisis to hit Latvia in the last 20-25 years.

It was a neutralisation of fiscal austerity in 2010 that brought about recovery and although the country is now stable, any hope for sustained growth relies heavily on productivity improvements, investment increases and a reduction of poisonous indebtedness in both the public and private sectors.

To read more about this view of Latvia’s internal devaluation, where these claims can be back up with figures, please visit this link

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Unit 1 Micro: 10 Questions on Government Intervention

January 29th, 2014 at 7:01 pm by Geoff Riley

Here are ten questions for students wanting to check their understanding on government intervention in markets

zondle – games to support learning
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Unit 3 Micro: Revenues and Profits

January 29th, 2014 at 6:38 pm by Geoff Riley

Here is an updated revision presentation on short run revenues and profits for businesses – A2 economics revision notes can be found here

Revenues and Profits from tutor2u
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“We’re all middle class now”. Or should that be middle income?

January 29th, 2014 at 2:33 pm by Tom White

As the comedian Mark Steel once said, “anybody who says we’re
all middle class now obviously hasn’t been to Wigan” (I can make that joke
because my dad’s from there). One huge
global cause for celebration is that the scourge of absolute poverty is in retreat. Instead we hear much more about rising inequality within nations, which is progress, of a sort. In amongst these discussions is talk of a
rising new middle class (see above – link here). What might this mean?

The graph shows the decline in ‘extremely poor employment’ across the globe, and increases in ‘middle class’ employment. The surprise is that ‘middle income’, by this definition starts at incomes of between $4 and $13 a day. Paul Mason writes eloquently about these people in The Guardian.

Fresh research by the International Labour Organisation (ILO) shows in detail what’s been happening to the workforce of the global south during 25 years of globalisation: it is becoming more stratified – with the rapid growth of what they term “the developing middle class” – a group on between $4 and $13 a day. This group has grown from 600 million to 1.4 billion; if you include around 300 million on above $13 a day, that’s now 41% of the workforce, and on target to be over 50% by 2017. But in world terms they’re not really middle class at all. That $13 a day upper limit corresponds roughly to the poverty line in the US in 2005. So what’s going on?

The ILO researchers mined data from 61 household surveys across the world to come up with these figures. In the process they adopted a rough definition of the lifestyle of the sub-$13 group. The key markers were: families had access to savings and insurance, were likely to have a TV in the home and to live in smaller households (four people). They would typically spend 2% of their income on entertainment – plus they would have better access to water, sanitation and electricity. These, then, are the “winners” from globalisation: an expanding group for whom global growth has meant a serious rise in real income, year after year, compared with the recent near stagnation of incomes for working and lower-middle-class families in parts of the developed world. The article explains that many of these people work in services, not manufacturing – a process that happened to their rich-world counterparts in the 1960s and 70s.

Mason describes a scene – “Go to the reality of being “new middle class” in Brazil, Morocco or Indonesia and the word “comfortable” does not spring to mind. It means often living in a chaotic mega-city, cheek-by-jowl with abject poverty and crime, crowding on to makeshift public transport systems and seeing your income leach away into the pockets of all kinds of corrupt officials, middlemen and grey market people. This in turn has shaped what people protest about.”

Powerful stuff. Progress, of a sort.

And an astonishing conclusion: “what was unthinkable 20 years ago is now becoming tangible: that the real incomes of skilled workers, knowledge workers and managers in “developing countries” are overlapping with those at the bottom of the heap in western society”.

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UK Boom and Bust?

January 29th, 2014 at 8:55 am by Geoff Riley

In this short interview from the Financial Times, John Authers discusses with Roger Bootle, managing director of Capital Economics about the sources of the resurgence in growth in the UK economy. Bootle argues that there is little sign of economic re-balancing, consumption is the main driver of recovery and net exports are subtracting from growth at the moment. 

The current account deficit is widening – Bootle find this a deeply depressing shift and hints that the UK economy remains heavily dependent on exporting to weak-growing European markets.

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Unit 2 Macro: 10 Questions on Economic Growth

January 28th, 2014 at 6:58 pm by Geoff Riley

Here are ten questions for students wanting to check their understanding on economic growth

zondle – games to support learning
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Unit 3 Micro: Short Run Costs of Supply

January 28th, 2014 at 6:31 pm by Geoff Riley

Here is an updated revision presentation on short run costs for businesses – A2 economics revision notes can be found here

Short Run Costs of Production from tutor2u
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UK Economic Recovery Gathers Momentum

January 28th, 2014 at 10:24 am by Geoff Riley

New data on the UK economy shows another quarter of above trend growth. Here is an updated six chart presentation on the economic cycle that might be useful for teaching macro in the classroom. Download as a powerpoint file


Channel 4 interview with George Osborne

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Why has Japan got a trade deficit?

January 27th, 2014 at 9:31 pm by Blogger Bryn

Great clip from the BBC

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Why is Allocative Efficiency where P=MC?

January 27th, 2014 at 7:36 pm by Virang Dal

Used all the time but generally poorly understood – this video reveals exactly why P=MC is the allocatively efficient point of production (basically where demand=supply)

To watch more videos please visit and share the channel - EconplusDal

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Unit 2 Macro: 10 Questions on Managing the Economy

January 27th, 2014 at 6:55 pm by Geoff Riley

Here are ten questions for students wanting to check their understanding on managing the economy

zondle – games to support learning
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Unit 3 Micro: Fixed and Variable Costs

January 27th, 2014 at 6:22 pm by Geoff Riley

Here is an updated revision presentation on fixed and variable costs for businesses - A2 economics revision notes can be found here  

A2 Micro: Fixed and Variable Costs from tutor2u
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Imports are good too!

January 27th, 2014 at 4:28 pm by Tom White

We are often (quite rightly), talking about Britain’s disappointing export performance. There
are lots of good reasons to promote exports – an injection into the circular
flow of income
and the X in C+I+G+(X-M)

But don’t fall for the trap of thinking that exports=good and
imports=bad. In the final analysis, one
of the main reasons for exports is to pay for imports. Imports play a crucial role in making our
economy more efficient.

Late last year, the Chancellor set the bold target of doubling UK exports to £1 trillion by 2020. That equates to a growth in exporting of 9% a year for the next six years, which is looking unlikely. 

According to HSBC’s Global Trade Forecast in The Telegraph (and Guardian) we’ll achieve export growth of about 4%. The pace will increase to 6% a year from 2015 to 2020, but still falls short of where the Government is setting its sights.

But don’t lose sight of the significance of imports in making this happen. 

According to a report commissioned by HSBC, far from imports being the enemy of UK manufacturing, they are enabling smart UK businesses to increase productivity and compete in the global supply chain

Over the past decade, British manufacturers – particularly in the automotive, pharmaceutical and machinery industries – have started to import more semi-finished parts, allowing them to focus on value added

This means they are now making premium, finished products, which, in turn, are exported around the world to satisfy the demands of emerging markets and new consumers. It’s all about specialisation in the UK economy and the gains from trade that can grow from that process.

According to HSBC, this is a welcome sign that UK companies can adapt to defend and increase sales, identifying where they have a competitive advantage and focusing on it. 

This should improve our productivity levels and boost our export potential. That’s a recurring supply side message: to retain an advantage in design and in quality, we must continue our tradition of innovation, which means investing in research and development and training to improve the skills of the UK workforce.

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Japan: Abenomics and trade deficits

January 27th, 2014 at 11:59 am by Mo Tanweer

A key to understanding macroeconomics is understanding the inter-relationships between different economic variables.

This is illustrated clearly in the Japanese headline yesterday that the trade deficit hit the highest since records began in 1979.

Abenomics is the name given to the set of reforms that are supposed to help the economy return to its former glory, having spent much of its time since the 1990s being stagnant and facing deflation (the Lost Decades). It infamously lost its position as the 2nd largest economy in the world in 2011 to China (a position it had held since 1968).

In 1991, its real output per capita was 87% of that in America; in 2011 that figure had fallen to 72%.

In a nutshell, Abenomics is a three pronged approach:

- It involves a significant fiscal stimulus through increasing government spending

- A sizeable monetary stimulus in the form of quantitative easing 

- And institutional reform to make structural improvements to the Japanese economy

Abenomics has been good for parts of the Japanese economy, including the stockmarket’s 57% rise in 2013. Read more here.

But as in all of macroeconomics, for every action, there is a reaction.

The Japanese yen has fallen around 20 per cent against the USD last year. Whilst this has succeeded to stimulate exports (exports make up around 15% of Japanese GDP), it has had some unintended consequences on the imports side. Since the Fukushima nuclear disaster and the ensuing closure of much of Japan’s nuclear energy (which supplies around a third of Japanese energy), Japan has become increasingly reliant on imported energy. Thus the Japanese yen, whilst helping exporters in one sense, has also led to an increase in costs of production of imported material – especially energy, which has an inelastic demand. Thus the value of imports have surged faster than the rise in the value of exports, causing the trade deficit to hit the highest since 1979. At some point, however, one would expect this to also feed through to higher cost push inflation – on this matter, it would be no bad thing for Japan’s inflation target – which it doubled to 2% last year – and a target they have repeatedly missed, suffering from deflationary pressure. However the squeeze on real incomes in an economy that has stagnated for quite some time now will also be an issue for the Japanese government to consider – especially as it raised the sales tax last year in a bid to help reduce some of the government’s c.240% debt/GDP ratio.

This BBC clip illustrates the dynamics well in 3 graphs.

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Teaching Vacancy – Head of Economics at Wycombe Abbey School

January 27th, 2014 at 8:37 am by Jim Riley

Another superb Economics HOD opportunity here at our good friends at Wycombe Abbey School.

Job Title: Head of Economics

School / College Name: Wycombe Abbey

School / College Location: High Wycombe, Bucks

Salary Level: above maintained sector

Description of the Job

A full time teacher of Economics, which could be a Head of Department post for a suitable candidate.

Essential & Desirable Experience and Qualifications

A well-qualified, enthusiastic and able graduate of Economics

Closing Date for Applications: Friday 30 January 1914

Interview Dates: 7th February 2014

Contact Name for Applications: Sally Coombe

Email Address for Applications:

Telephone Number for Further Information: 01494 897026

School / College Web Site:

Application form: wycomebabbey_academic_application_form_5_1.doc 

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WOW! Economics 2014

January 27th, 2014 at 8:14 am by Jim Riley

Update: new dates added for Belfast (25 June) and Manchester (27 June 2014)

WOW! Economics has quickly become the leading CPD course for teachers of A Level Economics, IB Economics and equivalent qualifications. Over 350 Economics teachers attended WOW! Economics 2013 taking away with them over 40 teaching resources and the feedback was that they wanted more WOW! Econ!

WOW! Economics 2014 returns with another resource-packed day with all-new teaching & learning resources. Our team of Economics contributors simply love their subject and they’ve excelled themselves yet again! There are 51 brand-new teaching activities for delegates attending each of the WOW Economics days. A full listing of the materials is provided below together with a few screen shots!

Our resources for WOW! Economics are grouped into four broad categories

Course Essentials | Inspire & Engage | Exam Technique | Test ourself

They combine a variety of materials that are designed for AS & A2 and IB Economics micro and macro topics as well as approaches to teaching economics that can be used throughout the two years of study.

Delegates at each Wow! Economics 2014 course receive a full pack containing every resource, including full teaching instructions and guidance. During the day we explore as many of these resources as possible and consider how they can be used most effectively in the classroom.

When and Where

The remaining dates and locations for WOW! Economics 2014 are:

Dubai 5 March 2014

Singapore 10 & 11 March 2014

Birmingham 11 June 2014

London 12 June 2014

Belfast 25 June 2014

Manchester 27 June 2014

How to Book Places

Book places right now on WOW! Economics 2014 – these places get snapped up quickly!

You can also download and send us this printable booking form

Or book directly from our online store

WOW! Economics 2014 Resource Listing


Trapdoor Economics | Cowboy Shootout | Slot Machine

The Redacted Chart | Provocative Starters | Classroom Posters

The Unbelievable Truth

Micro Economics

Elasticities | Equality vs Equity | Market Structure Matrix

The Coke Game | Diminishing Marginal Returns | Kinaesthetic Elasticity

Colour Chaos | Flights or Fights | Takeovers and Mergers

The Gallery of Economics | The Value of Occupations

Macro Economics

European Mix and Match | Top Trumps | The European Union 28

Liquidity Spectrum | Control the Child | Labour Immobility

Markets Mystery | Base Rate Dilemma | Policy Prescription

Curing a Deficit | Fiscal Budget Time | The Government Game

Revision, Analysis and Evaluation Activities

Tri-Dominoes | The Angry Economist | Evaluation Snakes and Ladders

Street Art | Lily Pad Leap | Chains of Analysis | Essay Template

Hunt the Cons

‘Give it a Go!’

Cinderella Panto | EconoArt | Economic Cycle

Economic Poems | Economics Recipes | Ford Boardroom

Macro Economic Objectives | Monetary Policy | Macro Indicators

Spectrum of Opportunity | Unemployment Types

What does Unemployment Look Like?

A Sneak Preview of WOW! Economics 2014 Teaching & Learning Resources

How to Book Places

Book places right now on WOW! Economics 2014 – these places get snapped up quickly!

You can also download and send us this printable booking form

Or book directly from our online store

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The OCR F585 Hash Tag!

January 27th, 2014 at 7:15 am by Geoff Riley

A growing number of teachers are contributing relevant tweets supporting their focus on the June 2014 OCR F585 paper. I find this a great way of tracking interesting articles relevant to the pre-release case study materials. Here is the link to follow

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Marshall Society Conference – Cambridge 25th January 2014

January 26th, 2014 at 10:00 pm by Geoff Riley

It was a delight to travel over to Cambridge at the weekend to be a guest at the inaugural conference organised by the Marshall Economics Society. It has been nearly thirty years since I last stepped into the Union Society building (in my youth I spent rather too many hours on the snooker table there!) but, arriving in good time, I was pleased to see that the event was a sell out with hundreds of university and school students and a good smattering of interested folk from the locality.

The event was smoothly and expertly organised by Ravi Prasad, LawrenceXu and their team and I am sure that it will go from strength to strength in future years. I was able to stay for four of the main sessions and some notes taken during them have been added to the economic blog. Please click below for details.

If you run an Economics Society at your school or university and have a forthcoming event open to a wider audience please let us know so that we can publicise through our blog and regular teacher newsletter.

Marshall Society Session Notes

China’s development, past present and future:…

Poverty – new thinking about an old problem:…

The emerging world and poverty – where next?…

Working for the few – development and inequality:…

Find out more about the Cambridge University Marshall Society by clicking here

Well done to the committee – a super job!

Follow them on Twitter!

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Macro Policy Challenges in India and Japan

January 26th, 2014 at 9:34 pm by Geoff Riley

My A2 macro students are now looking at some fascinating macro policy challenges facing a range of countries. This week they choose one from two set assignments. 

The first offers them an opportunity to analyse some of the causes of high inflation in India and consider how much of a threat it is to India’s continued growth and development. 

A second assignment looks at Abenomics in Japan and whether it can lift the Japanese economy out of over two decades of slow growth and deflationary pressures. I am hoping that there will be some interesting insights allied to good A2 macro analysis as students crack on with their independent research. 

Download the assignment sheet below and I have added in some suggestions for further reading on the two topics



Suggested reading

India – Inflation,
Growth and Development

India’s battle against inflation (FT, Jan 2014)

India central bank considers inflation targeting (FT, Jan

Food prices; a bricks and mortar problem for Indian economy
(Reuters, Dec 2013):

In India, economic slowdown and inflation cause middle class
to defer dreams (Washington Post, Nov 2013) Click

Is India becoming an inflation nation? (BBC, Oct 2013):

What is wrong with India’s economy? (BBC, July 2013):

High Inflation Deepens India’s Stagflation Fears (WSJ, Dec

Abenomics and the
Japanese Economy

“Abenomics is the name
given to a suite of measures introduced by Japanese prime minister Shinzo Abe
after his December 2012 re-election to the post he last held in 2007. His aim
was to revive the sluggish economy with “three arrows”: a massive
fiscal stimulus, more aggressive monetary easing from the Bank of Japan, and
structural reforms to boost Japan’s competitiveness.” (Source: FT Lexicon)

Why Abenomics holds lessons for West (Linda Yueh, Dec 2013):

Abenomics may take 10 years to work (BBC, Oct 2013):

Japan banks on success of Abenomics (Stiglitz, Apr 2013):

Abenomics: The objectives and the risks (BBC, July 2013):

What is Abenomics? (Business Insider, July 2013):

FT articles on Abenomics –

Abenomics – one year on – Sloman Economics site:

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Unit 2 Macro: 10 Questions on Unemployment

January 26th, 2014 at 9:32 pm by Geoff Riley

Here is a quick revision quiz on the economics of unemployment! Good luck!

zondle – games to support learning
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OCR A2 Economics Unit F585 – June 2014 Pre-Release Stimulus Toolkit

January 26th, 2014 at 8:51 pm by Jim Riley

Geoff’s superb support resource for OCR F585 June 2014 is now ready. We have just sent out the resource to all the teaching colleagues who kindly pre-ordered the F585 toolkit. Apologies for the delay in sending it out (a couple of weeks later than planned). But, when you see the resource I’m sure you’ll feel it was worth the extra few days. The F585 June 2014 is a real tour-de-force,providing unrivalled commentary and analysis for students as they work their way through the exhibits in the stimulus material.

Some sample pages from the toolkit can be downloaded here

The OCR A2 Economics Unit F585 – June 2014 Pre-Release Stimulus Toolkit can be ordered from our online store here

You can also download and send us this printable order form

OCR A2 Economics Unit F585 – June 2014 Pre-Release Stimulus Toolkit – Contents

Some Themes in the June 2014 F585 Economics Case Study


Glossary of Key Terms in the Introduction

Extract 1: IMF Surveillance Report on the UK Economy

Fig. 1.1 – Selected Comments from the IMF on the Economic Situation in the UK

Why has the UK recovery been so weak in recent years?

Focus on Unemployment

The Pace of the Economic Recovery in the UK

Focus on Recession and Hysteresis Effects

Focus on Inflation

Focus on the Euro Area and Links with the UK Economy

Focus on Macro Policies to Boost Demand

Focus on Fiscal Policy – Balanced Budget Fiscal Expansion

Glossary of Key Terms in Extract 1

Extract 2: Fiscal austerity and the UK output gap

Figure 2.1: Comparison of the change in GDP in three UK recessions

Focus on the Output Gap

Glossary of Key Terms in Extract 2

Extract 3: IMF praise for fiscal austerity in Latvia

Focus on Latvia’s Exchange Rate and Balance of Payments

Focus on Competitiveness

Overview of the Performance of the Latvian Economy

Latvia and Euro Membership

Fig. 3.1 – Selected quotes from a speech by Christine Lagarde

Extract 4: Latvia and Iceland – Internal Devaluation v Exchange Rate Devaluation

Fig. 4.1 – Latvian investment and consumer expenditure (billion lats, constant 2000 prices)

Comparing Latvia and Iceland

Fig. 4.2 – Nominal Effective Exchange Rate Indices for Iceland and Latvia, 2007–11

Fig. 4.3 – A comparison of key economic indicators in Iceland and Latvia, 2007–12

Further Background Data on the Icelandic Economy

Glossary of Key Terms in Extract 4

Extract 5: Economic Development in Resource-Rich Economies in Sub-Saharan Africa

The meaning of human development

Fig. 5.1 – Major natural resource exports in sub-Saharan Africa

Focus on Natural Resources, Economic Growth and Development

Focus on Social Progress Indicators

Sub Saharan Africa and Progress with the Human Development Index (HDI)

Policies / Strategies to help overcome the Natural Resource Trap

Glossary of Key Terms in Extract 5

Overview of Data on the UK Economy in Recent Years

50 Suggestions for Discussion Questions / Exam Practice

Exam Technique guidance

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Strategies to promote development – the coffee industry in Vietnam

January 26th, 2014 at 5:05 pm by Penny Brooks

BBC2 are showing a documentary about the massive growth of the coffee industry in Vietnam at 8.00pm tonight – if you miss it, it will be repeated on Monday 3 Feb at 23.30, and also available on i-player. It looks as if it will provide some excellent examples of agricultural strategies to promote development, as well as constraints on that development. 

I have asked my students to read this article from the BBC News Magazine which summarises some of the programme, and to look at this summary of the World Bank’s development report produced last summer

There is also some background data here which shows the massive growth in Vietnam’s share of the world coffee market:



Finally, you might want to look at Oxfam’s educational resource, the Coffee Chain Game – which includes a great quiz, even if you don’t want to go so far as to set up the trading game.

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Teaching Vacancy – Economics & Business Teacher & HOD – Kendrick School Reading

January 26th, 2014 at 3:22 pm by Jim Riley

Another excellent teaching opportunity here, this time at Kendrick School, near Reading. Please mention you saw this on the tutor2u Economics or Business Blog if you apply.

Job Title: Teacher of Economics & Business Studies/Head of Economics & Business Studies

School / College Name: Kendrick School

School / College Location: Reading

Salary Level: up to TLR 2b

Description of the Job

An enthusiastic and well qualified teacher of Economics at A Level and Business Studies at GCSE is sought at this very successful 11-18 girls’ grammar school in Reading. Kendrick School is a centre of academic excellence with a track record of high performance and achievement. Kendrick has a large Sixth Form and within the A Level curriculum, Economics is a popular subject with many students wishing to study the subject further, many at Russell Group universities.

An application form and further details can be downloaded from the school website or obtained by emailing

Essential & Desirable Experience and Qualifications

This position would suit a recently qualified teacher who has aspirations to lead a department and can be mentored towards this role. At the same time a suitably qualified and experienced teacher who is ready to take on a Head of Department role is very welcome to apply

Closing Date for Applications: Thursday 30 January 2014

Interview Dates: week commencing 10th February 2014

Contact Name for Applications: Amanda Emberson

Email Address for Applications

Telephone Number for Further Information: 0118 9015859

Address for Postal Applications

Kendrick School,  41 London Rd, Reading RG1 5BN

School / College Web Site:

Application Form

Further Information

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Teaching Vacancy – Head of Economics & Business, Grammar School at Leeds

January 26th, 2014 at 2:57 pm by Jim Riley

Many thanks to the team at GSAL who have asked us to let teaching colleagues know about this fantastic HOD opportunity in Yorkshire. Please mention that you saw this on tutor2u when applying.

Job Title: Head of Economics and Business Studies

School / College Name: Grammar School at Leeds

School / College Location: Alwoodley Gates, Leeds, LS17 8GS

Salary Level: The salary is constructed from a combination of National Spine points and GSAL supplements to reflect the commitment that is expected from all staff

Description of the Job

An exciting opportunity is available for a well-qualified and experienced Economics teacher to join the Grammar School at Leeds, to lead the successful Economics and Business team from September 2014.

The successful candidate will have strong academic and leadership pedigree, and whilst having overall responsibility for the delivery of both Economics and Business Studies will have an especially strong role in relation to Economics, there being two individuals with extensive delegated responsibilities for GCSE and A Level Business Studies.

Essential & Desirable Experience and Qualifications

Further information and detailed job and person specifications are available on the school’s website

Closing Date for Applications: Wednesday 29 January 2014

Interview Dates: Thursday 6th February 2014

Contact Name for Applications: Elizabeth Carruthers

Email Address for Applications

Telephone Number for Further Information: 0113 2291552

Address for Postal Applications

Alwoodley Gates Harrogate Road

Leeds, West Yorkshire LS17 8GS

United Kingdom

School / College Web Site

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Unit 1: The first controls on the e-cigarette market

January 26th, 2014 at 9:46 am by Blogger Bryn

Under 18’s are to be banned from buying them reports the BBC video article

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Unit 2: Jan 2014: Falling unemployment

January 25th, 2014 at 9:39 pm by Blogger Bryn

Good news from the latest data

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Teaching Resources on Game Theory

January 25th, 2014 at 8:57 pm by Geoff Riley

In this updated blog entry I am bringing together some of the resources that we have produced on the Tutor2u website covering aspects of game theory. I hope this will be useful for students and teachers who focus on ideas from game theory as part of their courses:

You can play some online game theory games here

The Art of Negotiation: Game Theory:…

Oxbridge Economics: Introduction to Game Theory (Mo Tanweer):…

Game show game theory:…

Streamed presentation

Oligopoly Collusion and Game Theory from tutor2u

Mo Tanweer’s streamed game theory introduction

Game Theory – An Introduction (2009) from mattbentley34

Coursera game theory course:

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Working for the Few – Development and Inequality

January 25th, 2014 at 2:53 pm by Geoff Riley

Notes from a talk given by Ricardo Fuentes-Nieva (Head of Research at Oxfam) at the Marshall Society Economics Conference in Cambridge in January 2014

Oxfam has a new report entitled Working for the Few – access it here:…

Coverage here:… and plenty of extensive coverage in other areas. Tim Harford made some criticisms of the report in his recent FT column - click here

The concentration of wealth in the world is enormous – 85 richest people in the world have the same wealth as the bottom 50% of the world’s population. Those 85 people can fit into one of the large double-decker buses

The share of total income of top 1% has increased in 20 of 24 leading advanced rich nations – greatest rise has been in the USA 

Actual inequality might be even higher as much of the data is based on tax records and those with extensive wealth have a great incentive to hide it!

Increasing inequality in middle income countries already a dominant theme in development policy at the moment

Branko Milosovic has important data on the income and wealth inequality discussion – link to previous blog and presentation

Inequality, Economic Growth and Development from tutor2u

Oxfam’s analysis suggests that developed and developing countries can introduce effective policies for reducing inequality over time

  1. Cracking down on financial secrecy and tax dodging
  2. Redistributive transfers; and strengthening of social protection schemes
  3. Investment in universal access to healthcare and education
  4. Progressive taxation i.e. higher marginal tax rates for wealthier groups
  5. Strengthening wage floors and worker rights in labour markets
  6. Removing the barriers to equal rights and opportunities for women

Rejoinder: Bill Gates on dispelling three poverty myths (Economist Free Exchange Blog):…

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Unit 1: Should government intervene in the market?

January 25th, 2014 at 1:59 pm by Blogger Bryn

You would think so if there are negative externalities like…..death!

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The Emerging World and Poverty – Where Next?

January 25th, 2014 at 1:52 pm by Geoff Riley

Notes taken from the Marshall Society Economics Conference  - this panel session focused on growth and development issues in South Korea and sub Saharan Africa

Professor Agit Singh

  • The present state of the world economy departs radically from previous historical experience
  • South Korea is the most successful industrialisation story in the history of mankind
  • Since 2000, developing countries have expanded at a much faster rate than developed countries – India has been growing at more than 7%, there are others too with a stellar growth rate – this is of huge economic and geo-political significance. Developing / emerging countries have largely become the locomotive driving the world economy out of the crisis since 2007.

Developing countries have an increasing resilience – defined as an ability to absorb domestic and external shocks – developing countries have improved their macroeconomic management and have built up larger external currency reserves to cope with volatile trade balances / current account imbalances

Average annual GDP growth for advanced nations 2006-2012

  • 0.47% Japan
  • 1.05% in USA
  • 0.4% in UK

South Korea

  • Until 1990, economic history scholarship was dominated by neo-classical ideas and IMF & other institutions
  • Crucial role of government in building institutions and infrastructure to support domestic industries and export growth
  • Industrial policy increased the growth of exports – subsidies socialised the entrepreneurial risk when making investment decisions
  • South Korean government went further than Japan in actively building industrial conglomerates – they wanted to establish enterprises of large scale and diversity
  • The long struggle to build democratic institutions has been more protected and difficult but Singh argues that without the expansion of a large working class in manufacturing industry, that would have been much more difficult

Korea and Taiwan, Malaysia and Indonesia have adopted similar industrial models – Singh argues that there are important lessons and models to follow here for other middle income countries

South-south economic cooperation including expanding trade and capital flows is and will be an important contribution to the future development of these nations (See HSBC research – a new Southern Silk Road -…)

Stephen King: “The original silk road was across Asia. This was an extraordinarily important trading route across land. And what I’m really talking about is a 21st-century version of that trading route, but, rather than being confined to Asia, it’s including Asia but also Latin America, Sub-Saharan Africa, the Middle East. And all these kinds of connections begin to come through and of course, where the original silk road was very much based on land, this one’s based on land, sea, air, the electronic ether, all these extraordinary connections being made.”

Revision presentation on economic growth and inequality

Inequality, Economic Growth and Development from tutor2u

Professor Andy McKay:…

Growth and Living Conditions in Africa in the past 20 years

African growth – something has changed – but there remains huge diversity in performance

  • 1970’s -1990’s was a development disaster – in part due to very poor management of resource wealth
  • Recovery starts in the mid 1990s, particularly fast in the last ten years
  • 30% rise in real per capita GDP over the last 15 years in a region with fast population growth and including the basket-cases of Zimbabwe and the DRC.

Economist feature on African growth reflects some of the recent surge in interest in African economic development – a strong cluster of African countries features in a league of the world’s fastest growing countries

Radelet Emerging Africa – 17 African countries have emerged, four ready to emerge (links to follow)

Radalet does not include oil-producers among his group

Important factors (according to Radalet)

  1. More democratic accountable governments
  2. More sensible economic policy
  3. New technologies
  4. New generation of political leaders, activists and business people

Add in

  • Favourable commodity prices
  • Natural resource discoveries

Living standards

Possible to have growth without improved living standards (Economist:…)

Are people feeling growth in their pockets? Is growth inclusive? For millions the experience is of being excluded from growth

  • Health, education and poverty outcomes are key to this
  • Under 5 mortality rate is falling in almost all countries – e.g. Rwanda and Senegal – although the rates are still very high
  • Secondary school attendance has increased almost everywhere – Ghana and Nigeria has been big increases
  • Monetary poverty is harder to measure – but again the trend is favourable 

Afrobarometer survey – picked out concerns over rising wealth and income inequality (African Development Bank: Inequality in Africa -…)

  • Job creation remains one of the major growth and development barriers in Africa – especially for young women leaving school
  • Rate of extreme poverty reduction in Africa has been slower than East Asia – the latter tends to be better at growing
  • Continued conflicts e.g. South Sudan, Central African Republic
  • Issues of political succession e.g. Rwanda and Uganda
  • Political stability is not guaranteed – e.g. contested result of the Kenyan elections in 2007. Ghana on the other hand has managed two changes of regime in their democratic period

Biggest challenge is probably sustaining growth, building the structural transformation of the economy and sharing the benefits of growth more equitably. Also many African countries are not achieving the same levels of capital investment growth and there remains a huge amount to do in increasing the degree of export sophistication.

Suggestions for further reading:

World Bank (October 2013): Africa Continues to Grow Strongly but Poverty and Inequality Remain Persistently High:…

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Poverty: New Thinking About an Old Problem

January 25th, 2014 at 10:58 am by Geoff Riley

Here are some notes taken from a talk given by Peter Coy, Economics Editor for Bloomberg Businessweek, at the Marshall Society Economics Conference in Cambridge in January 2015

Will there be another significant phase of extreme poverty reduction in the global economy over the next fifteen years? Or will recent progress slow down and come up against a wall?

The pessimistic view

Poverty is historical and embedded in society. Why Nations Fail is a book that focuses on some of these issues. Those who have power (i.e. extractive elites) make choices that create poverty on purpose, the power elites benefit from the conditions of poverty that they create. They hoard and seal economic resources. 

Significant poverty reduction is extremely hard – it requires time and luck. For example, peasants in England became the owners of the precious commodity (labour) during the Black Plague and allowed them to assert their independence. Chance events can have effects that can last for centuries afterwards.

The optimistic view

Reverse the Curse is a new study published by McKinsey and it offers some insights into how countries rich in natural resources can harness revenues to sustain poverty reduction. Access it here:…

Countries driven by resources account for 27% of GDP (up from 18% in 1995) but 69% of people in extreme poverty are also in resource-driven economies.

“Rising resource prices and expanded production have raised the number of countries where the resource sector represents a major share of the economy, from 58 in 1995 to 81 in 2011 …..To date, resource-driven countries have tended to underperform those without significant resources: almost 80 percent of the former have a per-capita income below the global average.!

The McKinsey prescription for reversing the curse is built around the following

  1. Build institutions and governments, stable regulation, exposure to competition
  2. Removing infrastructure bottlenecks which hamper trade and growth
  3. Robust fiscal policy and supply-side policies
  4. Supporting local content suppliers where possible
  5. Spend the windfall wisely – difficult in countries whose commodities are volatile in price

The over-arching strategy should be to transform the economy to broaden development (this is easy to type, tremendously tough to achieve)

Some countries have reversed the curse – many already well known – Botswana, Malaysia, South Africa, Kuwait – much attention now focusing on development in resource-rich countries in sub Saharan Africa.

Both the IMF and World Bank have improved their policies and moved away from the strict Washington Consensus – this has important consequences for policy-making. The IMF for example prepared to accept limited capital controls as it did with Iceland following their devaluation and collapse of the banking system


Now a middle income country, Mexico’s unit labour costs will be 30% lower than China next year – auto-making and auto-parts supplies now scaled up and a significant contributor to the economy. Mexico has more auto manufacturing than the US mid-west. According to their WTO trade profile, Mexico’s economy is closely tied to the United States, destination for nearly 80 percent of local factory exports. Most of Mexico’s exports are manufactured goods.

Facts on the ground suggest that countries can rise up from poverty and pull themselves up by their boot-straps. Manufacturing allied to innovative design and supply-chain clusters can create significant value-added for an economy.

Bill Gates - 3 Myths that Hold Back Progress

  1. Countries are doomed to stay poor – by 2035 there will be almost no low-income countries left in the world
  2. Fighting poverty is a big waste – consider the success of vaccinations in eradicating polio, by 2035 child mortality worldwide will be down to the level that the USA managed to reach in 1980
  3. The myth of over-population – countries with the highest mortality rates have the fastest growing populations e.g. Afghanistan where over 10% of children die in childhood. 

Suggestions for further reading on these topics

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Newsnight: Mark Carney

January 25th, 2014 at 10:43 am by Mo Tanweer

A hat-tip to Oli Wood for this Newsnight clip - Mark Carney and Paxman in this short clip discussing monetary policy decision making in the UK.

Useful for those preparing for Target 2.0 Challenge or studying AS macro monetary policy.

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China’s Development – Past Present and Future

January 25th, 2014 at 10:05 am by Geoff Riley

Notes from a talk given by Liu Xiaoming, Chinese ambassador to the UK at the Marshall Society economics conference in Cambridge in January 2014.

Poverty reduction

  • China has made an extraordinary contribution to extreme poverty reduction in the world – 616m lifted out of extreme poverty, reducing the rate from 84% in 1980 to 10% now (source: The Economist)
  • Rural population in absolute poverty has come down from 250m to 35m – China the 1st country to meet the MDG of halving rural poverty

More information on poverty reduction here

Regional balance

More focus now on balanced regional development – emphasis on development programme in Western provinces and regions – more than 40% of transfer payments from central government now diverted to these areas

Excellent article here from the FT on shifts in regional investment, costs, growth

Delta Blues (Financial Times, January 2014)

Increasing development capacity of regional development

Investment in micro credit and expansion of small enterprises

South-South cooperation

Aid/financial assistance from China to more than 120 countries

China and the Lewis Turning Point

In a process of development, there is a point when excess labour in the subsistence sector is fully absorbed into the modern sector of the economy. At which point, following extra capital investment to drive growth higher, labour shortages drive up wages and unit labour costs. Will this erode China’s comparative advantage in manufacturing?

  • China has no labour shortage at the moment – only a temporary effect
  • Reforms aimed at increasing geographical mobility including reformed system of housing registration to allow more surplus labour in rural areas to migrate to cities. The urbanisation process in China will accelerate.
  • Investment in human capital to raise productivity to offset the natural growth of wages that comes with a fast-growing economy
  • Focusing on quality rather than quantity in labour supply
  • Adjustments to China’s demographic policy – allowing parents to have two children – increasing the base of population and tackle population ageing

Inequality in China

China’s Gini coefficient has been between 0.47 and 0.49 in recent years – China recognises the dangers that can arise from a high and growing gap between rich and poor . Recent evidence suggests a small fall in income inequality in China: Read:…


  1. Raising minimum wage levels and pension standards
  2. Increased transfer payments to lower income earners
  3. Scaling up support for farmers and rural areas
  4. Policies to stimulate growth in poorer regions
  5. Anti-corruption measures to reduce the impact on inequality of rent seeking from owners of capital

China needs to find the right balance between development and distribution, between markets and efficiency

Environmental challenges

  • A severe test for China’s economy
  • Tightened measures of environmental protection

Investment in renewables – see David Shukman: China on world’s biggest push for wind power:…

Rapid expansion of local carbon trading schemes (a key part of the 3rd five year plan)

See this article from Reuters:…

Middle Income Trap

  • Will China experience the middle income trap? Will economic growth be held back by social upheavals, slowing productivity and a reduction in innovation. China must keep the growth engine running:
  • Deepening of economic reform – the most powerful driving force for economic development – market forces will play a decisive role in resource allocation.

Suggestions for further reading

Coverage here of the Shanghai free trade zone:

The BBC’s Linda Yueh has a good feature on the changing nature of Chinese economic growth

“The Chinese government is attempting to persuade markets and others that it is slowing the economy down to a more sustainable pace and trying to be less reliant on investment-led, credit-fuelled growth.”

More here:

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Has austerity worked in Europe?

January 24th, 2014 at 5:51 pm by Geoff Riley

Inside Story from Al Jazeerah considers whether the worst is now over for some of the cluster of Euro Area countries who have received huge bail-outs  accompanied by fiscal austerity measures. The Spanish economy seems to be moving tentatively towards a stronger rebound despite persistently high mass unemployment.

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Capping Bonuses for Bankers – Unintended Consequences

January 24th, 2014 at 4:50 pm by Geoff Riley

Capping seems to be all the rage at the moment. We read of capping electricity and gas prices, capping welfare payments for families … and now a proposed cap on bonuses for bankers is being put forward by the EU and by the Labour Party. 

In this article, Tim Harford cuts to the chase and highlights the contradictions in the EU blanket policy on capping bankers’ bonuses. It is a good example of a policy where the unintended consequences include the probably that banking salaries would rise still further.

Under the EU proposal, a cap on rewards would limit payouts to banking executives to annual pay – or twice that only if shareholders approve.

Further reading:

BBC - banking bonuses – how much do they matter?

BBC Hard Talk:  Adair Turner on the effect of a bonus cap on bank salaries

Channel 4 news

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30 Most Innovative Countries in the World

January 24th, 2014 at 4:36 pm by Geoff Riley

Successful innovation is a driving dynamic of competitive businesses and countries. Bloomberg Rankings recently examined 215 countries and sovereign regions to determine their innovation quotient. They have narrowed this down to thirty countries and the results are available through this Bloomberg slideshow. Which nation comes first?

Click here to find out

Innovation was measured by seven factors, including R&D intensity, productivity, high-tech density, researcher concentration, manufacturing capability, tertiary efficiency and patent activity. The methodology, definitions and weightings are explained in the last slide.

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Technology and the labour market

January 24th, 2014 at 2:35 pm by Mo Tanweer

A hat-tip to Tom Bolton for pointing me to this article from the Economist last week on the effect of today’s technology on tomorrow’s jobs.

It looks at how technology has displaced, and will continue to displace, jobs, with capital-labour substitution being a very real problem in many industries and economies.

Whilst technology may promote productivity and efficiency, to ensure this does not lead to structural unemployment, government policy will have to  be focussed and clear.

Read more here.

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Saudi Arabia – the ‘dominant producer’ in the world’s oil market

January 24th, 2014 at 2:11 pm by Geoff Riley

Saudi Arabia’s position as one of the largest players in the global oil market, producing more than a tenth of the world’s output and owning a quarter of the world’s proven reserves, has negative effects on other market participants. Writing in the Economic Journal, Anton Nakov and Galo Nuño document two features that have made the Kingdom different from other oil producers:

  1. Output squeeze: First, it systematically restricts its production. In fact, its spare capacity is much larger than the aggregate spare capacity of the rest of the world’s oil producers.
  2. Volatile supply: Second, its production is quite volatile. The variance of Saudi oil output has been very high compared with that of the other producers, even though the Kingdom itself has witnessed few domestic shocks affecting oil production directly.

The Kingdom is a key member of OPEC (Organization of Petroleum Exporting Countries), playing a central role in its decision-making. Indeed, some economists have argued that ‘OPEC is Saudi Arabia’ and that ‘the Saudis have acted as what they are: the leading firm in the world oil market’. Are these claims exaggerations?

Nakov and Nuño show that it is possible to explain the behaviour of Saudi Arabia as that of a dominant producer operating alongside a competitive fringe. They build an analytical model in which a dominant oil supplier anticipates the behaviour of both fringe oil producers and oil consumers.

This means that Saudi Arabia exploits the fact that its operations affect the supply of fringe producers, oil demand and the oil price. The result is that Saudi Arabia produces a smaller amount of oil than its capacity given the oil price, which allows it to charge a high mark-up over its marginal cost.


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Business and Economics Quiz – 24 January 2014

January 24th, 2014 at 6:23 am by Geoff Riley

It has been quite an interesting week in the business & economics news – as reflected in this latest Biz Quiz:

Launch The Biz Quiz – 24 January 2014

Download printable version

Download solution (teachers only)

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Unit 2: Unemployment data charts

January 23rd, 2014 at 10:48 pm by Blogger Bryn

Thanks to tutor2u

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Unit 2 Macro: 10 Questions on Supply-Side Policies

January 23rd, 2014 at 9:19 pm by Geoff Riley

Here are ten questions for students wanting to check their understanding on supply-side economic policies …. and improve their bobble shoot tekkers at the same time! Courtesy of our sister site Zondle

zondle – games to support learning

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RES Lecture on UK Economy – Vince Cable

January 23rd, 2014 at 8:34 pm by Geoff Riley

The Secretary of State Vince Cable delivers a lecture on the UK economy at the Bank of England on Monday 27th January starting at 6.30pm. I will be there on behalf of Tutor2u and I will post a report on his talk on this blog entry as soon as possible after the talk. 

The Rt Hon Dr Vince Cable MP, Secretary of State for Business, Innovation and Skills will be talking on ‘The shape of the economic recovery’ on Monday 27th January at the Bank of England Conference Centre. The RES is widening the outreach of its policy lectures by broadcasting the lecture live in HD video and encouraging participation and interactivity through this site.

Access is entirely free. Simply create an account here or sign in.

The hashtag for the event is #reslecture

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Thought-provoking data

January 23rd, 2014 at 8:21 pm by Graham Watson

It’s always a delight to be introduced to economic data that confounds you, and this BBC Newsnight piece is no exception, ranging widely across the global economy in search of data that every delegate at Davos should be aware of…

The clip is excellent:

Look out for any statistics that support any likely area of extended writing that you are likely to be asked about. There should be something for everyone, from lots of China material to other bits and bobs, some of it surprising and some of it seemingly straightforward, but all of it thought-provoking. It might be quite a nice activity to do at the beginning or end of a lesson, asking everyone to choose a statistic and explain (a) why it is pertinent and (b) the economic principles that might explain it.

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UK Economy Biggest fall in unemployment in decades

January 23rd, 2014 at 8:07 pm by Geoff Riley

Here are some news clips on the sharp fall in measured unemployment and a record rise in employment in the UK economy at the end of 2013. Students can find revision notes on unemployment using this link

Will interest rates rise?

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6 Charts on UK Unemployment and the Labour Market

January 23rd, 2014 at 7:53 pm by Geoff Riley

It was no surprise when the latest release of unemployment and employment data for the UK labour market up to the end of 2013 made headline news across the media. There was a dramatic decline in the labour force survey measure of unemployment and news of a record level of employment. Many teachers will be covering unemployment as part of their AS macro course – I have put together six updated charts into a PowerPoint file for those who want to integrate the data charts into their teaching. Download using the link below:

PowerPoint file on Unemployment


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The ‘output gap’: another piece of economic mumbo-jumbo

January 23rd, 2014 at 7:36 pm by Paul Ormerod

The concept of the’ output gap’ is central to mainstream
macroeconomics. It is not merely of
academic interest. The Office for Budget
Responsibility (OBR) has a specific requirement to estimate the output gap,
which it defines formally as “the difference between the current level of
activity in the economy and the potential level it could sustain while keeping
inflation stable”. The output gap is a key consideration for central banks
around the world. If output is well below its potential, interest rates should
be kept low, to try to stimulate the economy.
And a large output gap should keep inflation low. Prices are hard to put up in a depressed

The task of estimating the output gap
empirically is fraught with difficulties.
The OBR points that there are at least three recognised ways of doing
this, none of which will make sense to anyone lacking an advanced training in
statistics. So there is plenty of scope
for disagreement amongst orthodox economists who believe in the concept. Yet rather like the medieval debates about
how many angels could dance on a pin, these disputes have little meaning in the
economy of the 21st century.

The economy is not a physical object and
cannot, say, be placed on a pair of scales and weighed. GDP has to be estimated, using a wide range
of information. The basic principles of
how to measure output were worked out in the 1930s and 1940s. A major problem is that these principles are
much more suited to an economy which, as it was at that time, is dominated by
the production of goods rather than services.
We can count how many Ford Model Ts have been built. It is much less clear what the outputs of
Google or Facebook are. The problems are even more acute with the concept of
potential output. Many internet-based
services incur substantial fixed costs in order to have just a single
customer. But the additional cost of
servicing the second customer, and all subsequent ones, is effectively
zero. Potential output does not have
much meaning in these contexts, it is not obvious what the limit might be.

A powerful blow against the concept of
potential output has been published in the latest edition of the American
Economic Association’s journal Applied
. Igal Hendel and Yossi
Speigel document the evolution of productivity over a 12 year period in a steel
mini-mill producing an unchanged product, working 24/7. The steel melt shop is almost the Platonic
ideal from a national accounts perspective of output measurement. The product – steel billets – is a simple,
homogenous, internationally traded product.
There was virtually no turnover in the labour force, very little new
investment, and the mill worked every hour of the year. Yet despite production conditions which were
almost unchanged, output doubled over the 12 year period. As the authors note, rather drily, “the findings suggest that capacity is not well
defined, even in
batch-oriented manufacturing”.
Time to put the concept of potential output into the rubbish bin!

Ormerod is an economist at Volterra Partners LLP, a Visiting Professor at the
UCL Centre for Decision Making Uncertainty, and author of Positive Linking: How Networks Can Revolutionise the World

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Killer aps and smarter phones

January 23rd, 2014 at 2:43 pm by Michael Owen

An item on a Twitter feed, highlights how changes in
technology, contribute to a rise in the standard of living as prices of
consumer goods fall. However the demand for most the products in the advertisement from 1991 has collapsed. Look at the
items in the photo, most have been replaced
by a lightweight, plastic coated bundle
of superior technology, the smart touchscreen phone. 

Steve Cichon concluded that you  might ’have spent $3,054.82 in 1991 or c. $5,100 in today’s money to buy all these items. 

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Exchange rates and the ‘Big Mac’ Index

January 23rd, 2014 at 1:51 pm by Tom White

This is a great learning aid, especially if you’ve not come across it before.  If you’re trying to understand exchange rates, you often end up wondering which countries have overvalued exchange rates (that should, ideally, depreciate in value) or those that are undervalued (where appreciation would probably help).

The idea is so simple – find a product that’s available in most countries, produced to a standardised design, and that serves as a reasonable ‘basket of goods’ capturing a range of price data for the economy you’re looking at.  By this measure, the countries with expensive Big Macs have overvalued exchange rates and cheap Big Macs means an undervalued exchange rate.

The Economist have been producing their index for several years, and what started out as a light-hearted exercise has turned into something that is taken seriously – so seriously that you can legitimately talk about the Big Mac index in your exams (with supporting explanation, of course).

The key concept under discussion is really PPP (Purchasing Power Parity, or what is the real buying power of a local currency).

This topic is hugely relevant to Economics students, and it’s very current.  No matter how you measure it – Big Macs or otherwise – the £UK has steeply depreciated in recent years.  That should have boosted our exports …. only it doesn’t seem to have done so, and the UK’s export performance is struggling

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