Posts from the ‘Economics’ Category

Macro Revision: Putting Things in Context

April 29th, 2012 at 9:18 pm by Geoff Riley

I always ask of my students that they try to put policy issues and decisions into context. The effective use of context – either in a domestic or external setting or using recent history as a guide can greatly improve evaluation marks in exam essays. Our aim in a revision session today was to build some of that context with respect to some of the key issues facing the UK economy.

A starting point was the short and medium-term impact of the recession and how this is shaping the strength and pattern of recovery as we head through 2011 and into 2012. As befits an open economy heavily integrated into the European and global economic and financial system, many key recent developments on growth, jobs, inflation and trade are impacted by external demand and supply-side shocks and headwinds.

The Legacy of a Recession

The 2008-09 recession was deep and we started by looking at some of the consequences:

a) High unemployment – lower than the jobless peaks of previous downturns but still a major policy issue – with 8.5% of the labour force out of work, amounting to 2.5 million on official figures. Hidden unemployment understates the true scale of the problem, part-time unemployment is rising

b) Long term structural unemployment (people out of work for at least a year) – now over a third of the total, with a particular focus on youth unemployment and deep-rooted unemployment in certain regions and industries. Many older unemployed people have little chance of finding fresh work. The estimated NAIRU has risen to aroud 6% of the labour force. For some economists this modest rise in the natural rate is relatively welcome news – it has grown more steeply in previous recession.

c) The recession has dealt a blow to consumer confidence (falling wealth, rising unemployment, declining real incomes, the prospect and reality of higher taxes). That said business confidence has rebounded well, indeed corporate finances (outside of the financial system) look healthy, there are many cash rich businesses out there. However weak consumer sentiment will hit short term growth and subdued domestic demand will do little to generate enough extra spending to promote job creation.

d) The impact of the steep decline (more than 25%) in the real level of business capital investment - capital spending is recovering but has a long way to go to reach pre-recession levels – this will limit productivity growth in the years ahead.

e) The legacy of high government borrowing (UK budget deficit = £155bn 2010-11) and (by modern standards) dangerously high levels of government debt.

f) A fall in productivity growth and this – combined with weak investment and high unemployment – is contributing to a reduction in the estimated trend growth rate for the UK economy. A “new normal” growth rate might be closer to 2% rather than 3% and this has important implications for a government desperate to bring borrowing down and for an economy badly in need of hundreds and thousands of new jobs.

g) High inflation – the economy emerges out of recession with CPI inflation running well ahead of the 2% target (latest data: 4.5% on CPI) – indeed CPI inflation has been higher than 3% in each of the last sixteen months. Inflation remains much lower than we saw in the 1970s and 1980s but with prices rising at close to 5% per year and wages for many frozen or static, we are seeing a sharp drop in real disposable incomes and living standards.

h) Perhaps the biggest legacy of the recession …. namely a financial system that remains fragile both here in the UK and overseas (e.g. the European banking system) – the system is still under-capitalised and has become deeply risk-averse. It charges higher and higher interest rates to corporate and personal borrowers.

The financial crisis created a negative externality that affects the entire economy. Yes – some mortgage payers are enjoying lower interest rates on their loans. But millions of savers have seen their incomes slashed (and they didn’t create the crisis!) whilst thousands of businesses find it tougher and more expensive to get the loans and trade credit needed to sustain a recovery and build new enterprises

Recessions are painful and damaging -  there is an ongoing debate about the extent to which the downturn has damaged our productive potential and export capacity (i.e. hysteresis effects). Here is a simple question – where will growth come from – invites a range of answers – some of which are explored here.

Monetary Policy

Our discussion then switched to monetary policy… there is little doubt that the handling of monetary policy has become much tougher in recent times, a stark contrast with the NICE decade in which setting base rates must have seemed like a busman’s holiday. Divisions within the MPC have been well reported. Some of the questions we raised were as follows:

i) When to tighten monetary policy – either in the form of gradual increases in base interest rates or a partial withdrawal of the policy of quantitative easing (QE) – replaced by quantitative tightening (QT)

ii) Is the inflation credibility of the Bank of England being eroded by a long period in which inflation is persistently above target? How much longer will the “temporary factors” driving inflation higher continue to hold?

iii) What are the dangers of rising inflation expectations? Why has there been (so far) a muted wage-price response to CPi and RPI inflation in excess of 4%?

(iv) Should we continue to use inflation targets”>continue to use inflation targets? If so is there a case for changing the target?

(v) Is the Bank of England / government right to continue using a free floating exchange rate?

(vi) How effective is conventional monetary policy? Has the UK (and the USA) experienced a liquidity trap? If so what are some of the consequences?

Fiscal Policy

There are many important fiscal policy decisions in the near future. Most students will be familiar with the debate about fiscal tightening (mentioned below) but there are other key developments in changing the architecture of the fiscal system to meet supply-side, environmental and distributional aims …

(i) Fiscal tightening – when to cut the deficit? How to cut borrowing? Over what time frame?

(ii) The scale of government spending – with Government spending now more than 50% of GDP have we reached a point where the state sector has grown beyond an optimal size for long term growth? Govt spending can be a powerful force for good but what ought to be the balance between public and private sector demand and resource claims?

(iii) Could the balance between direct and indirect taxes be changed to create stronger incentives to work, save, invest, innovate, employ?

(iv) Should governments be more brave in using fiscal policy instruments to meet tougher environmental targets? how strong are the arguments for a proper tax on carbon?

(v) How best can fiscal policy support supply-side improvements in competitiveness and trade?

Well … this is what we covered in a revision lesson on context. Macroeconomic policy making is not easy at the moment and the last few years has certainly tested the design of policy - from choice of exchange rate regime, to the independence of central banks, to the ability of sovereign governments to engage in an independent economic policy in a world of globalization and increasingly frequent macroeconomic and financial crises.

Check below to some links on recent macro policy blogs that I think are helpful as part of final revision

Preparing for the AS Macroeconomics Paper (Slideshare presentation)

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Exam technique

April 29th, 2012 at 8:58 pm by Blogger Bryn

2 posts from economics help

http://www.economicshelp.org/blog/5198/economics/preparing-for-economics-exam/ on preparing for the exam, and
http://www.economicshelp.org/blog/542/economics/evaluation-for-exams/ on evaluation

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Unit 4 Macro: Spanish unemployed head to Argentina

April 29th, 2012 at 10:54 am by Geoff Riley

Catastrophically high unemployment in countries such as Spain are causing people to leave the Med in search of work elsewhere and thousands are trying their luck in South America. This short video from Al Jazeerah news looks at the growing number of people heading to Argentina looking for a job or perhaps the chance to start a new business. Watching it is a chance to revise some of the factors that affect the geographical mobility of labour? This Economist report looks at some of the causes of geographical immobility of labour.

Spain’s struggle with high unemployment

 

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Unit 1 Micro: End of the Road for the Lada

April 29th, 2012 at 10:39 am by Geoff Riley

Boasting a steering wheel that doesn’t steer, an in car radio that is an optional extra and acceleration powers that – on a good day – can take you from 0 to 60 in less than three minutes, the Lada has for a long time been a figure of fun in global motoring circles. But production is coming to an end following a collapse in sales. As is often the case, news of the demise of the Lada has prompted increased interest among younger urban consumers whose DNA is to go against the grain and drive something that is sturdy, mercifully free of corporate design features and most of all, tremendously cheap.

Russian car-maker AutoVaz has announced that it will stop production of its Lada 2107 model, better known in Britain as the Lada Riva, after more than 40 years.

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Unit 2 Macro: Britain back in Recession

April 29th, 2012 at 10:22 am by Geoff Riley

Provisional estimates show that Britain’s recovery from the debt crisis has stalled yet again with real GDP falling by 0.2% in the 1st quarter of 2012.  Many small and medium sized businesses want to grow, have products whose demand is rising and wish to take advantage of a competitive exchange rate – but the fragility of the financial system is holding them back and the Channel 4 news broadcast below is superb in highlighting the weaknesses caused by fiscal austerity and de-leveraging in the banking system. The UK economy has seen almost no growth since the Coalition government took office in May 2010. Plan A isn’t working George.

“The performance of the economy in the past four years has been the worst in peacetime for at least a century” (Video news report here)

Fears of construction companies

       

 

 

 

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Game show game theory

April 26th, 2012 at 8:46 pm by Arthur Ma

On Tuesday, a friend showed me a wildly entertaining video of a man “winning” a game show by utilising an astonishing understanding of game theory. Without spoiling it too much, the show involves a variant of the Prisoner’s Dilemma and invites the final two contestants to “split” or “steal” the pot of prize money. Video link below:

***WARNING: SPOILERS AND BORING ANALYSIS BELOW***

    The final result, as the audience gasps suggested, was a surprise to many. However, there is more theoretical meat here than what might first appear. Unsatisfied with simply enjoying the show, I sought to explain the strategy and the result by extending the traditional model of the Prisoner’s Dilemma, which may present the situation as thus:

    According to this payoff matrix, [Split, Split] is never a Nash equilibrium and the (weakly) dominant strategy is to Steal for both players. However, a frequent criticism of the traditional model is that wealth does not equal utility, so to present the payoff matrix in terms of wealth (i.e. the payout of prize money) may miss some key variables in explaining the situation.

    One significant variable may be an aversion to inequality, which we denote by A in reference to Atkinson. If A is non-zero and positive, players suffer disutility if the game ends in an unequal outcome. If this is too magnanimous a concept to assume, consider A to represent “an aversion to being screwed over”, i.e. players dislike the outcome in which they alone are left with nothing, after having Split whilst their opponent has Stolen. We can now represent the situation as thus [1]:

    The inclusion of A results in [Steal, Steal] being the sole remaining Nash equilibrium because Steal is now the strictly dominant strategy for both players. However, this only compounds our problem since this result is even further from what had actually happened on camera. For that, we need to consider the strategies played.

    From the start, Nick (Red) played the unconventional strategy of insisting that he is going to Steal. Assuming that Nick’s claim is credible, this removed one uncertain half of the game, leaving Ibrahim (Blue) certain that Nick was going to Steal. Given the removal of uncertainty, we can now represent the new game as follows:

    This suggests that Ibrahim will Steal simply to avoid getting screwed over by Nick, who would otherwise gain the entire prize pot at the expense of Ibrahim. However, Nick does not stop there. He makes the additional claim that if Ibrahim Splits and Nick wins the entire prize pot, Nick will offer half of it to Ibrahim after the show. Ibrahim is understandably suspicious of this claim, as this is much less credible than Nick’s previous claim of definitely Stealing. Even the host hastens to add that Nick’s second claim is not legally binding, anxiously promoting the [Steal, Steal] outcome.

    However suspicious Ibrahim is, there may be some probability that Nick is indeed honourable and would split the prize pot after the show. Given Ibrahim is the only player making a decision in this version of the game, it is his perception of Nick’s honour that matters. Let us denote this probability by H, where H% of the time, Nick honours his vow and splits the prize pot equally after the show, and (1-H)% of the time, Nick runs away with the entire pot. We can now represent the game as thus:

    This time, there is no clear dominant strategy for Ibrahim and everything depends on his values of H and A, Ibrahim’s perception of Nick’s honour and Ibrahim’s aversion to inequality, respectively. In order for Ibrahim to choose Split, H(1)+(1-H)(0-A) must be greater than 0. This can be simplified to the inequality H-A+HA>0.

    This inequality suggests that the more honourable Ibrahim perceives Nick, the more likely Ibrahim will choose Split. And the more Ibrahim is averse to inequality, the less likely Ibrahim will choose Split. This is in tune with our intuition. The corner solutions for the inequality are as thus:

• If H = 1, 1 must be greater than 0 (which it is!) so if Ibrahim doubtlessly believes that Nick will be honourable, Ibrahim will always Split.
• If H = 0, -A must be greater than 0 so if Ibrahim doesn’t think Nick can be honourable at all, Ibrahim will not Split unless he actually prefers being screwed over.
• If A = 0, 2H must be greater than 0 so if Ibrahim doesn’t care about being screwed over, as long as he thinks there is some chance of Nick being honourable, Ibrahim will Split.
• If A = 1, 2H must be greater than 1 so if Ibrahim significantly cares about being screwed over, Ibrahim must strongly believe (with >50% probability) that Nick will be honourable in order for Ibrahim to Split.

    As can be seen, whether Ibrahim will Split or Steal depends upon his perception of Nick’s honour and his aversion to inequality. As the audience, we have the fortunate hindsight of knowing that Ibrahim chose to Split, from which we can infer that he either perceived Nick to be honourable enough or he wasn’t too averse to inequality. However, H and A are both hidden to Nick so let us now analyse his possible moves in turn.

    Despite insisting that he will definitely Steal, Nick still has the choice to Split or Steal. He knows for certain that he will be honourable (H=1) so that if he Steals whilst Ibrahim Splits, he will share out the prize money equally after the show. However, in the event that Ibrahim Steals after all, if Nick Steals then both players go home with nothing, whereas if Nick Splits then there is a tiny possibility that Ibrahim will be generous and gives him something small (S) in return [2]. We can therefore represent the payoffs Nick faces below:

    The above matrix suggests that as long as there is some probability of Ibrahim being generous and giving something to Nick (G and S both being non-zero and positive, even if small), then Splitting is the weakly dominant strategy for Nick. In fact, one might even consider adding an extra positive satisfaction value to Nick if the [Split, Split] outcome is achieved, out of pride that he has “solved” the game, which would result in Splitting being the strictly dominant strategy for Nick.

    The final outcome suggests that both the H-A+HA>0 and the G(S)+(1-G)(0)>0 inequalities have been fulfilled, which is why the result was [Split, Split]. Some final takeaway points include:

• This game has deviated substantially from the classic variant of the Prisoner’s Dilemma, so one cannot say that Nick has “beaten” the Prisoner’s Dilemma. The two contestants were almost playing a different game, with open communication and incomplete information (about H, A, G, S, etc.) This is why the outcome has also deviated so much from the traditional expectation.
• Commitment is key. Not only in increasing H (others’ perception of your honourableness), but also in how credible you are in insisting you are definitely going to Steal, a point which we did not explore here. Ironically enough, if Nick was not credible in committing to Steal, then Ibrahim may have been more likely to Steal.
• Aversion to inequality is also important. Studies have shown that most people value relative wealth as opposed to absolute wealth, which suggests that if they were definitely going home with nothing, people would prefer their opponents leave with nothing too, rather than leaving with more money. This spite can almost be described as a certain sadism (increasing utility in others’ decreasing wealth), and the outcome may have been drastically different if either player was a strong sadist!

    There is still much to be explored in this theoretical goldmine, so please share your comments in the comments section below, and I hope you’ve enjoyed reading this!

Many thanks to:
Eugene Hwang for sharing the video with me.
Professor Schankerman for teaching me game theory and spurring me to write this.

[1] This payoff matrix only shows A for the losing/Splitting player hence it is more akin to the “aversion to being screwed over”. As for a true Atkinsonian aversion to inequality, it is plausible to consider the existence of A for the winning/Stealing player too, as an admission to guilt, but for brevity this is not represented here.

[2] This is a less farfetched assumption than Nick being altruistic. We are also omitting Nick’s aversion to inequality here for the sake of brevity, but it does factor into his decision.

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Uploading your essay for the RES competition 2012

April 26th, 2012 at 5:40 pm by Geoff Riley

It is likely to be a busy few days on our servers as entries flow in for RES essay competition. This is link to use

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Compulsory retirement age?

April 26th, 2012 at 12:50 pm by Mo Tanweer

A hat -tip to Andrew Ireson for spotting this article that was hidden amongst the double-dip recession mania of yesterday.

Firms have won the right to retire workers at the age of 65.

In a landmark case, the court set out new guidelines meaning that companies must consider a range of alternatives to retiring an employee and be able to show a specific public interest justification in each case where retirement is imposed.

These justifications could include making it easier to recruit younger workers, being able to promote middle management, and being able to plan for the future and train others, as well as being able to end the careers of older workers with “dignity”.

The judgment signalled that, at a time of high youth unemployment, it is in the public interest for older staff to leave companies to open up job opportunities for younger people.

Read more on the article here.

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“One Direction” and Elasticity

April 26th, 2012 at 10:47 am by Ben Cahill

I have to confess that I don’t actually know any One Direction songs but given that they have just completed a sell out tour of New Zealand and reduced teenage girls to levels of hysteria not seen since The Beatles, I thought I would use them to review elasticity as we approach our school exams.

Up on to the interactive whiteboard I popped the following image – two pictures of the band and the four types of elasticity we cover – price, income, cross and price elasticity of supply. I then told my students that two types belong in each category and invited them to figure out which went in to which.

After a bit of discussion we finally got around to what I was looking for – price elasticity of demand and supply the coefficient is not important as the price change causes quantity demanded / supplied to always go in one direction, however income elasticity can be two directions (depending on whether it is a normal or inferior good) as can cross elasticity (for substitutes and complements).

Further discussion could then be had on such issues as the elasticity of demand for their concert tickets and how boy bands from my era (The Jackson 5) were so much better…

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Great Teaching Opportunity – Trinity School, Croydon

April 26th, 2012 at 10:19 am by Phil Abbott

Teacher of Economics and/or Business Studies at A Level, for September 2012

This is a great opportunity to join a successful department in an independent day school which offers outstanding facilities.  We are looking for a full time teacher who has a passion for Economics and/or Business Studies and who can teach up to A2 level. Ideally, we are looking for someone able to teach both subjects but would consider applicants with a specialisation in one or other of the subjects at the level offered to students.

This post will suit someone new to teaching or a qualified teacher looking to gain further experience.  If you feel you have what it takes to inspire and enthuse our very able students and are willing to participate in the wider life of the school, we would love to hear from you.  For further details and to download an application form, please visit the school website.

The post will be advertised in TES and closing date for applications is Wednesday 16th May. Accommodation may be available if required. 

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AS Macro (Unit 2) Economics Online Revision Clinic – Monday 30 April

April 26th, 2012 at 6:56 am by Jim Riley

The second in our series of online revision clinics for A Level Economics will take place on Monday 30 April 2012 at 9pm (UK BST). The focus of this free one-hour revision clinic will be the Unit 2 exam on macroeconomics, covering AQA, Edexcel, WJEC and OCR topics.  Students who wish to get live support from our Economics team will be able to login to the clinic on this blog entry; please use your FB, Twitter or OpenID details to login.

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Tullow Oil and African Development

April 25th, 2012 at 7:38 am by Geoff Riley

Yesterday I spent a fascinating evening in the company of Aidan Heavey, Founder and CEO of Tullow Oil plc, Africa’s leading independent oil exploration business and the top performer among FTSE-100 listed businesses on the UK stock exchange. It has approximately 100 production and exploration licenses in 22 countries.

Tullow Oil is an oil exploration business – their job is to find oil and use the latest technologies and top-level human capital both to find it, drill the wells and bring oil to the ground.

Tullow is different from the fully vertically integrated companies such as Shell or BP who explore, extract, refine, distribute and then sell oil to consumers. Their main focus is in Africa and they have become the biggest licence holder for oil exploration in a continent that many observers believe is in the early stages of a period of very strong economic growth in the years ahead.

Some basic background on Tullow:
* Operations in over 22 countries
* Employ 1,400+ people
* Explore, appraise, develop and produce oil and gas
* €1 billion+ operating profit in 2011
* No.27 in the FTSE 100
* Market value of £14 billion
* Capital spend in 2011 of $1.4 billion

Aidan Heavey discussed the history of the company – from unpromising beginnings in a small town in Ireland (a country that has no oil!) through to the most recent news of vast oil discoveries in Kenya. He focused in particular on the role that Tullow Oil has played in the economic development of Ghana and especially the investment in the Jubilee Field in a country that had no pre-existing infrastructure or deep-water technology in the oil exploration and extraction business.

The capital intensity of Tullow’s operations is breath-taking. Dropping a well in the Jubilee Field cost $100 million and it took a further $3.5 billion to get the oil flowing to the surface. The oil field was developed in a record 40 months – to put that into context, it usually takes over seven years from oil being discovered to a new field being developed. The first oil extraction took place in December 2010 and Ghana is now a world-class oil producing country with the potential for a transformational effect on their growth and development prospects. Tullow employs over 250 people in Ghana, over 85% are Ghanaian and over 1,500 contracts awarded to Ghanaian contractors.

Tullow Oil Ghana IPO Advert

The company has continued to enjoy rapid growth in recent years built around the regular discovery of new oil fields around the world. Tullow opened its thirdmajor new basin in offshore French Guiana in 2011 and just a few weeks ago Tullow made its fourthmajor new basin discovery in Kenya.

Crucial to their success is in recruiting some of the top geologists in the world – they employ over 200 of them and they are a major recruiter of geo-scientists from top universities. The quality of their human capital is absolutely essential ands they have worked closely with University College Dublin to develop industry-specific courses and build up an expertise that few other players in the industry can enjoy. Here is a wonderful example of the benefits of joint ventures with universities not just to supply highly skilled UK and other EU graduates but also to provide courses for Tullow’s African employees many of whom come to the UK to study on scholarships and who are frequently top of the class beating their Far East Asian counterparts.

Share Value and Share Prosperity

I have blogged before about the emerging idea of shared value put forward by business thinkers such as Michael Porter. Shared value is creating economic value by creating social value and it was clear to me that Tullow embraces this idea with passion and with significant financial backing. Tullow has a big commitment to social enterprise activities and to sustainability in the regions in which they operate – this short video focuses on Uganda.

 

How do you measure shared value?

* Economic value is still measured by profit
* Social value – measuring the social impact of business activity
* Businesses are doing lots of measuring of social impacts (e.g. CSR reports) – but are these being reported as part of the profit and loss account?
* The financial markets (investors) are still too focused on short-term
* There is an increasing blurring or “for profit” and “not-for-profit”; business models which are a hydrid of trying to earn a return which also provides a societal benefit
* Business is increasingly looking for a sense of purpose

One of their new projects is Invest in Africa and you can expect to see this logo appearing on Sunderland FC’s shirts when they step out into a new Premiership season in August 2012.

 

Founded by Tullow Oil, Invest in Africa is a business-to-business initiative to encourage long-term investment across the Continent. It is designed to:
- help build and develop local capacity
- boost domestic job markets
- develop skills
- stimulate economic growth

Tullow Oil Social Enterprise

A few points from the floor discussion

Peak oil theory:
Only 3% of the world has been explored for oil, there is no shortage of oil in the world – what is keeping oil prices high is a mixture of factors including a shift in the profits of oil extraction away from oil companies towards sovereign governments, and the long-term rise in world oil demand driven by growing population and rising per capita incomes. As world oil demand rises, extracting known reserves of crude becomes harder as the marginal cost of extra oil output rises

The power and influence of modern corporations
In emerging countries, modern corporations with a total commitment to shared value and long term thinking can do more than the governments of advanced nations. Traditional models of overseas aid have become largely discredited; corporations will bring much needed investment into a lower-income country but investment will only flow when governance and institutions have improved. There are some countries in Africa that Tullow Oil will simply not deal with because of corruption and failing institutions.

The vital importance of top quality geo-science
Around the world, one in eight wells drilled find oil, Tullow’s success rate is above 70%!

Ghana – GNI per capita

Data from Timetric.

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Ghana from Timetric

Export Value and Export Volume Index

Data from Timetric.

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Ghana from Timetric

Foreign direct investment for Ghana – net inflows

Data from Timetric.

To view this graph, please install Adobe Flash Player.

Ghana from Timetric

 

 

 

 

 

 

 

 

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Economics at the Movies

April 23rd, 2012 at 10:40 pm by Mo Tanweer

Technological advancement, economic development, population increase – are they signs of a thriving society? Or too much of a good thing? Based on the best-selling book A Short History of Progress, this provocative documentary explores the concept of progress in our modern world, guiding us through a sweeping but detailed survey of the major “progress traps” facing our civilization in the arenas of technology, economics, consumption, and the environment. Featuring powerful arguments from such visionaries as Jane Goodall, Margaret Atwood, Stephen Hawking, Craig Venter, Robert Wright, Michael Hudson, and Ronald Wright, this enlightening and visually spectacular film invites us to contemplate the progress traps that destroyed past civilizations and that lie treacherously embedded in our own. Leading critics of Wall Street, cognitive psychologists, and ecologists lay bare the consequences of progress-as-usual as the film travels around the world – from a burgeoning China to the disappearing rainforests of Brazil to a chimp research lab in New Iberia, Louisiana – to construct a shocking overview of the way our global economic system is eating away at our planet’s resources and shackling entire populations with poverty. Providing an honest look at the risks and pitfalls of running 21st Century “software” (our accumulated knowledge) on 50,000-year-old “hardware” (our primate brains), Surviving Progress offers a challenge: to prove making apes smarter was not an evolutionary dead end.

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Unit 4 Macro: African Aid – Helpful or Harmful?

April 23rd, 2012 at 5:36 am by Geoff Riley

This highly interactive programme on Al Jazeerah a few days ago focused on the impact of foreign aid on the African economy. It runs for 35 minutes but there is plenty of interesting debate and many comments flying in on the twitter feeds. Plenty of discussion that might inform a revision session on the future for the African economy and the debate over the effectiveness of aid programmes.

African aid: helpful or hazardous?

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Unit 1: Is water a factor of production?

April 22nd, 2012 at 9:55 pm by Blogger Bryn

If it is, then many African countries have more resources than they thought according to this report from Aljazeera

http://www.youtube.com/watch?v=c-fOi0iBUL8

a) Using a PPC, explain the effect on a country that suddenly finds it fop have increased

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Unit 2: The problem of measuring the true rate of unemployment

April 22nd, 2012 at 9:48 pm by Blogger Bryn

A good article for some unemployment figures evaluation from anforme in the form of the rising number of people underemployed

http://www.anforme.co.uk/blog/?p=2615

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Unit 1: VAT on static caravans

April 22nd, 2012 at 9:43 pm by Blogger Bryn

…reports the BBC

http://www.bbc.co.uk/news/business-17769636#

a) Using a S&D diagram, explain the likely effect on the static caravan market of imposing VAT on static caravans

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Unit 2: Preparing for the macro exam

April 22nd, 2012 at 9:29 pm by Blogger Bryn

Fantastic, data packed revision aid from tutor2u, BUT, note that it’s not OCR specific and so if there are things in here you don’t think we’ve covered, they’re most likely not specifically needed for OCR

http://www.tutor2u.net/blog/index.php/economics/comments/preparing-for-the-as-economics-macro-paper-2012

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Unit 1: The falling demand for CD’s

April 22nd, 2012 at 6:10 pm by Blogger Bryn

The BBC reports a plunge in CD sales

http://www.bbc.co.uk/newsbeat/17754328

a) Using the list of the determinants of demand, explain why the demand for CD’s is falling
b) Show this effect on a demand diagram

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Unit 4 Macro: The Euro Zone Crisis (Revision)

April 22nd, 2012 at 12:46 pm by Geoff Riley

Here is a revision blog on some of the key economic challenges facing the seventeen member nations of the Euro Zone or Euro Area

Europe needs more growth because it is exceptionally hard to emerge successfully from a debt crisis without achieving more growth first. Recovery from the 2008-09 recession has been weak and uneven. Some Euro Zone countries have done well – Germany in particular – but too many of the Euro Zone’s performers are suffering from semi-permanent recession and a fundamental lack of competitiveness

Governments cannot ignore signals from the bond markets. Soaring government bond yields have reflected the growing risk of sovereign debt default with Greece in the forefront of the crisis (the 2011 hair cut is a default by any other name) and Spain and Italy lurking in the background.

Banks hold a lot of sovereign debt so an endemic fiscal crisis leads to a highly fragile and vulnerable banking system which needs to rebuild their balance sheets and which will remain reluctant to expand lending – this limits ther scope for recovery – the credit crunch is not over.

Can the Euro Zone grow their way out of a debt crisis?

Deep and painful fiscal austerity can make the debt problem even worse and for many economists, defaulting on debt is inevitable because of the scale of fiscal austerity needed to cut debt – it is socially and politically unacceptable and it makes little economic sense. Cutting state spending and raising direct and indirect taxes simply takes demand out of already weak economies and causes the welfare bill to rise. This risks creating a spiral of economic weakness, deflationary pressures and high public sector debt.

Democratic institutions in southern Europe are not as well entrenched as in Western Europe. Greece has become dependent on the EU Commission, the European Central Bank and the IMF for their bail-outs – this is known as the Troika. Greece is likely to need a third bailout, of €50 billion, in 2015

Containing the debt crisis does not solve the debt crisis – politicians have spent most of 2011 and the early months of 2012 trying to buy time with bail-outs but unemployment continues to grow and real incomes are declining in many countries. A slowdown in some of the leading emerging nations will also hit export growth from the Euro Zone.

The European Central Bank (ECB) has attempted to relieve the liquidity problems of EU banks by providing them with loans available at very low interest rates. But it makes banks more profitable without having to lend it to real world businesses and consumers. Banks can simply borrow money at low interest rates and then buy high yielding government debt. There is little evidence that economically useful lending to businesses is growing, instead the banks’ exposure to government debt grows and makes the risks from default even higher.

Recession in the Euro Zone will clearly have a significant effect on the UK economy. Over 50% of our trade in goods and services is with Euro Zone countries so a descent back into recession wil be an external demand shock for Britain.

What might happen if the Euro Zone breaks -up and Greece and others default? If a country leaves the Euro Zone and devalues their currency – perhaps by as much as 40% – and the move succeeds then the pressure on the other weakner economies inside the single currency area to do the same will be huge.

The big issue is that too many of the countries inside the Euro Area are uncompetitive with fellow members of the single currency and increasingly uncompetitive with rapid growth countries to the East. The World Economic Forum recently ranked Greece below a number of developing economies, including Namibia, Rwanda and Chile in terms of international competitiveness.

Supply-side economic reforms to make labour markets more flexible, to lift productivity, control unit labour costs and stimulate innovation will take many years to have a major effect, by the time they do, the Euro Zone could be a shadow of the group of seventeen countries that entered with such optimism from 2001 onwards.

 

 

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Unit 2 Macro: Heathow’s Capacity and Connectivity Crunch

April 22nd, 2012 at 11:02 am by Geoff Riley

The capacity and efficiency of our transport infrastructure has a huge bearing on the supply-side potential of the economy and in this Channel 4 news video, the CEO of British Airports Authority argues that Heathrow is now full to bursting. The Conservative and Liberal Democrat coalition manifesto in 2010 ruled out a third runway at Heathrow – to the relief of those (including me) who live under Heathrow flight paths. But without much needed investmnt in air transport, there are fears that UK business will suffer and the economy will become less attractive to inward investment.

According to BAA (owned by Spanish infrastructure company Ferrovial), 77,000 people are employed inside the airport’s perimeter, with a further 59,000 jobs supported across London. In a recent research report commissioned by BAA and produced by Oxford Economics, a failure to support Heathrow over the next ten years could cost 78,800 jobs from tourism, 55,300 jobs from foreign investment and 7,300 jobs from exports to emerging markets – 141,400 jobs in total
By 2021 lost GDP could total £8.5 billion a year – £3.6 billion from tourism, £4.5 billion from foreign investment and £410 million from exports.

A quote from Colin Matthews, CEO of BAA plc

“The centre of gravity in the world economy is shifting and we need to forge new links with emerging markets. Instead, we are edging towards a future cut off from some of the world’s most important markets, with Paris and Frankfurt already boasting more flights to the three largest cities in China than Heathrow, our only hub airport.”

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Unit 1 Micro: Adecco and Monopsony Power

April 22nd, 2012 at 10:57 am by Geoff Riley

Here is an example of monopsony power in the labour market and the risk of exploitation of employees. Britain’s largest recruitment agency, Adecco, is being accused of short-changing temporary staff by rounding down their holiday pay. Hundreds of thousands of people are employed by contract recruitment businesses – this is a timely reminder of the importance of employment legislation as a means of protecting the pay and conditions of people in vulnerable jobs.

       

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Unit 1 Micro: Externalities – Deepwater Horizon 2 Years On

April 21st, 2012 at 10:29 pm by Geoff Riley

This short Al Jazeerah report looks at the aftermath of the Deepwater Horizon disaster and the impact it continues to have on the regional fishing industry. Two years since oil company BP’s Deepwater Horizon rig exploded in the Gulf of Mexico, resulting in a massive oil spill, fishermen in the region are still suffering. The explosion killed 11 people and resulted in the worst accidental offshore oil spill in US history.

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AS Micro: Markets and Market Failure: Economics Online Revision Clinic – Monday 23 April

April 21st, 2012 at 10:26 pm by Jim Riley

Join Geoff Riley and other members of the tutor2u team for a free online revision clinic here (Monday 23rd April) on the tutor2u Economics Blog. Starting at 9.p.m. (BST)  = we’ll be here for an hour to help with any revision problems or queries you might have. Please note – the focus will be on students taking a Unit 1 exam on microeconomics (markets and market failure. We’ll be able to cover all the main exam boards, including AQA, Edexcel and OCR.

This blog entry will host the online discussion. To participate when the event is live, you will need to login using either your Facebook, Twitter or OpenID account.

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Unit 3 Micro: The Third Industrial Revolution

April 21st, 2012 at 6:12 am by Geoff Riley

This is well worth watching! It is an 8 minute discussion from the Economist which examines what is being called “The Third Industrial Revolution” – based around the digitisation of manufacturing processes. Concepts such as 3d printing and advanced robotics are discussed, as are concepts such as competitiveness, productivity and product personalisation. One possible consequence of these changes might be that high quality manufacturing may begin to move back from lower-wage economies such as China and back to economies like the USA.

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Tutor2u in Madrid 2012

April 20th, 2012 at 2:51 pm by Ben Christopher

It was great to host Geoff and Mo (see below) here at King’s in Madrid last Friday as 100 students from three schools gathered for the AS and A2 Macro Revision Workshops that have toured the UK this spring – a fantastic boost to their study programmes a few weeks before exam season starts.

The only difference to the UK format was Mo’s talk on the Chinese economy given at the end of the day. This is clearly Mo’s area of expertise and it gave the students a real insight into what it means to have your economy experiencing 10% yearly growth for the last 20 plus years.

The talk was peppered with astonishing facts like Beijing airport’s terminal three having more floor space than all five of Heathrow’s terminals, the ghost cities that have been built without a single inhabitant, the incredible speed with which a high speed rail network is connecting this vast country, the world’s largest shopping mall etc – the sheer scale of these infrastructure projects is breathtaking and is testament to the ambitions and aspirations of the no longer sleeping giant – as Geoff mentioned, China can no longer be classed an emerging economy, she has emerged! (108 Giant Chinese Infrastructure Projects That Are Reshaping The World). Big thanks to Geoff and the team and see you next year!

Finally, Peter Day was in great form last night on radio 4 analysing China’s real estate bubble and he starts in Ordos new town (some eery images here), one of the ghost cities Mo was referring to in his talk here in Madrid. Surely thousands of acres of empty housing estates are a pretty clear indicator that a property bubble is taking place – here in Spain, you don’t have to travel far to find evidence of the aftermath of the irrational exuberance that led to Spain’s current predicament!

Madrid

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Which university major pays the most?

April 20th, 2012 at 11:37 am by Ben Cahill

Here is a set of data that can be used to make your current students feel good about taking Economics and perhaps posting it outside your classroom may even attract a few more!

This interactive set of data from the Wall Street Journal compares the earning power of U.S university graduates with their degree major. The table is presented in alphabetical order to start with but click on the average wage column to resort it and there you have it – economics majors outperform engineering, finance, and I.T majors!

A good question to pose is whether teachers like myself with Economics degrees bring the average up or down – I think I know the answer to that…

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Teaching Vacancy – Economics at Westminster School

April 20th, 2012 at 8:47 am by Jim Riley

Economics teaching opportunities like this don’t come along very often – a chance to join the Economics team at Westminster. Details below (don’t forget to mention you saw this on the tutor2u Econ blog!)

Westminster School vacancy for a full-time permanent teacher of A-level Economics

Westminster School is a leading independent school with a top academic record
Central London
Start in September 2012

 Class sizes 10 – 15, girls and boys; only sixth form teaching

 Economics is the third most popular subject at A-level in the School with between 65 and 75 studying it in each of years 12 and 13

 The job includes running or assisting with extra-curricular activities, of which there is a wide choice: sports, cultural, charitable, trips and expeditions at home and abroad

 Generous salary scale; TPS pension

 Westminster School is committed to safeguarding and promoting the welfare of children and applicants must be willing to undergo child protection screening which will include checks with past employers and the Criminal Records Bureau

 Westminster school is an equal opportunity employer

 Look at our website www.westminster.org.uk.  To apply, send a CV, application form and covering letter by 4 May to our Personnel Bursar, Miss Helen Newman at helen.newman@westminster.org.uk or 17 Dean’s Yard, London, SW1P 3PB

 Short-listed candidates will be invited to teach a demonstration lesson to Westminster pupils towards the end of the week beginning 7 May.  Those through to the final round will be asked to attend interviews at the School on 21 May.

Please direct any questions to me or Miss Newman, as appropriate.

Simon C Hawken
Head of Economics Department
simon.hawken@westminster.org.uk

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Preparing for the AS Economics Macro Paper 2012

April 19th, 2012 at 10:21 pm by Jim Riley

This comprehensive new revision presentation by Geoff is designed to provide support for AS Economics students (and their teachers) in the final stages of their revision for the Unit 2 paper on macroeconomics.

Preparing for the AS Economics Macro Paper 2012

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Unit 2 Macro: Better news on jobs in the UK?

April 19th, 2012 at 7:52 pm by Geoff Riley

This excellent news video from Channel 4 news looks at the changing pattern of employment in the UK economy. The number of full time workers is dropping and there has been a big switch towards part-time employment. Who are the winners and losers in our labour market as the fragile recovery struggles to maintain momentum?

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Ent Soc: Aidan Heavey CEO of Tullow Oil Plc

April 19th, 2012 at 4:46 pm by Geoff Riley

For our final meeting of the year for the school’s Entrepreneurship Society, we are delighted to welcome Aidan Heavey, founder and CEO of the FTSE-100 firm Tullow Oil. Colleagues who would like to come to this event are extended a warm welcome. From nothing, Heavey has built Tullow Oil into Africa’s leading independent oil company, operating in 22 countries. It is one of the fastest growing businesses in the world and is making major investments in South America. Tullow Oil last week announced record financial results with an annual profit before tax of over $1billion

Aidan Heavey is among the world’s most successful oil exploration executives and has enjoyed some of the biggest paydays seen at a stock market-listed company. Aidan is a director of Traidlinks, an Irish-based charity established to develop and promote enterprise and diminish poverty in the developing world, particularly Africa.

The meeting takes place at 8-40pm on Tuesday 24th April

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Form for submitting RES competition essays

April 19th, 2012 at 4:02 pm by Geoff Riley

This is the form to use when submitting essays for the 2012 RES competition. The closing date for essays is midnight on Monday 30th April

https://tutor2u.wufoo.com/forms/res-young-economist-of-the-year-2012/

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Everythings Amazing & Nobodys Happy

April 19th, 2012 at 1:28 pm by Ben Christopher

There´s no denying it, technological advancement and the web is a massive part of many of our lives and according to this Economist Daily Chart, in Britain alone the internet economy is forecast to contribute well over 12% of GDP by 2016!

Having blogged recently about some amusing examples of what was once cutting edge technology, below is part of an alternative take on how many of us take for granted the amazing gadgets and gizmos we have at our disposal today.

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New Economics CPD Course: A Level Economics TheoryBuster

April 19th, 2012 at 10:31 am by Jim Riley

This new CPD course provides a different focus from tutor2u’s AS and A2 Essential Economics courses

On the new Economics TheoryBuster course, the emphasis is less on developing understanding of assessment objectives, schemes of work and suggested teaching approaches and more on mastering the fundamental and often conceptually difficult AS and A2 theory that can be so hard to pick up from a textbook.

The first running of this course is on 26 June in Central London.

We think this course will ideally suit teachers who are experts in other fields and who are picking up economics teaching from scratch, perhaps within the context of an existing department.  It will also be ideal for new teaching colleagues who are a year or so into their teaching of Economics.

Places on Economics TheoryBuster can be booked using this online form:

https://tutor2u.wufoo.com/forms/asa2-economics-theorybuster-cpd-course/

ECONOMICS THEORYBUSTER

Topics that will be covered include:

- Market structures and business objectives (A2 unit 3)
- Comparative advantage / free trade / protectionism (AS unit 2 and A2 unit 4)
- Exchange rates / Marshall-Lerner / balance of payments (A2 unit 4)
- Elasticities (AS unit 1)
- How markets work/clear (AS unit 1)
- The Keynesian./Classical distinction and its relevance for AD/AS analysis (AS unit 2 and A2 unit 4)

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New Economics CPD Course: A2 Essential Economics

April 19th, 2012 at 10:09 am by Jim Riley

Details here of a new CPD course for colleagues who wish to focus on renewing and improving their department’s approach to the teaching of A2 Economics courses.  A2 Essential Economics will focus purely on core topics teaching strategies for Units 3 and 4 for AQA, OCR and Edexcel. Further details of the course programme are provided below.

The first running of this course is on 13 June 2012 in Central London. Places on the course are available at just £175 (+VAT) and can be booked online here:

https://tutor2u.wufoo.com/forms/essential-as-a2-economics-cpd-course/

A2 ESSENTIAL ECONOMICS

The course will aim to support delegates by:

Developing deep understanding of assessment objectives for A2 Economics for all major exam boards, highlighting how to maximise student marks in exams, top tips for teaching and how to develop the higher order exam skills
Analysing suggested schemes of work for A2 Economics and topic order
Introducing all key A2 topic areas and developing the essential economist’s analytical and evaluative toolkit for micro and macro, with basic theory, derivation of diagrams, common errors, top tips and suggestions for teaching.

Topics to be covered will include:

- Business economics (including development of cost/revenue diagrams, analysis/evaluation of resource allocation in all market structures and business objectives)
- Labour market economics
- Globalisation
- Free trade and protectionism
- Exchange rates
- Development economics, poverty and inequality

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Unit 1: Should we have a fat tax to tackle the problem of obesity?

April 18th, 2012 at 8:56 pm by Blogger Bryn

Great argument in favour from the BBC

http://www.bbc.co.uk/news/uk-politics-17755788#

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Unit 1: Logo free cigarette packets in Australia

April 18th, 2012 at 8:46 pm by Blogger Bryn

…are proposed, says the BBC

http://www.bbc.co.uk/news/world-asia-pacific-17751922#

a) How likely are such packets to reduce the market failure in the tobacco market?

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Unit 1: D&S in action: Bullet proof cars in Brazil

April 18th, 2012 at 8:41 pm by Blogger Bryn

Fantastic clip from the BBC

http://www.bbc.co.uk/news/world-latin-america-17750790#

a) Using a S&D diagram and the determinants of S&D, explain the rapid rise in sales of bullet proof cars in Brazil

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Unit 3 Micro: Key Diagrams for Business Economics

April 17th, 2012 at 9:07 pm by Geoff Riley

Here is a revision download containing some key theory diagrams and accompanying explanation for topics in business economics / theory of the firm / market structures.

Key_Diagrams_A2_Business_Economics.pdf

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Unit 2: UK inflation creeps up

April 17th, 2012 at 8:25 pm by Blogger Bryn

….according to these BBC video clips

http://www.bbc.co.uk/news/business-17743702#
http://www.bbc.co.uk/news/business-17747009#

a) Using an AD/AS diagram explain the cause of this increase in inflation

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Unit 1: Allocative efficiency in the milk market

April 17th, 2012 at 8:03 pm by Blogger Bryn

Sky have this good example of allocative eficiency in the use of scarce resources

http://news.sky.com/home/business/article/16210193

a) Why does this story reflect the concept of allocative efficiency?

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Unit 1 Micro: Revision Question on Road Tolls

April 17th, 2012 at 7:35 pm by Geoff Riley

I have put together a unit 1 micro markets and market failure question focusing on the economics of motorway congestion and road tolls. It is available as a pdf download if colleagues would like to take a look. I will post some suggested answers in a few days and link back to this blog.

In 2011, overall motor vehicle traffic volume in Great Britain was just 1 per cent higher than in 2010, at 306 billion vehicle miles. Cars accounted for 79 per cent of all motor vehicle traffic, light vans accounted for 14 per cent and heavy goods vehicles accounted for 7 per cent. 20 per cent of traffic was on motorways in 2011. The annual growth of vehicle traffic volume in has slowed considerably in recent years as demand for vehicle use has been affected by the recession and a rise in the real cost of vehicle fuel at the pumps. Other expenses have also led to a sharp rise in the real cost of motoring for millions of motorists.

The Department for Transport continues to forecast that traffic will continue to grow on all major arteries and that by 2025 the English road network will be 27 per cent more congested that it was in 2003. Of the roads maintained by the Highways Agency, the A14 between Rugby and Felixstowe and the A1 in the North East of England have been put forward as likely projects to be offered to the private sector as toll roads in the near future.

Exam Practice Question

Road_Tolls_Mock_Q.pdf

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Unit 3 Micro: Revision Game on the A-Z of Micro

April 17th, 2012 at 3:46 pm by Geoff Riley

Here is an A-Z quiz where you type in the answer to 26 concepts on the A2 micro course. Created using Zondle this game uses the Bubble Shooter game. Details below


zondle – games to support learning

Bubble shooter game

* You have color bubbles to blow out
* You have to form three contacting bubbles in one row to make them blow and disappear.
* During the bubble shooter game, periodically the bubbles go closer to you, with a new line of bubbles. You have to look out, because is the bubbles once reach your level, the game’s over !

 

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Unit 4 Macro: Managing the Global Commons – Limits to GDP

April 15th, 2012 at 8:47 pm by Geoff Riley

In this excellent 20 minute talk Professor Geoffrey Heal from Columbia University discusses the broad concept of society’s capital including natural capital. He focuses on the limits of GDP as a measure of economic progress in a world that depletes all forms of capital including natural capital. Net Domestic Product (rather than GDP), HDI, HPI and adjusted net savings all get a mention in his talk. Being rich and being sustainable are rarely the same thing.

He defines sustainability as “keeping the total value of a nation’s capital stock in tact” and this definition encompasses all forms of capital (physical, intellectual, social, human, natural). Economic development changes the profile of a nation’s capital stock – for example industrialisation leads to deforestation and a rapid run down of natural capital, replaced often by life-changing physical capital, intellectual capital and human capital.

Living standards have been raised through this substitution process but the fundamental question central to the whole environmental debate is the extent to which the natural stock of capital can continue to be run down at present rates.

The weight of scientific knowledge says that the answer is no – we cannot replace a stable climate by more human and physical capital under a business as usual pathway. Heal argues for strong sustainability – giving bigger emphasis to protecting and maintaining eco-systems.

Geoffrey Heal, Donald C. Waite III Professor of Social Enterprise, Columbia Business School, New York at the panel entitled “Managing the Global Commons: Growth, Inequality, and New Thinking for Sustainable Economics” at the Institute for New Economic Thinking’s (INET) Paradigm Lost Conference in Berlin. April 14, 2012.

 

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Unit 4 Macro: Mini Documentary on Financial Instability

April 15th, 2012 at 8:19 pm by Geoff Riley

“It is not that human beings are irrational, it is that they are human” Here is a terrific short film on the causes of financial instability and the cracking of faith in markets. The Institute for New Economic Thinking has just launched the first of a series of short documentaries on economics Click below for the first of them

Financial stability, or the lack thereof. Leading thinkers speak out on what they feel is at the core of the problem. Featuring: Joseph Stiglitz, Gillian Tett, David Tuckett, Stephen Kinsella, John Kay, David Weinstein, Steve Keen and Dirk Bezemer. The focus is in criticising heavy reliance on neo-classical economics.

 

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RES Essay 2012 – Referencing your Work

April 15th, 2012 at 11:11 am by Geoff Riley

Winning and commended essays in the RES essay competition must be properly referenced – this is one of the criteria used by the judges – good essays will draw on a range of sources and offer a proper bibliography at the end – here is a tool that will help

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Unit 4 Macro: Globalisation Revision Quiz

April 15th, 2012 at 5:10 am by Geoff Riley

This 12 question – Type the Answer – Revision Quiz created using Zondle focuses on globalisation


zondle – games to support learning
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Economics Chart Quiz 4

April 14th, 2012 at 3:42 pm by Geoff Riley

Here is Chart 4 in our occasional quiz! Today’s chart focuses on the changing nature of the UK labour market in recent years. There are two data series to identify – in each case the chart shows the monthly level of each variable – look carefully at the two axes, a split scale is being used. Data A refers to the right hand axis and Data B refers to the left hand axis.

Chart Quiz 4

Can you identify what is being shown here? The answer to chart quiz 3 can be found below.

Here is the answer to the last Chart Quiz (3)

Chart Quiz 3

The chart shows the annual balance of trade in oil. For many years the UK has been a net exporter of oil because of revenues from exports of oil in the North Sea. But exploration and production of North Sea oil has declined greatly over the years and the UK has now returned to being a net importer of crude oil – indeed the deficit widened considerably in 2011 partly because of the surge in world oil prices back above the $100 a barrel level.

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Unit 4 Macro: Revision Quiz on Macro Concepts

April 14th, 2012 at 4:52 am by Geoff Riley

Test your understanding of some key Unit 4 macro concepts with this quick quiz created using Zondle


zondle – games to support learning
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Royal Mail’s refusal to supply

April 13th, 2012 at 6:41 pm by Penny Brooks

Here is the sub-heading from the report in today’s Daily Telegraph: “Royal Mail is limiting the number of stamps it supplies to retailers now to ensure it profits from record price rises later this month.” The report goes on “Royal Mail confirmed on Thursday that it had imposed a cap on the number of stamps every shop could buy. Retailers said it was refusing to restock them when they exceeded their allocation.” Ian Murray, the shadow postal affairs minister, says that he will be writing to regulator Ofcom about this rationing of supplies.

There has been particularly heavy demand for stamps ahead of the 30% price rise at the end of the month from small businesses who still rely on postal deliveries. The BBC gives the example of an optician in Scotland who sends out 5,000 reminders a year to patients; the owner is planning to buy 10,000 stamps before the end of the month thus saving £1,400.

The reports include some good examples of classic response to a shortage of supply: not exactly a black market, but an unofficial market is developing on e-bay, where a sheet of 100 first-class stamps can be bought for £50. This is £4 above the current face value – but from the end of the month the sheet will be worth £60.

Is Royal Mail’s action to limit supply to retailers an abuse of monopoly power, and how would it be dealt with if the Royal Mail were a private sector enterprise? Discuss.

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