Category: Economics for Business: Ch 26

The French President, Nicolas Sarkozy, has asked a panel of economists, including Joseph Stiglitz, to come up with new measures of the quality of life as an alternative to the more traditional measures of GDP and production. He believes that traditional GDP measures understate the developments that have taken place in France.

Sarkozy seeks le feel-good factor Times Online (10/1/08)
France seeks new growth measure BBC News Online (8/1/08)
Beyond GDP – odd numbers Conde Nast Portfolio.com (9/1/08)

Questions

1. Explain why traditional GDP measures may not be a good measure of the standard of living.
2. Define what is meant by an Index of Sustainable Welfare.
3. Use the ‘Make your own ISEW‘ on the Friends of the Earth web site to assess the factors that make the most difference to the standard of living.

In the 1990s UK living standards were estimated to be 4% below those of the USA, 33% less than in Germany and 26% lower than those in France. However, faster economic growth in the past two decades has, according to Oxford Economics, led to average incomes overtaking those in the USA and rising some 8% more than those of France and Germany.

UK living standards outstrip US Times Online (6/1/08)
…but at least we’ve got one up on the Yanks Guardian (6/1/08)

Questions

1. Explain the difference that the value of sterling makes to the measure of the standard of living.
2. “With an adjustment made for this “purchasing power parity”, the average American has more spending power than his UK counterpart and pays lower taxes”. Define what is meant by purchasing power parity (PPP). Why does the standard of living need to be measured at PPS rates?
3. Discuss the principal factors that have led to the increase in the standard of living in the UK.

Oil prices have seen a relentless rise in recent weeks with much speculation that they will go over $100 a barrel in the near future. The high oil price has seen the average price of petrol go over £1 per litre in the UK, shortages and rationing in Tehran and violence in Yemen. So what is causing oil prices to rise and what impact is this likely to have on the global economy?

Tempests, truckers and tribesmen – another week in the oil market Guardian (10/11/07)
Steep decline in oil production brings risk of war and unrest, says new study Guardian (22/10/07)
The high oil price may begin to take its toll Times Online (12/11/07)
What is driving oil prices so high? BBC News Online (6/11/07)
OPEC: the oil cartel in profile BBC News Online (18/10/07)
Oil price rises after OPEC summit BBC News Online (19/11/07)
Oil markets explained BBC News Online (18/10/07)
Oil prices BBC News Online – Evan Davis blog (10/11/07)
Super-spiked The Economist (1/11/07)

Video

The OPEC statement on oil prices BBC News Online – video link (19/11/07)

Questions

1. Using supply and demand analysis, show the reasons why oil prices are rising.
2. Using diagrams as appropriate, assess the likely impact of rising oil prices on the level of economic growth in the UK.
3. Discuss the extent to which OPEC has been the main cause of the rise in oil prices.

The Governor of the Bank of England, Mervyn King, has signalled that the next year may be the toughest for 15 years with lower economic growth than previously forecast. So, is the UK economy going off the rails?

Questions

1. Explain the main reasons why the Governor of the Bank of England expects a worse than forecast level of economic growth in 2008.
2. Discuss the extent to which a cut in interest rates will help prevent an economic slowdown. What adverse effects could follow from such a policy.
3. Discuss one other policy that the government could adopt to try to reduce the extent of the forecast slowdown in economic growth.

The article linked below is a blog article by George Monbiot looking at the rise of neoliberal economic views and discussing whether these are simply an intellectual justification for the rich and powerful to reinforce their position.

How the neoliberals stitched up the wealth of nations for themselves Guardian (Comment is free) (28/8/07)

Questions

1. Write a brief summary of the neoliberal views of the founder of the Mont Pelerin Society – Friedrich Hayek.
2. Explain the neoliberal argument that “….. we are best served by maximum market freedom and minimum intervention by the state. The role of government should be confined to creating and defending markets, protecting private property and defending the realm.
3. Discuss the view espoused by George Monbiot in the article that neoliberal policies like “minimal taxes, the dismantling of public services and social security, deregulation, the breaking of the unions” serve to make the elite even richer and simply act as a “wealth grab“.