Category: Economics 10e: Ch 22

The Northern Rock crisis has caused significant repercussions in the UK financial system. It may continue to do so as the various groups bidding to take over the beleaguered bank try to persuade the government to write off the interest owed on the money borrowed in the run-up to the crisis. In the Guardian article below the build-up to the crisis is considered in detail, while in the other article Anatole Kaletsky argues that central banks need to stand firm against pressure from financiers.

Questions

1. Explain what is meant by the term ‘moral hazard’.
2. Examine the main factors that led up to the Northern Rock crisis.
3. Summarise the main reasons why Anatole Kaletsky argues that central banks need to stand firm when pressurised by City financiers.
4. Assess the likely impact of the Northern Rock crisis on the performance of the UK economy over the next year.

Now that Tony Blair has announced that he is to step down as Prime Minister, the media has started to consider his legacy. The two articles focus on the economic legacy. While the BBC one is quite factual in its approach, the article by Larry Elliott from the Guardian is less complementary about his legacy.

The business of Tony Blair’s decade BBC News Online (10/05/07)
Blair’s legacy: a fantasy island trying to live beyond its means at every level Guardian (14/05/07)
Blair’s economic record (video) BBC News Online (10/05/07)


Questions
1. Explain why Larry Elliott considers that we are living on a ‘fantasy island’.
2. Explain the main economic changes that have been implemented during Tony Blair’s time in office.
3. Discuss the extent to which the economic situation has improved under Tony Blair for (a) firms and (b) consumers.

As Nicolas Sarkozy takes over as President of France, he faces a difficult economic situation. Poor economic growth, worsening international competitiveness and a worrying level of unemployment and social unrest mean that he has much to do. His approach will inevitably be controversial and the extent to which he is able to implement his promised reforms may depend on how well he can carry the main stakeholders with him.

Les mis√©rables: France’s unhappy position BBC News Online (7/5/07)


Questions
1. Explain the principal economic policies that Sarkozy has promised to implement.
2. Discuss the economic problems faced by France.
3. Analyse the economic constraints faced by Nicolas Sarkozy as he tries to implement his policies.
4. Assess the likely success of the economic policies promised by Sarkozy.

In the early days of monetary policy, money supply targeting was a core element of anti-inflation policy. This approach was slowly dropped during the 1990s, but the underlying growth of the money supply has remained an important issue for policy makers and recent growth in the money supply has led to concern from some commentators that higher inflationary pressures may yet emerge.

King sees money growth as danger sign Times Online (3/5/07)
Bank’s inflation controllers leave the NICE decade to enter the not-so-nice Guardian (3/5/07)
Should letter-writing be a thing of the past? Times Online (30/4/07)


Questions
1. Explain the relationship between money supply growth and inflation.
2. What were the main factors that led to money supply targeting being dropped as a core element of monetary policy?
3. Assess the extent to which the MPC should pay more attention to the level of money supply growth.
4. Should letter-writing be a thing of the past?

The red top newspapers and others have recently been leading a campaign for the scrapping of inheritance tax. They argue that the growth in house prices means that increasing numbers are becoming subject to inheritance tax and that it is inherently unjustified as a tax. The article below by David Lipsey looks at these arguments and argues that this is a myth.

The ‘death trap’ menacing middle Britain is a myth Guardian (12/1/06)

Questions

1. Explain how inheritance tax is levied and the rates it is charged at. You can always use the HM Treasury budget site to find out more detail on the tax.
2. Assess the advantages and disadvantages of the scrapping of inheritance tax. What impact is the ending of a tax of this nature likely to have on the macroeconomic performance of the UK?
3. Discuss the assertion in the article that “substantial inheritance is the enemy of equality of opportunity”?