Category: Essentials of Economics: Ch 14

Since the 1970s and 1980s we have moved away from an active exchange rate policy as part of an overall demand management strategy. Indeed, by the mid 2000s, even the role of fiscal policy in demand management had diminished. The article below looks at these changes and considers whether this new approach to demand management is proving effective.

It’s a fashionable club but can the MPC keep us out of the rough? Guardian (11/2/07)

Questions

1. Explain how the approach to management of the economy has changed over the last three decades.
2. Assess the problems that might arise from trying to manage the economy using just one policy instrument (i.e. interest rates)..
3. Explain what is meant by an exchange rate policy. Discuss whether the reintroduction of an exchange rate policy would help with the management of the economy.

The 300th anniversary of Scotland’s union with England was marked with renewed speculation (backed up by opinion polls) about the constitutional future of the union and a reinvigorated debate about whether Scotland should ‘go it alone’. However, could an economically independent Scotland survive? The article below considers the issues relating to an ‘economically independent’ Scotland.

Where there’s oil ……. Guardian (8/2/07)

Questions

1. Discuss the impact of North Sea Oil on the Scottish economy.
2. Assess the extent to which an independent Scotland would survive economically.
3. Discuss the changes that would take place in the fiscal position of Scotland if they were independent.

The world of ‘carbon offsetting’ has suddenly become trendy. With bands like Coldplay and the Rolling Stones making their tours ‘carbon neutral’ and government ministers offsetting all the environmental cost of their overseas travel, the industry has hit the limelight. Even Tony Blair, under pressure over his personal holidays has relented and agreed that he will offset all his personal travel. However, up to now the industry has been unregulated and standards have been uncertain. Defra has now set new standards for the industry to comply with and the articles below consider the impact of this regulation.

Questions

1. Using diagrams as appropriate, explain how carbon offsetting is intended to reduce the environmental impact of plane travel.
2. Discuss the effectiveness of carbon offsetting as an approach to reducing the impact of increasing plane travel.
3. Suggest one demand-side and one supply-side policy to reduce the carbon emissions resulting from air travel and assess their relative effectiveness.

In developing countries the growth of urbanisation is causing some worrying social, environmental and health problems. As the introduction to the article below puts it:

“UN figures for urbanisation, published this week in the State of the World 2007 report, show that more than 60 million people – roughly the population of the UK – are added to the planet’s cities and suburbs each year, mostly in low-income urban settlements in developing countries. Unplanned urbanisation is taking a huge toll on human health and the quality of the environment, contributing to social, ecological, and economic instability in many countries.”

Streets ahead Guardian (17/1/07)

Questions

1. Assess the impact of the growth of urbanisation on the rate of development in developing countries.
2. Discuss the advantages and disadvantages of growing urbanisation to a developing country.
3. Assess the role of non-governmental organisations (NGOs) in helping to minimise the negative consequences of urbanisation.

In a new book, Will Hutton, the editor of the Observer and well-known economic commentator, has argued that we have overstated the economic threat from China. He argues that their economic model is flawed and that extensive corruption in the system is distorting economic growth in the country. The article below from the Guardian is an edited extract from his new book that considers many of these issues.

Power, corruption and lies Guardian (8/1/07)

Questions

1. “….. the transition from communism remains fundamentally problematic”. Discuss the extent to which these problems are likely to affect the pace of development in China.
2. Explain what Will Hutton means by ‘Leninist corporatism’. Why does he believe this to be a problem for China?
3. Assess the likely impact of corruption in China on long-term development and the rate of economic growth.