Category: Economics for Business: Ch 30
Hyperinflation in Zimbabwe is no longer news. Indeed the news below that inflation has risen to 2,200% may not even surprise us any more. However, inflation of this level should also mean similar changes in the exchange rate if purchasing power parity is to be maintained. The official exchange rate in Zimbabwe, however, hasn’t changed by anywhere near this amount and there are reports (See Scotsman article below) that the Governor of the Central Bank has even tried to portray a recent devaluation as not really a devaluation at all!
Our mutual friend The Economist (subscription) (12/4/07)
Zimbabwe inflation reaches 2,200% BBC News Online (26/4/07)
Zimbabwe’s inflation rate surges to 231,000,000% Guardian (9/10/08)
A month ago, the hospitals were overflowing. Now they lie empty Guardian (6/12/08)
Hyperinflation in Zimbabwe Wikipedia
(27/4/07)
How Zimbabwe lost control of inflation Newzimbabwe.com (11/12/09)
Questions
| 1. |
Explain, using diagrams as appropriate, how hyperinflation will affect the exchange rate in Zimbabwe. |
| 2. |
Discuss the likely economic impact of not devaluing the official exchange rate in line with the level of inflation in Zimbabwe. |
| 3. |
Assess possible exchange rate policies that would help reduce the level of hyperinflation in Zimbabwe. |
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. |
In the Guardian article linked to below, Ashley Seager argues that the only way to reduce the extent of social exclusion is to tax the main asset of a large proportion of the population; their house. He argues that the massive increases in land values that have taken place with rising house prices have increased divisions in society and that a land tax is required to address this. It may be interesting to consider this issue along with News Item 4 about global wealth distribution.
A land tax is 200 years overdue Guardian (8/1/07)
Questions
| 1. |
Explain what is meant by a land tax and suggest different ways that this could be levied. |
| 2. |
Discuss the likely impact of a land tax, as proposed by Ashley Seager, on the major economic targets. |
| 3. |
Analyse possible alternative policies to reduce the levels of exclusion in UK society. |
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”? |