The Governor of the Bank of England, Mervyn King, recently talked about the end of the ‘nice’ decade. He was not using this in its normal sense, but was taking about a ‘non-inflationary, consistently expansionary’ decade of economic growth. Economists and journalists have been busy suggesting other acronyms for the situation that we face now including VILE (‘volatile inflation, less expansionary’) and the less generous CRAP (close to recession, absent a policy’). So are we facing a new more inflationary and less stable period of economic development? Is the ‘nice’ period really over?
Recession alert as Brown fights back Guardian (15/5/08)
‘It’s things outside the Bank’s control that are going up’ Guardian (14/5/08) (Podcast)
Nasty truth behind those nice headlines Times Online (19/5/08)
Inflation prospects will make a master letter writer out of Mervyn King Times Online (13/5/08)
Which way from the edge of the abyss? Guardian (25/4/08)
Questions
| 1. |
Explain the main factors that have led to the past decade being a ‘NICE’ one. |
| 2. |
Assess the extent to which we are moving into a ‘VILE’ period . |
| 3. |
Evaluate two policies that the government could adopt to try to avoid the UK economy moving into a VILE period. |
The Phillips Machine may, in this era of super-computers modelling the economy, appear an outdated artefact. However, when it was first unveiled at the London School of Economics in 1949 it caused a sensation. The Phillips Machine is a model of the economy which uses water, pumps, valves and, in the case of the original, an electric motor scavenged from the windscreen wiper of a Lancaster bomber. For some photos of a Phillips Machine at the Science Museum, follow the links below:
Phillip’s Economic Computer (1949)
Enginuity article (Cambridge Engineering Department)
The computer model that once explained the British economy Guardian (8/5/08)
The computer model that once explained the British economy Guardian (8/5/08) (Cartoon)
Questions
| 1. |
Explain what is meant by the term ‘economic model’. |
| 2. |
What were the limitations of the Phillips machine? Assess whether the Phillips machine could be of value to modern economists. |
| 3. |
Discuss the value of economic models to policy makers when formulating economic policy. |
The prospect of a severe recession in America has inevitably drawn parallels in the media with the Great Depression of 1929. The parallel may not be entirely appropriate in terms of scale and severity, but what lessons are there that can be learnt from the Great Depression?
Credit crunch: risk-taking Times Online (23/3/08)
America gets depressed by thoughts of 1929 revisited Times Online (23/3/08)
Lessons learnt from Great Depression Times Online (25/3/08)
Questions
| 1. |
Explain the principal causes of the Great Depression of the 1930s. |
| 2. |
Assess the parallels between the current economic situation in America and the situation preceding the Great Depression in 1929.
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| 3. |
Discuss the extent to which the recent loosening of monetary and fiscal policy in America will help reduce the likelihood of recession. |
The principal measure of inflation, the consumer prices index, is calculated from price changes in a basket of goods. The composition of this basket is changed each year to reflect changes in consumer spending patterns. 2008 sees smoothies, USB storage devices and muffins coming into the basket, while ready meals and 35mm camera film have had their day and leave the basket of goods.
What’s in and what’s out in 2008 Guardian (17/3/08)
Fruit smoothies in, ready meals out Guardian (17/3/08)
Smoothie pour into cost of living basket Guardian (17/3/08)
Let them eat sourdough bread, olives and sun-dried tomatoes Guardian (17/3/08)
Smoothies join basket of goods used to calculate inflation Times Online (18/3/08)
Questions
| 1. |
Explain what is meant by a weighted index. Why does the consumer prices index (CPI) need to be a weighted index? |
| 2. |
Explain how the CPI is calculated. |
| 3. |
Discuss why annual percentage changes in the CPI may not be an appropriate measure of inflation for all groups in society. |
Rapid economic growth in China has pushed inflation to an 11-year high of 8.7% in February 2008. This was driven significantly by higher food prices, with the price of pork rising by nearly 64%. This higher level of inflation has led to concerns that policy may need to be tightened.
Sweet and sour pork The Economist (13/3/08)
China inflation hits fresh high BBC News Online (11/3/08)
Chinese inflation alarms authorities Guardian (11/3/08)
Chinese warn on decade-high inflation Times Online (5/3/08)
Chinese inflation shoots to 11-year high Times Online (11/3/07)
China tries to apply brakes to economy Guardian (4/3/08)
Questions
| 1. |
What are the main causes of rising inflation in China? |
| 2. |
Assess the extent to which policy needs to be tightened to counter the rising level of inflation in China. What would be the possible downsides of such a policy? |
| 3. |
Discuss possible policy changes that could be implemented by the Chinese government to reduce the level of inflation. |