Category: Economics: Ch 20
China’s rate of inflation has hit an 11-year high, partly due to the cold winter weather destroying crops and pushing up food prices. However, inflationary pressure has been growing for some time with rapid economic growth and the resultant pressure on resources. This is despite six increases in interest rates in the past thirteen months.
Families feel pinch as inflation threatens economic miracle Guardian (25/2/08)
Chinese inflation soars to an 11-year high Times Online (20/2/08)
Chinese inflation hits 11 year high Times Online (19/2/08)
Questions
| 1. |
Explain the principal factors that have led to the increase in inflation in China. |
| 2. |
“Policymakers in China will likely try to tighten monetary policy further, with more reserve requirement ratio hikes, faster Chinese yuan appreciation, and more heavy handed controls over bank lending.” Discuss the likely effectiveness of these policy measures. |
| 3. |
Assess the extent to which changes in food prices will affect the overall level of aggregate demand in the Chinese economy. |
Concerns have been growing that the UK faces a downturn in economic growth during 2008. The articles below consider this possibility. With a credit crunch taking place and manufacturing output falling, the concerns for a recession may well not prove unfounded.
Is this the big one? Guardian (3/1/08)
Your survival plan if a recession strikes Times Online (5/1/08)
Top of the flops – 10 pointers to a downturn in 2008 Guardian (6/1/08)
Recession fears as manufacturing drops Times Online (11/1/08)
Crash that ‘won’t happen here’ looms large Guardian (3/12/07)
Questions
| 1. |
What are the key indicators of an impending recession? |
| 2. |
Assess the likelihood of a recession in the UK in 2008. |
| 3. |
What policies could the UK government adopt to avoid a recession during 2008. What would determine the success of such policies? |
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. |
As if there wasn’t enough bad economic news at the start of 2008, Majestic Wine has been warning wine lovers to stock up early as the price of their favourite tipple is likely to rise considerably during 2008. The company is warning that, due to the strong euro and poor harvests, the price of an average bottle may rise by as much as £1.
Wine lovers find no escape from the woes of world’s economy Times Online (4/1/08)
Majestic warns of champagne price rise Telegraph (4/1/08)
Questions
| 1. |
Using diagrams as appropriate, illustrate the changes taking place in the market for champagne and other wines. |
| 2. |
Identify the principal determinants of the price elasticity of demand for wine. |
| 3. |
Discuss the extent to which a £1 rise in the price of a bottle of wine will affect the equilibrium market quantity. |
The fall in the dollar has continued with the value of sterling rising above $2.10 for the first time in 26 years. The articles below look at a range of issues related to the strong pound and there are also case studies of the impact on a guitar strings company and the manufacturer JCB.
Questions
| 1. |
Identify the main factors that have caused the fall in the value of the dollar. Use supply and demand to illustrate your answer as appropriate. |
| 2. |
Assess the impact of the strong pound on UK exporters and importers. |
| 3. |
Discuss whether intervention in the foreign exchange market may be appropriate to help UK exporters to remain more competitive in world markets. |