Category: Economics: Ch 17
During his lifetime Galbraith warned extensively of the problems likely to be associated with financial excesses, and if alive today would almost certainly allow himself a ‘told you so’ moment. He was a lifelong liberal who argued that capitalism was inherently a fragile and unstable system. So what relevance does his work have to the current financial crash?
Galbraith saw this coming Guardian (15/10/08)
In praise of …The Great Crash 1929 Guardian (15/10/08)
Questions
1. |
Write a short paragraph summarising Galbraith’s life and work. |
2. |
Assess the extent to which his arguments in relation to the fragility of the financial system are still relevant today. |
3. |
Galbraith commented that all stockmarket bubbles exhibit “seemingly imaginative, currently lucrative, and eventually disastrous innovation in financial structures“. Discuss the extent to which this kind of innovation (e.g. derivatives and sub-prime mortgages) may have been responsible for the current financial crisis. |
“‘Capitalism,’ Schumpeter wrote, ‘is by nature a form or method of economic change and not only never is but never can be stationary … This process of Creative Destruction is the essential fact about capitalism”. In the article below William Keegan looks at this process of creative destruction and relates it to the current financial crisis and the downturn in the business cycle.
Moral hazard? It’s just another danger along the capitalist way Guardian (5/10/08)
Time To Drop The Baggage That Comes With Moral Hazard Financial Times (4/10/08)
Questions
1. |
Explain what is meant by the term ‘Creative Destruction’. |
2. |
Explain what is meant by the term ‘Moral Hazard’. |
3. |
“In theory, enlightened economic policies can moderate the workings of the business cycle”. Discuss possible policies that can moderate the workings of the business cycle. |
4. |
Discuss the extent to which the recent economic boom was an ‘asset-price boom’ rather than a ‘traditional one’. |
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. |
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. |
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? |