Category: Essential Economics for Business: Ch 11
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. |
In recent years Labour has taken what might be described as a light-touch on regulation of City firms and financial institutions. In the article below the economics editor of the Guardian, Larry Elliott, argues that this ‘pact with the devil’ might have come back to haunt Gordon Brown as the impact of the global credit crunch continues to dominate economic news.
Brown damned by his Faustian pact Guardian (12/5/08)
Questions
| 1. |
What form has regulation of the financial sector taken under the Labour government? |
| 2. |
Assess the extent to which this regulatory approach could be considered a ‘Faustian bargain’. |
| 3. |
Discuss the extent to which tighter regulation of financial markets might have helped the UK economy avoid the impact of the global credit crunch. |
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.
|
| 3. |
Discuss the extent to which the recent loosening of monetary and fiscal policy in America will help reduce the likelihood of recession. |
The recent credit crunch has resulted in a lot of criticism of the banks and other financial institutions. Many commentators have argued for reforms to the financial system with greater controls on lending and restrictions on banks’ ability to create credit. The articles below have a common theme – assessing the actions that politicians and policy makers need to consider as a result of the recent credit crunch.
After excess comes fear – and then socialism, at least for the bankers Guardian (23/3/08)
Capitalism’s too important to be left to capitalists Observer (23/3/08)
If the City won’t put its house in order, politicians must Observer (23/3/08)
Podcast
How to stop the market mayhem Guardian (19/3/08)
Questions
| 1. |
Explain what is meant by the ‘liberalisation of financial markets’. |
| 2. |
“If the City won’t put its house in order, the politicians must”. Examine the validity of Will Hutton’s argument. |
| 3. |
Discuss the extent to which the freedom of banks to lend has been the cause of the recent credit crunch. |
Late March saw the auctioning by the Bank of England of £10.9bn to boost liquidity in financial markets. This was £5bn more than had been expected and so should help ease the liquidity position for cash-strapped banks and other financial institutions.
When the rivers run dry The Economist (6/3/08)
Bank of England answers pleas with £5bn injections Times Online (21/3/08)
Questions
| 1. |
Explain what is meant by liquidity. |
| 2. |
Assess the main factors that have resulted in a shortage of liquidity in financial markets. |
| 3. |
Discuss the extent to which this extra liquidity is likely to help reduce the likelihood of recession in the UK. |