Category: Essential Economics for Business: Ch 11
“‘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 European Central Bank has its tenth anniversary this year and the year is shaping up to be one of the toughest of the last decade in terms of economic management. While the Eurozone has generally withstood the global credit crisis very well, there are some possible problems emerging and the ECB will have to manage interest rates carefully to cater for the conflicting demands from economies at different stages of the business cycle.
If the Eurozone is on fire, will the ECB get burnt? Observer (1/6/08)
More testing times ahead as the euro turns ten Times Online (26/5/08)
Euro growth better than expected BBC News Online (15/5/08)
Questions
| 1. |
Explain the role of the European Central Bank (ECB). |
| 2. |
Assess the difficulties faced by the ECB in setting interest rates for the whole Eurozone. |
| 3. |
Discuss the extent to which the economic performance of stronger countries in the Eurozone will be constrained by weaker-performing economies. |
Rising food prices (5.5% increase over the past year) and rising energy costs have led to a rise in overall inflation. The consumer price index rose from 2.5% in March to 3% in April, triggering concerns that the Governor of the Bank of England, Mervyn King, would have once again to write an explanatory letter to the Chancellor for inflation going over its target rate.
Biggest jump in cost of living for six years surprises the city Guardian (4/5/08)
The danger of inflation fixation Guardian (14/5/08)
Dear Alistair …. Guardian (13/5/08)
Rising food prices send inflation surging to 3% Guardian (13/5/08)
Playing the percentage game for high stakes Guardian (9/5/08)
High street prices in biggest surge since 1992 Times Online (29/5/08)
UK inflation jumps to 3% in April BBC News Online (13/5/08)
Questions
| 1. |
Explain the principal factors that led to the sharp rise in the cost of living for April. |
| 2. |
Assess the extent to which inflation may be higher for many groups in society than the consumer price index figures indicate. |
| 3. |
Discuss the extent to which an interest rate increase would help to reduce inflation in a climate of rising food and energy prices. |
Russia has been growing rapidly. Average earnings have recently been growing at 20% a year and consumption growth has not been far behind this. Moscow apparently has more ‘6-series BMWs’ than any other city in the world. With Vladimir Putin now the prime minister he has promised to rein in inflation and boost social spending on housing and infrastructure. So what are the prospects for Russia in the next decade?
Russia: giant of a new economic world order Observer (25/05/08)
Vladimir Putin pledges to transform economy of Russia into a world leader Times Online (9/05/08)
Putin in 2020 pledge on economy BBC News Online (8/05/08)
Questions
| 1. |
Assess the recent economic performance of the Russian economy. |
| 2. |
Examine the importance of oil to the Russian economy. What can the Russian government do to reduce the dependence on oil revenues? |
| 3. |
Discuss the importance of infrastructure and spending on other social capital for the development of the Russian economy. |
In the face of a Labour backbench rebellion over the abolition of the 10p tax rate in the most recent Budget, the Chancellor, Alistair Darling, introduced what has been described as a mini-budget this month. In this mini-budget he significantly increased tax allowances to try to alleviate the impact of the removal of the 10p tax rate on some of the poorest families.
Darling’s solution could prove costly, say economists Guardian (14/5/08)
FAQ: Formula that bought off the Labour rebels Guardian (14/5/08)
Brown risks £2.7bn tax cut to end revolt Guardian (14/5/08)
Mini-budget will put money in pockets of 22 million voters Guardian (13/5/08)
Darling’s statement in full Guardian (13/5/08)
Institute for Fiscal Studies highlights Chancellor’s dilemma after emergency tax cut Times Online (21/5/08)
Q&A on the Government’s ‘Golden Rule’ Times Online (15/5/08)
Basic rate taxpayers to get £120 BBC News Online (13/5/08)
Q&A: Tax changes BBC News Online (13/5/08)
Full statement: Tax changes BBC News Online (13/5/08)
Questions
| 1. |
What was the effect of the abolition of the10p tax rate on income distribution (before the min-budget measures)? |
| 2. |
Assess the extent to which these changes will alleviate the impact of removing the 10p tax rate on the poorest families. |
| 3. |
Discuss the likely impact of this change in the government’s fiscal stance on the main UK macroeconomic targets. |