Category: Essential Economics for Business 7e and 6e
The article below by William Keegan is a discussion of a recent seminar he attended on ‘Black Wednesday and the rebirth of the British economy’. The seminar led him to consider whether policy makers should be guided mainly by rules or discretion in the development of policy. Many would argue that we have moved away from discretion and moved more towards fiscal and monetary rules for the implementation of policy, but the article discusses the extent to which this may be true.
When the going gets rough, can our rulers rely on the rule book? Observer (18/11/07)
Questions
| 1. |
Explain, using examples as appropriate, the difference between policies based on fiscal and monetary rules and discretion. |
| 2. |
Explain how the MPC “largely ignores the cumulative dangers of a high exchange rate” in its determination of interest rates for the UK economy. |
| 3. |
Discuss how effective the adoption of an inflation target has been in management of the British economy in the past decade. |
The Governor of the Bank of England, Mervyn King, has signalled that the next year may be the toughest for 15 years with lower economic growth than previously forecast. So, is the UK economy going off the rails?
Questions
| 1. |
Explain the main reasons why the Governor of the Bank of England expects a worse than forecast level of economic growth in 2008. |
| 2. |
Discuss the extent to which a cut in interest rates will help prevent an economic slowdown. What adverse effects could follow from such a policy. |
| 3. |
Discuss one other policy that the government could adopt to try to reduce the extent of the forecast slowdown in economic growth. |
22nd November marks the day when Americans celebrate Thanksgiving Day. However, the cost of this celebration has increased by 11% in the last year according to figures from the American Farm Bureau Federation. One of the main causes of this is the rise in turkey prices but other factors were important as well.
Thanksgiving dinner cost ‘up 11%’ BBC News Online (16/11/07)
Questions
| 1. |
Using supply and demand analysis, illustrate the price changes for turkeys identified in the article. |
| 2. |
Consider possible factors that may have led to the price changes for turkeys identified in the article. |
| 3. |
Discuss the likely change in the quantity of turkeys demanded as a result of the price rise. |
| 4. |
What is the likely approximate value of the cross elasticity of demand for cranberry sauce with respect to the price of turkeys? |
The Northern Rock crisis has caused significant repercussions in the UK financial system. It may continue to do so as the various groups bidding to take over the beleaguered bank try to persuade the government to write off the interest owed on the money borrowed in the run-up to the crisis. In the Guardian article below the build-up to the crisis is considered in detail, while in the other article Anatole Kaletsky argues that central banks need to stand firm against pressure from financiers.
Questions
| 1. |
Explain what is meant by the term ‘moral hazard’. |
| 2. |
Examine the main factors that led up to the Northern Rock crisis. |
| 3. |
Summarise the main reasons why Anatole Kaletsky argues that central banks need to stand firm when pressurised by City financiers. |
| 4. |
Assess the likely impact of the Northern Rock crisis on the performance of the UK economy over the next year. |
Rapidly rising food prices have led to instability in many countries and have fuelled inflation in less developed economies where food spending is a greater proportion of overall consumer spending. A number of factors have contributed to this rapid rise in prices, but one important contributory factor is the move towards growing crops that can be used as bio-fuels in the developing world and this shift in production is having a knock-on effect in world food markets.
Big food companies accused of risking climate catastrophe Guardian (8/11/07)
An agricultural crime against humanity Monbiot.com (6/11/07)
Global food crisis looms as climate change and fuel shortages bite Guardian (3/11/07)
Questions
| 1. |
Identify the main factors that have led to rising world food prices. |
| 2. |
Assess the extent to which the move towards bio-fuels has contributed to the rise in world food prices. |
| 3. |
Explain how the impact of rising food prices differs in the developed and developing world. |
| 4. |
Discuss policies that governments could adopt to ameliorate the impact of rising food prices on the level of economic growth. |