Category: Essentials of Economics: Ch 09
GDP is quite a good measure of a nation’s production of goods and services, but it doesn’t include many other factors relating to the standard of living in an economy and for this reason, various other measures of living standards have been developed. However, there is also another issue with GDP and that relates to how best to measure a country’s economic performance. Should we use GDP per head or GDP growth? Population changes can significantly distort economic welfare and so do need to be taken into account. The article below from The Economist looks at these issues in depth and considers the best way to measure economic performance.
Grossly distorted picture The Economist (13/3/08)
Questions
| 1. |
Explain how GDP per head can fall while economic growth is rising. |
| 2. |
Explain why the use of GDP per head as a measure of economic performance may lead to the definition of recession being flawed. |
| 3. |
Assess the principal factors that result in economic growth and GDP per head rising together. |
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. |
Oil prices have seen a relentless rise in recent weeks with much speculation that they will go over $100 a barrel in the near future. The high oil price has seen the average price of petrol go over £1 per litre in the UK, shortages and rationing in Tehran and violence in Yemen. So what is causing oil prices to rise and what impact is this likely to have on the global economy?
Tempests, truckers and tribesmen – another week in the oil market Guardian (10/11/07)
Steep decline in oil production brings risk of war and unrest, says new study Guardian (22/10/07)
The high oil price may begin to take its toll Times Online (12/11/07)
What is driving oil prices so high? BBC News Online (6/11/07)
OPEC: the oil cartel in profile BBC News Online (18/10/07)
Oil price rises after OPEC summit BBC News Online (19/11/07)
Oil markets explained BBC News Online (18/10/07)
Oil prices BBC News Online – Evan Davis blog (10/11/07)
Super-spiked The Economist (1/11/07)
Video
The OPEC statement on oil prices BBC News Online – video link (19/11/07)
Questions
| 1. |
Using supply and demand analysis, show the reasons why oil prices are rising. |
| 2. |
Using diagrams as appropriate, assess the likely impact of rising oil prices on the level of economic growth in the UK. |
| 3. |
Discuss the extent to which OPEC has been the main cause of the rise in oil prices. |
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. |