Category: Essentials of Economics: Ch 10

Posted on

Modelling the economy with water

The Phillips Machine may, in this era of super-computers modelling the economy, appear an outdated artefact. However, when it was first unveiled at the London School of Economics in 1949 it caused a sensation. The Phillips Machine is a model of the economy which uses water, pumps, valves and, in the case of the original, an electric motor scavenged from the windscreen wiper of a Lancaster bomber. For some photos of a Phillips Machine at the Science Museum, follow the links below:

Phillip’s Economic Computer (1949)
Enginuity article (Cambridge Engineering Department)

The computer model that once explained the British economy Guardian (8/5/08)
The computer model that once explained the British economy Guardian (8/5/08) (Cartoon)

Questions

1. Explain what is meant by the term ‘economic model’.
2. What were the limitations of the Phillips machine? Assess whether the Phillips machine could be of value to modern economists.
3. Discuss the value of economic models to policy makers when formulating economic policy.
Posted on

Lessons from the Great Depression

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.
Posted on

Are we heading for a perfect economic storm?

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?
Posted on

Is the UK economy going off the rails?

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.
Posted on

Talk is cheap

The article linked to below is an extract (printed in the Guardian) from a new book by Dan Atkinson and Larry Elliott (economics editor for the Guardian). The introduction to the article summarises its theme quite effectively:
“We don’t manufacture anything any more. Most of the world won’t buy our records or watch our films. Only our gift of the gab is keeping Britain’s economy ticking over. But how long can the hot air last, ask Larry Elliott and Dan Atkinson “

Talk is cheap Guardian (18/5/07)


Questions
1. Explain the underlying trade performance of the UK in recent years for (a) trade in goods and (b) trade in services.
2. “Labour believes Britain is at the cutting edge of the knowledge economy and that Britain’s well-educated (sic), highly skilled (sic) and entrepreneurial (sic) workers are ready to kick German, American, Japanese and Chinese butt all round the global village.” Discuss the extent to which this is true.
3. Assess the extent to which the theory of comparative advantage can help explain the differences in trade performance outlined in the article.