Commentators and policy makers are casting far and wide to try to find policies that may offer solutions to the banking crisis and the financial situation it has caused. One proposal (considered in two articles below) is the introduction of a Tobin tax. A Tobin tax is a levy on currency transactions and the argument is that this will act as a disincentive for short-term speculation and therefore force traders in financial and currency markets to look more at medium- to long-term rather than short-term gain.
Tobin’s nice little earner Guardian (15/10/08)
Make state capitalism pay its way Guardian (26/9/08)
Questions
| 1. |
Explain what is meant by a Tobin tax. |
| 2. |
Assess the arguments for and against the imposition of a Tobin tax on currency transactions. |
| 3. |
Discuss whether changes to the regulatory structure of currency markets may be more effective than the introduction of a Tobin tax. |
During his lifetime Galbraith warned extensively of the problems likely to be associated with financial excesses, and if alive today would almost certainly allow himself a ‘told you so’ moment. He was a lifelong liberal who argued that capitalism was inherently a fragile and unstable system. So what relevance does his work have to the current financial crash?
Galbraith saw this coming Guardian (15/10/08)
In praise of …The Great Crash 1929 Guardian (15/10/08)
Questions
| 1. |
Write a short paragraph summarising Galbraith’s life and work. |
| 2. |
Assess the extent to which his arguments in relation to the fragility of the financial system are still relevant today. |
| 3. |
Galbraith commented that all stockmarket bubbles exhibit “seemingly imaginative, currently lucrative, and eventually disastrous innovation in financial structures“. Discuss the extent to which this kind of innovation (e.g. derivatives and sub-prime mortgages) may have been responsible for the current financial crisis. |
“The economic crisis is petty by comparison to the nature crunch. But they have the same cause.” This is how George Monbiot starts his article below. The comparison between the financial crisis may seem an unlikely one, but global warming and the resultant economic costs could also have a significant effect on the world economy.
This is what denial does Monbiot.com (14/10/08)
Green shoots of recovery Guardian (8/10/08)
Independence from the street up Guardian (23/9/08)
Questions
| 1. |
Define the terms (i) external cost (ii) private cost (iii) social costs. |
| 2. |
Using diagrams as appropriate show the reasons why the market economy may fail to allocate scarce resources appropriately. |
| 3. |
“If the global economy keeps growing at 3% a year (or 1700% a century) it too will hit the wall.”. Discuss possible policies that may help prevent this situation arising. |
The financial crisis has, according to research from the Institute of Grocery Distribution (IGD), begun to lead to a fundamental change in shopping habits. People are now more ready to take packed lunches to work, walk rather than drive and even grow their own food to a greater extent than for many years.
Cash-strapped shoppers in search of Good Life Times Online (14/10/08)
Questions
| 1. |
With reference to the article, suggest products for which demand is likely to increase during an economic downturn. |
| 2. |
Are all the products you identified in question 1 inferior products? |
| 3. |
With reference to the article, suggest products for which demand is likely to decrease significantly during an economic downturn. |
| 4. |
Comment on the likely value of the income elasticity of demand for each of the products you have identified in questions 1 and 2. |
Times of economic uncertainty often lead to people seeking what they consider as ‘safe havens’ for their money. Traditionally gold has been one of these safe havens. This financial crisis has been no exception and the price of gold has risen, but there has also been a rapid growth in demand for gold bullion and gold coins and dealers have found themselves besieged by people looking to protect their savings. ATS Bullion, a London gold bullion dealer, has even seen queues: something quite unprecedented for them.
There’s gold in them thar’ shops: the rush is on Guardian (2/10/08)
Austria witnesses new gold rush BBC News Online (12/10/08)
Gold rush as investors pile into bars Financial Times (3/10/08)
Market turmoil sparks gold rush to specialist funds Times Online (13/10/08)
Questions
| 1. |
What the main determinants of demand for gold coins and gold bullion? |
| 2. |
Using diagrams as appropriate, show the changes that have taken place in the market for gold coins in recent months. |
| 3. |
Discuss the extent to which the supply of gold bullion is likely to keep up with the rapid growth in demand. |
