Tag: expectations

Posted on

Building – from boom to bust!

One of the industries always hard hit by any economic downturn is the building and construction industry. The three articles below look at different aspects of the construction downturn. The building industry in Spain (article 1) has been particularly hard hit, perhaps because of the previous scale of the boom. When there is a recession, different industries are always hit in different ways, depending on the nature of the demand they face. Construction and building can be very badly affected as much of the expenditure on them is ‘investment’ expenditure and this will often be delayed in times of economic downturn.

Building boom reduced to ruins by collapse of Spain’s economic miracle Guardian (19/1/09)
Housing starts lowest since 1924 as construction bears brunt of recession Guardian (15/12/08)
UK construction activity slumps to record low Times Online (5/1/09)

Questions

  1. Write a short paragraph explaining the current state of the construction industry in the UK.
  2. Explain the accelerator theory.
  3. Discuss the extent to which the accelerator theory might help to explain the current state of the construction industry in the UK and Spain.
Posted on

Is inflation actually what we think?

Inflationary expectations can be an important determinant of the actual level of inflation and so the Bank of England monitor people’s perceptions of inflation closely. Expectations of inflation are currently at their highest level in eight years.

Questions

1. Explain the transmission mechanism by which higher inflationary expectations are translated into inflation.
2. What are the key determinants of inflationary expectations?
3. Discuss strategies that (a) the Bank of England and (b) the government can adopt to reduce inflationary expectations.
Posted on

The interplay of work and inflation

As part of its Target 2.0 competition for students, The Times published a series of briefings looking at the factors that cause inflation. The one linked below considers the role of labour markets in determining inflation.

Interplay of work and inflation rate Times Online (2/2/07)

Questions

1. Explain the key determinants of the equilibrium level of wages in the labour market.
2. Assess the role of equilibrium labour market wages in the determination of the level of inflation.
3. Discuss the extent to which the NAIRU is still a relevant theory when considering the determinants of inflation.