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Tuesday, 19 August 2014

Unit 1: Cost benefit analysis and Swansea Bay

Plans for the Swansea Bay tidal lagoon power station are potentially a superb case study to use when teaching the multiplier effect, renewable energy, cost-benefit analysis, economies of scale and different forms of government intervention including subsidies for harnessing new energy sources.
According to an article in the Independent:

"The £850m, six-mile-long U-shaped seawall by the Swansea docks will not only generate enough electricity to power 120,000 homes for 120 years – it will also create nearly 2,000 construction jobs in the two years it takes to build; and it will leave the city with a tourist attraction drawing in up to 100,000 visitors a year."

News articles:

Tidal power generator unveiling hailed as landmark(BBC August 2014):

Swansea Bay £850m tidal lagoon plan submitted (BBC February 2014):

Flooding concerns raised over Swansea Tidal Lagoon project (Wales Online, July 2014):

Unit 1: Monetary policy - Factors affecting Interest rate decisions

Click here for a really informative piece from Larry Elliott at the Guardian on some of the factors that the Bank of England will take into account when deciding the moment to move policy interest rates up from their historic low of 0.5%. 
Mark Carney in thoughtful mood!

To think, there are students who might make it through their entire secondary school education without experiencing a change in UK monetary policy interest rates!

Monday, 23 June 2014

Unit 3: Supermarket Price Wars

Morrisons has announced further price cuts in its latest effort to win back customers and revive its business.
It is the latest round in a price war among British supermarkets, which are reacting to the challenge of discounters such as Aldi and Lidl.  Click here to access full article.

Really good example of how oligopolies will still use price as a competitive strategy, even though it is likely to harm profits in the short run.

Wednesday, 18 June 2014

Unit 4: Introduction to inequality

Income distribution (often overlooked, especially when economies are booming) seems the hottest topic at the moment. Inequality books top the bestseller lists.

There are some excellent resources at the end of this post (Thank you Tom White). If you manage to look at some of these over the break, you will have an excellent understanding of this popular area of the course.

Inequality as a topic is great for macro, with scope for analysis and evaluation of UK government policy and approaches to development economics.

Things you need to understand include:
  1. Looking at and measuring poverty – what’s happening to absolute and relative poverty around the world?
  2. Why is absolute poverty falling? Where is it falling fastest? Where is it still entrenched?
  3. What do Lorenz curves look like, and how is the Gini co-efficient calculated? Clarify the distinction between income and wealth.
  4. Is relative poverty a crucial component in a successful and dynamic economy?
  5. “The rich get richer and the poor get poorer”. Discuss.
  6. Does inequality hamper growth and poison human development?
  7. Is inequality a price worth paying if it is accompanied by rapid growth and living standards?
  8. How can inequality be expressed other than by income?
Extension activities

  1. What theories are presented for rising levels of inequality within many economies?
  2. Evaluate policies that could reduce inequality (a) within economies (b) between economies.

Tuesday, 17 June 2014

Unit 4: The UK Productivity Gap

Measures of productivity, essentially the quantity of goods and services produced per worker or per hour, can be used to inform estimates of an economy's ability to grow without generating too much inflation. It seems that the UK is 16% below productivity levels pre-crisis. This is not good for growth and competitiveness!

Click here for full article.

Questions for discussion: What policies could be used to improve UK productivity?

Monday, 16 June 2014

Unit 2 & 4: Progressive Taxation in UK

British public wrongly believe rich face highest tax burden, new research shows!

Study shows poorest 10% pay eight percentage points more of their income, prompting calls for more progressive system

Click here to access the full article.

Thursday, 12 June 2014

Unit 4: The Laffer Curve

I was drawn to a Telegraph headline, Europe is jealous as Britain resurrects the Laffer Curve. According to the author, by next year Britain will have the equal lowest headline rate of corporation tax in the G20.

The Laffer Curve offers an intoxicating promise to politicians. It suggests that if the tax rate is too high (above t* in the diagram above) then a cut in tax rates will actually boost the amount of revenue raised!

The Laffer Curve is usually taught in the portion of a course where students are exploring the possible limitations of demand management, using levers like fiscal and monetary policy. Many economists prefer to emphasise the long run importance of supply side policies. This approach is broadly more inclined to welcome lower rates of government spending, and certainly lower taxation.

Take the author of the article, Jeremy Warner. He writes that the UK is continuing to pull away from the rest of Europe in terms of Foreign Direct Investment (FDI). The UK secured nearly 800 projects last year, the highest ever, accounting for around a fifth of all European FDI, far in advance of any other country. On a global basis, only big emerging markets – China, India and Brazil – and among advanced economies, the US, are ahead. He thinks the reason for this are largely because of the tax system, where the UK is the most competitive in the G20.

By next year, Britain will have the equal lowest headline rate of corporation tax – at 20% - of the G7 major advanced economies. Other G7 countries range from 25% to a crushing 38% and 39% in France and the US. According to Warner, by also taking measures designed to make tax decisions more open and transparent, the UK has succeeded in giving businesses a virtually unparalleled degree of tax certainty. He thinks more major tax reforms (not just cuts) could have even bigger effects. He accepts that Britain should improve the policing of its tax systems too.

That’s the Laffer Curve in action: reducing corporation tax has reversed the outflow of corporate head office functions, and doing so has substantially added to overall employment, output, income tax, national insurance and VAT receipts. Lower tax rates are helping to drive a higher overall tax take. The “Laffer curve” lives.

The UK is not yet a low-tax economy, nor is it ever expected to become one under any mainstream political manifesto. At around 37pc, the UK is about middle of the G7 pack for tax as a proportion of GDP.