EconomicsNotes

    Income inequality arises when different consumers have different incomes, and different people have different talents. It could also arise because of the source of income or the value of the talents. For instance, employees might have different incomes from each other because of different marginal labour products, different factor returns to their labour, or different elasticities of labour. People might have different skills for which there is a greater or lesser need and employers, or the purchasers of labour might have different demands. Equally, entrepreneurs often take greater risks than others, and thereby expect and receive greater rewards than those who do not take risks. There might be different factor returns to capital or land, which result in various levels of profit, dividend, or rent, for those who do not live by the return to their labour value. A functional market would bring all these diverse groups together as suppliers and consumers and would matc...

    Domestic Demand refers to the accumulated (that is, aggregate) demand within all the markets of an economy. As such, it can be handily summed up in a formula, C+I+G+X-M, where C is consumption, I is investment, G is net government spending, and X-M is net exports. This is usually referred to as ‘AD.’ Consumption is the largest part of AD. All the consumption decisions within the economy, including all non-investment purchases by households, individuals, and firms, add up to around two thirds of AD. In addition, the Keynesian economic theory asserts that there is a link between consumption and investment, which can drive AD upwards, as firms invest more when they see that consumers are purchasing more goods and services. Investment is a sustained addition to long-run aggregate supply, or capital for short. AD can be plotted against LRAS on a two-dimensional graph. If AD and LRAS meet at the point where there is maximum real GDP/GNI with no tendency for the price level t...

    The United Kingdom in 2022 is facing an historic energy problem.   An island sitting on top of vast reserves of coal, surrounded by gas and oil in its waters, and with great hydroelectric potential, has seen vast increases in energy pricing and has become dependent on foreign gas, without having significant storage capacity. In addition, a ‘green’ environmental agenda, recently compounded by ‘net zero’ policies with regard to carbon, has generated massive subsidies to underperforming renewable resources, and a confused and restrictive policy with regard to nuclear power. As world gas prices rise because of competition from East Asia and declines in supply, a price cap and marketisation policy in gas markets has caused the collapse of a large number of domestic gas suppliers and a forced increase in the cap which caused many bills to rise by over 50%. There is every indication that these bills will rise further. The microeconomic effects of this rise are simple to ...

  The Economic Debate The 1970s in the West saw the emergence into policy of a debate which had been continuous but which was largely conducted amongst intellectuals and policymakers. This was the battle between the Keynesians who had defined the ‘post-war settlement’ and Monetarists who were focussed upon inflation. The consequences of this battle were to be quite serious, and pushed economics and political economy towards a kind of market-based, anti-inflation position which prevailed across the world with few exceptions by 1987-91. The basic disagreement was between those who believed that Aggregate Demand drove the economy, and that the worst problem in a real economy was unemployment, and those who believed that all policy eventually came down to how sound and trusted the money supply of a country was and could be. The former group argued that governments should spend against the economic cycle, that deficits were not a bad thing, and that the economy could be stimulated...

  Ultra-low interest policies have been a feature of global monetary management since 2008 in most countries (and were tried in Japan before that.) They exist in the context of the near-collapse of the global economy and of national and international banking, credit, and derivative markets in 2008, though they also reflect a perceived lack of inflation risk. The idea behind ultra-low interest rates, or negative real or nominal rates, was, firstly, to prevent a credit crunch. Credit crunches happen when banks have lent out a great deal of money and cannot fund a large volume of withdrawals. This causes banks to reduce refinancing and new lending, which puts individuals and businesses in a position where they cannot stay in the market and pay their bills and debts, thus creating a spiral of economic decline. In addition, banks might in such circumstances start asking for their loans and credit payments back early, worsening things still further. Many modern banks also are princip...

Strangely enough for something which has long been characterised as a dismal profession, there are quite a few jokes and wry observations which originate with economists or economic historians, and more which have been enjoyed by them. Many of these observations have a ring of truth about them. One I like is adapted from psychiatry; economics has physics envy.   That is to say, economists have often been characterised as people who would like to be like physicists, with ‘laws’ like those of Thermodynamics, and verifiable Bolzmann constants and so forth. Some economists have taken this approach further and have embraced Quantum economics, claiming, like Paul Ormerod, that this is a helpful perspective from which to try to understand money. People who are this certain about economics often end up so entangled in their own theories and arguments, and so disassociated from the world, that one wonders if they have any understanding of physics at all.   These circumstances are somew...

All Economics Courses for A-Level and High School Students, and most foundation and introductory courses at university, will require you to learn about Aggregate Demand. A very basic introduction to AD is below.     Aggregate Demand, in one classic formulation, is the total amount that all the sectors of the economy willingly spend in a given period. It combines all the demand in all markets of an economy. There is a simple formulation in A-level of the elements of AD:  C+I+G+X-M . This is a combination which reflects Consumption, Investment, Government net spending, and net exports. You should recall that in the macroeconomic world, multiple things act upon each other at all times. This means that you cannot isolate a cause or effect of changes to the exclusion of everything else, as you can in microeconomics. There are certain things we can say, however. Most   movements along the AD curve  are caused by changes in the price level. Inflation changes expectatio...