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Contemporary Issue In Economics

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Question 1:-

(a) Outline the causes of the 2008 financial crisis in the UK. 
(b) What policies has the UK Government put into place to reduce the impact of the crisis?
(c) Were they effective?
 
 

Answer 1:-

a) The primary causes of the financial crisis in the year 2008 have negative impact on the UK economy, the financial crisis occurs due to three key aspects which are loose monetary policy laid by the government in the year before the crisis specifically in United states .  The second aspect or factor which is considered to be the reason for financial crisis are larges current account surpluses specifically in the global emerging economy like China which eventually lead to the decrease in the interest rate particularly in Us and UK.  Moreover, the decline in saving rate also acts as a catalyst for the financial crisis in UK (Bordo and Landon-Lane, 2010). The third and the most vital factor, which cause the financial crisis in UK, are loose financial rules and regulations.

b) The policies that UK government laid to overcome the financial crisis was that they adopted a lower interest policy for the existing bank loan borrowers and for the new borrowers. They also introduced major cut in the interest rate for the consumers (Green, et al., 2011). A temporary cut in vat was also introduced for improving the fiscal policies. This was a major step towards tightening of the financial crisis.

c) The policies adopted by the government proved to be a failure in that scenario. It thus reduced the use of labour and capital. Banks were running in a short of cash so they stopped lending money to loan borrowers (Mellor, 2010).

Question 2:-

(a) Explain the rationales for European Monetary Union (EMU)?
(b) Outline the reasons why TWO Euro-zone members have suffered from sovereign debt crises in recent years? (HINT: reasons differ somewhat for different nations).
(c) Why are heavily-indebted member-states a threat to EMU?
 

Answer 2:- 

a)The reason behind the rationales for European monetary union was to integrate the EU economies. It takes the involvement of economic policies as well as fiscal policies. The main motive to form EMU was to make a common monetary policy as well as a common currency namely euro (Van Riet, 2010). This step involved many states to take part in the economic growth of the union and these countries contributed towards the EU area. The step towards the formation of EU was a major step for economic integration. This integration has brought many benefits towards the economy and the members of the states.
 
b)The two-euro zones members have suffered from sovereign debt crises in recent years because of the problems that aroused due to financial crisis. The main reasons were monetary policy, fiscal system as well as financial system growth (Von Furstenberg et al., 2004).  Multiple bailouts occurred; citizen riots took place in many areas. Lack of economic instability was rendered. Good leadership could not be established.
 
c)EMU left the task for save national banks and banking system and showing the government with the view of heavily thankful, this path may be helpful for a while and stocks the structure of the members of meeting of the member states and check of common formation development (Pattengill-Semmens, Gittings and Shyka, 2000). There is the less danger to be developed the EMU members of the legal assembly. For two years there is low noise of a comparative hazard in the financial sources. The output is lower the more basics policies of the government ant they have to correct the all over the mistake.
 
 

Question 3:-

(a) Outline how labour supply and labour demand determine employment and wages in a competitive labour market?
(b) Why did unemployment remain comparatively low in the UK during and after the Great Recession?
(c) Explain what is meant by productivity. Discuss why it has not recovered after the Great Recession.
 

Answer 3:-

 
a) 
 
Employment
From this diagram we can get idea about the labour market that supply equal demands that shows as E*.The demand and the supply are interrelated with each other in the competitive market (Pattengill-Semmens, Gittings and Shyka, 2000). If the demand of the labour is higher but the supply is less than the employment and wages will be higher. On the other hand the when the demand is less both employments and wages decrease which is clearly indicated n the given diagram.

b) The United Kingdom economy went into recession specifically during the second half of the 2008 which is based on the decrease in overall output and increase in the unemployment (Grigg, 1995). The demand of jobs decreases due to the global financial crisis which eventually leads to the overall increase in the unemployment. These are the reason that increases of unemployment during the great recession. The real output figure decrease by 6.4% which is considered to be one of the most substantial shock to UK overall output since great depression. Most of the countries also faced substantial decrease in the overall output during and after financial crisis due to the increase in the hour instead of increase in the employee or staff or headcount of the organization. The overall increase in the unemployment in UK over the past year is due to the reduction in the labour market flexibility.

c) Productivity means the value of different input as well as output of the economic growth of production which analyzes the measurement of the workshop and factories (Van Riet, 2010).

 Measure of productivity can be utilised to provide information which eventually help to determine and analyse the overall economic ability to grow without providing extra inflationary pressure. The reason behind the slow productivity after global financial crisis are due to the cyclical explanation which is related to the overall demand conduction, primary causes which dependent or related with the financial crisis  which include reduced overall investment in the physical and intangible assets and capital and impaired overall resource assigned and unusually high firms survival rates.

 

Question 4:-

(a) Explain the rationale for the raising of the cap on student fees and the reform of the student finance system which occurred in the UK in 2012?
(40%)
(b) Analyse the performance of the new system from the point of view of i) students ii) taxpayers
(40%)
(c) What are the likely short and longer-run implications of the removal of the cap on student numbers?
 

Answer 4:-

a)Introduction: The rationale for the raising of the cap on student fees:Global financial crisis is started at first in USA on 2008 then this crisis quickly scattered to the all developed countries. Then slowly it affected all the economies including the developing countries and under developed counties throughout the globe. It is supposed that the core reason of this financial crisis was the boom in the sector of real estate. There are several conflicting opinions for the basic reasons of global financial crisis. Many suspects the bankers as they were the main culprit of that crisis, the fraud game of several bankers their greed, corruption, bonuses and their speculation are the major causes of that crisis. Few people’s opinion that the greed of normal people causes that crisis, they were habituated with higher life style and to fulfil their needs to lead higher life style they use to take several mortgage loans and as their income was not sufficient they mostly failed to repay the loans (Ryan-Collins, et al., 2014). There are conducting many researches regarding this matter. The crisis affects almost every sphere of human lives. The people had to face several troubles such as job loss, falling of income; several enterprises faced the threat of bankruptcies. Several countries took different steps, changed their existing policies, and implemented several new amendments to the existing policies. The global financial crisis affected most on UK economy. Therefore, the Government of UK compelled to bring several amendments in their policies. The government cut down the budgets of several segments. Among them, the most controversial budget cut is from education budget (Nuwagaba, 2013). UK government take a strong step to cut the teaching budget. Here in the new policy students do not have to pay their tuition fees initially, they will pay after they start to work. Government will lend the students whole tuition fees, which, the students refund after getting a job (Johnston, 2013).
 

b)Performance of the new system:However, the orthodox thought is that this new policy will hamper the education system as well as the strength of global acumen based economy, the new policy helps immensely to the students to achieve higher education (Callender, 2014). As the government makes the initial investment, poorer students also can enrol for higher education in their preferred subjects without worrying about the education fees, the choice of the students of subjects is increased (Dougherty and Reddy, 2013). Initially students have agony about this new policy but eventually it was decreased as they are benefitted by the policy. Taxpayer also happy as the budget allocation is decreased they have to pay lesser so that they can save money.

c)Short and longer-run implications of the removal of the cap on student numbers:Initially there are increasing agony among the students and the common people of UK for increasing the tuition fees most students thought that the poor students could not afford the tuition fees. Therefore, compelled to give up the idea of getting higher education, the students will be lifetime debtor, as they could not repay the education loan (Dougherty and Reddy, 2013). The amount of loan may affect the students’ credit scorecard. However, the agony is deceased eventually when it is found that in the new policy more investment can be made for higher education so that the student can achieve better higher education. Here in this policy the students get more choice of course for higher study (Callender, 2014). Potential students will be benefitted regardless of their financial condition. The students only start to repay their education loan after starting work. The loan payment will be affordable.    

 

References:-

Callender, C. (2014). Student Numbers and Funding: Does Robbins Add Up?. Higher Education Quarterly, 68(2), pp.164-186.

Dougherty, K. and Reddy, V. (2013). Performance funding for higher education. Hoboken, N.J.: Wiley Periodicals, Inc.

Johnston, R. (2013). England's New Scheme for Funding Higher Education through Student Fees: ‘Fair and Progressive’?. The Political Quarterly, 84(2), pp.200-210.

Nuwagaba, A. (2013). Evaluation of the current higher education funding model in Rwanda using Higher Education Students Loans Department (HESLD-REB) as a case study. J. Econ. Int. Finance, 5(3), pp.71-98.

Ryan-Collins, J., Greenham, T. and Werner, R. (2014). Where Does Money Come From?. London: New Economics Foundation.

Gardetti, M. and Torres, A. (2013). Sustainability in fashion and textiles. Sheffield, UK: Greenleaf Publishing.

Grigg, D. (1995). An introduction to agricultural geography. London: Routledge.

Pattengill-Semmens, C., Gittings, S. and Shyka, T. (2000). Flower Garden Banks National Marine Sanctuary. Silver Spring, Md.: U.S. Dept. of Commerce, National Oceanic and Atmospheric Administration, National Ocean Service, Office of Ocean and Coastal Resource Management, Marine Sanctuaries Division.

Van Riet, A. (2010). Euro area fiscal policies and the crisis. Frankfurt am Main: European Central Bank.

Van Riet, A. (2010). Euro area fiscal policies and the crisis. Frankfurt am Main: European Central Bank.

Von Furstenberg, G., Alexander, V. and Melitz, J. (2004). Monetary unions and hard pegs. Oxford: Oxford University Press.

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