Main Problems of UK Economy,What are the main problems of the UK current economy situation?

1. Unemployment
2. Low economic growth
3. Government borrowing
4. External Factors

The main problem facing the UK economy at the present time is persistently high unemployment and stagnant economic growth.

The latest graph for economic growth shows the UK in a double dip recession. There are signs that the UK may recover soon, but since 2008 growth has been way below the long run trend rate of growth, leading to a significant loss in potential output.

Low economic growth adversely affects many different economic problems:

• Demand deficient unemployment. The sharp rise in unemployment since 2008 is due to the slowdown in economic growth.
• Fall in real wages. Stagnant economic growth has contributed to a fall in real wages and lower living standards.
• Increased burden of debt / GDP. With falling GDP, it becomes much more difficult for the government to reduce the burden of government debt to GDP. Despite austerity measures, the debt to GDP ratio is forecast to keep rising.

Unemployment

Unemployment is close to double figures (8.5%) – 2.5 million. The official figures also hide some disguised unemployment, (such as enforced part-time work / early retirement) but, unemployment is still a significant problem.

Unemployment is such a pressing economic problem because:

• Increases relative poverty in the UK. (Unemployment benefits are substantially lower than average wages).
• Unemployment is particularly stressful, causing alienation and reduced living standards.
• Social division. Fortunately, unemployment hasn’t increased to southern European levels. But, the experience of southern Europe shows how society can start to fragment under mass unemployment.
• Budgetary cost. Persistently high unemployment adds to the budget deficit. The government have to spend more on benefits, and they receive lower taxes. If unemployment falls, it will be much easier to tackle the budget deficit.
• more on unemployment

Government Debt

In the short term, government debt is less pressing than the government have claimed. Since 2010, they have given indication that reducing debt levels are the most pressing economic problem. Because of debt, the government have pursued austerity leading to lower growth. I feel the government unnecessarily panicked over debt. Nevertheless, long term spending commitments and long-term debt forecasts are a problem. With an ageing population and perhaps lower growth rates, it could be difficult to finance long-term spending commitments from current tax levels. Debt is a long-term problem rather than short-term.

More on UK debt

4. External Factors

Many of the UK problems are due to domestic factors: low spending, low investment, negative output gap. However, because the UK relies on trade with other countries, especially Europe, external factors are a potential problem. The continued recession and economic uncertainty in the Eurozone is having an adverse impact on UK confidence and UK exports. The concern is that if the Eurozone recession continues to deepen, it could have a large drag on the UK economy – making UK recovery difficult. On the plus side, the US economy shows more promising signs.

Lesser Economic Problems

Inflation

Inflation is currently a relatively minor problem because it has fallen to be within the government’s target. However, with rising energy prices, it could resume its upward trend in the coming months. This cost-push inflation is a problem because with low nominal wage growth, many could see a fall in living standards (causing an increase in fuel poverty). Also, savers may be adversely affected because interest rates are low. more on inflation

Current account deficit

The deterioration in the UK current account is a cause for some concern because it is occurring in a recession. Usually a recession leads to lower imports and an improvement in the current account. This deterioration in the current account suggests the UK could have declining international competitiveness, though it may also be a temporary situation related to Eurozone crisis. More oncurrent account deficit

Lack of Infrastructure Investment

The recession has seen a fall in public sector investment. This threatens long-term productivity issues, such as transport bottlenecks.

As well as infrastructure problems, there are also concerns over other supply side problems, such as inflexible labour markets and lack of vocational skills.

Poor Labour Productivity growth

Some of this poor labour productivity growth can be attributed to the recession. But, if this trend of low productivity growth continues, it will harm the capacity for long-term economic growth.

THE FINANCIAL CRISIS OF 2015

Oliver Wyman Group has released a very interesting piece about the potential for a future financial crisis (thanks to the FT).  They make the case that the next great financial crisis will occur around 2015 and will be the result of a massive bubble in commodity markets that results in widespread economic collapse and sovereign defaults.

I’ve described in recent reports how the financialization of the USA is helping to drive commodity prices higher (see here for more) and generate economic instability.   This, combined with the other two major structural imbalances in the global economy (China’s flawed economic policy and the inherently flawed single currency system in Europe) are creating an environment that is ripe for disequilibrium and turmoil.  The potential for bubbles is not only likely, but now appears like a near certainty.

Wyman describes how the bubble will form in commodities and ultimately collapse:

“Based on favorable demographic trends and continued liberalization, the growth story for emerging markets was accepted by almost everyone. However, much of the economic activity in these markets was buoyed by cheap money being pumped into the system by Western central banks. Commodities prices had acted as a sponge to soak up the excess global money supply, and commodities-rich emerging economies such as Brazil and Russia were the main beneficiaries.

High commodities prices created strong incentives for these emerging economies to launch expensive development projects to dig more commodities out of the ground, creating a massive oversupply of  commodities relative to the demand coming from the real economy. In the same way that over-valued property prices in the US had allowed people to go on debt-fueled spending sprees, the governments of  commodities-rich economies started spending beyond their means.  They fell into the familiar trap of borrowing from foreign investors to finance huge development projects justified by unrealistic valuations. Western banks built up large and concentrated loan exposures in these new and exciting growth markets.

The banking M&A market was turned on its head. Banks pursuing high growth strategies, particularly those focussed on lending to the booming commodities-rich economies, started to attract high market valuations and shareholder praise. In the second half of 2012 some of these banks made successful bids for some of the leading European players that had been cut down to a digestible size by the new anti-“too big to fail” regulations. The market was, once again, rewarding the riskiest strategies. Stakeholders and commentators began pressing risk-averse banks to mimic their bolder rivals.

The narrative driving the global commodities bubble assumed a continuation of the increasing demand from China, which had become the largest commodities importer in the world. Any rumors of a slowing Chinese economy sent tremors through global markets. Much now depended on continued demand growth in China and continued appreciation of commodities prices.”

The bubble bursts
Western central banks pumping cheap money into the financial system was seen by many as having the dual purposes of kick-starting Western economies and pressing China to appreciate its currency. Strict capital controls initially enabled the Chinese authorities to resist pressure on their currency. Yet the dramatic rises in commodities prices resulting from loose Western monetary policies eventually caused rampant inflation in China. China was forced to raise interest rates and appreciate its currency to bring inflation under control. The Western central banks had been granted their wish of an appreciating Chinese currency but with the unwanted side effect of a slowing Chinese economy and the reduction in global demand that came with it.

Once the Chinese economy began to slow, investors quickly realized that the demand for commodities was unsustainable. Combined with the massive oversupply that had built up during the boom, this led to a collapse of commodities prices. Having borrowed to finance expensive development projects, the commodities-rich countries in Latin America and Africa and some of the world’s leading mining companies were suddenly the focus of a new debt crisis. In the same way that the sub-prime crisis led to a plethora of half-completed real estate development projects in the US, Ireland and Spain, the commodities crisis of 2013 left many expensive commodity exploration projects unfinished.

Western banks and insurers did not escape the consequences of the commodities crisis. Some, such as the Spanish banks, had built up direct exposure by financing Latin American development projects. Others, such as US insurers, had amassed indirect exposures through investments in infrastructure funds and bank debt. Inflation pressure in the US and UK during the commodities boom had forced the Bank of England and Fed to push through a series of interest rate hikes that forced many Western debtors that had been holding on since the subprime crisis, to finally to default on their debts. With growth in both developed and emerging markets suppressed, the world once again fell into recession.”

Of course, this scenario is already largely playing out in real-time.  We are seeing investors drive up the prices of commodities as the global economy recovers and speculators look for the next big boom.  Wyman elaborates:

“However, it is already apparent that increasing commodities prices are also creating inflationary pressure in China, which is exacerbated by China holding its currency artificially low by effectively pegging it to the  US dollar. This makes commodities look like an attractive hedge against inflation for Chinese investors. The loose monetary policy in developed markets is similarly making commodities look attractive for Western investors. This “commodities rush” is demonstrated in the right-hand chart below, which shows the asset allocations of European and Asian investors. A recent investor survey by Barclays also found that 76% of investors predicted an even bigger inflow into commodities in 2011.”

Ultimately, they conclude that the imploding commodity bubble will lead to another financial crisis and sovereign defaults.  Their “base case” scenario involves mostly European nations experiencing defaults.  This looks not only likely, but probable.  It is likely that the periphery of Europe will remain mired in recession for several years as austerity measures put downward pressure on their economies and the Euro governments fail to enact a true fix to the flawed single currency system. Persistent weakness in Greece and Ireland will cause continual political turmoil and ultimately the scenes of Egypt would not be surprising throughout many parts of Europe as citizens demand real change.  The Euro would likely remain the primary European currency, however, several periphery nations would reconsider their involvement.

Now, where I disagree with the Wyman analysis is in their “worst case” scenario.  Any regular reader knows that it is highly flawed analysis to conclude that the USA could potentially default on its obligations – all of which are denominated in the currency in which it alone has monopoly supply of.  This simple point eludes even some of the brightest minds in economics today.  A default of the USA is impossible.  The only form of default could come through hyperinflation.  Considering the deflationary collapse that would likely result during the Wyman “worst case” scenario I think it’s likely that we would once again see the USA become the global safehaven and the USD would not collapse, but surge as it did in 2008.  Still, the economic impacts would be deeply negative for the entire global economy though a collapse of the USA is not on the table.

We continue to see increasing disequilibrium in the global economy.  The flaws in the Euro, China’s misguided economic policy and the endless financialization of the USA are the three primary factors contributing to what is unavoidable future calamity.  It’s clear that none of these countries are interested in any sort of near-term pain that would be required to fix these structural imbalances so it’s not a stretch to assume that we will continue the boom/bust cycle that has become a trademark of the last 25 years of global economic growth.  The commodity bubble will merely be a symptom of these imbalances.

Wyman concludes that this event could be several years away, however, I fear that this event could easily occur sooner than 2015.  We remain in one continuing balance sheet recession with rippling waves that could cause these imbalances to resurface sooner than anyone believes.  The resulting impacts will be broad and have the potential to forever change the way we approach future economic growth and the way governments intervene in markets.  I would expect the Bernanke Fed to be in the middle of the ensuing storm.  Such a crisis would likely result in wide ranging policy changes that will finally clear the imbalances of the credit crisis and create a foundation for truly sustainable economic prosperity.

What is Public Expenditure ? Meaning, Definition

What is Public Expenditure ? Meaning, Definition

Public expenditure refers to Government expenditure i.e. Government spending. It is incurred by Central, State and Local governments of a country.

Public expenditure can be defined as, "The expenditure incurred by public authorities like central, state and local governments to satisfy the collective social wants of the people is known as public expenditure."

Throughout the 19^th Century, most governments followed laissez faire economic policies & their functions were only restricted to defending aggression & maintaining law & order. The size of pubic expenditure was very small.

But now the expenditure of governments all over has significantly increased. In the early 20^th Century, John Maynard Keynes advocated the role of public expenditure in determination of level of income and its distribution.

In developing countries, public expenditure policy not only accelerates economic growth & promotes employment opportunities but also plays a useful role in reducing poverty and inequalities in income distribution.

Classification of Public Expenditure

Classification of Public expenditure refers to the systematic arrangement of different items on which the government incurs expenditure.

Different economists have looked at public expenditure from different point of view. The following classification is a based on these different views.

1. Functional Classification

Some economists classify public expenditure on the basis of functions for which they are incurred. The government performs various functions like defence, social welfare, agriculture, infrastructure and industrial development. The expenditure incurred on such functions fall under this classification. These functions are further divided into subsidiary functions. This kind of classification provides a clear idea about how the public funds are spent.

2. Revenue and Capital Expenditure

Revenue expenditure are current or consumption expenditures incurred on civil administration, defence forces, public health and education, maintenance of government machinery. This type of expenditure is of recurring type which is incurred year after year.

On the other hand, capital expenditures are incurred on building durable assets, like highways, multipurpose dams, irrigation projects, buying machinery and equipment. They are non recurring type of expenditures in the form of capital investments. Such expenditures are expected to improve the productive capacity of the economy.

3. Transfer and Non-Transfer Expenditure

A.C. Pigou, the British economist has classified public expenditure as :-

1.     Transfer expenditure

2.     Non-transfer expenditure

Transfer Expenditure :-

Transfer expenditure relates to the expenditure against which there is no corresponding return.

Such expenditure includes public expenditure on :-

1.     National Old Age Pension Schemes,

2.     Interest payments,

3.     Subsidies,

4.     Unemployment allowances,

5.     Welfare benefits to weaker sections, etc.

By incurring such expenditure, the government does not get anything in return, but it adds to the welfare of the people, especially belong to the weaker sections of the society. Such expenditure basically results in redistribution of money incomes within the society.

Non-Transfer Expenditure :-

The non-transfer expenditure relates to expenditure which results in creation of income or output.

The non-transfer expenditure includes development as well as non-development expenditure that results in creation of output directly or indirectly.

1.     Economic infrastructure such as power, transport, irrigation, etc.

2.     Social infrastructure such as education, health and family welfare.

3.     Internal law and order and defence.

4.     Public administration, etc.

By incurring such expenditure, the government creates a healthy conditions or environment for economic activities. Due to economic growth, the government may be able to generate income in form of duties and taxes.

4.1 Productive and Unproductive Expenditure

This classification was made by Classical economists on the basis of creation of productive capacity.

Productive Expenditure :-

Expenditure on infrastructure development, public enterprises or development of agriculture increase productive capacity in the economy and bring income to the government. Thus they are classified as productive expenditure.

Unproductive Expenditure :-

Expenditures in the nature of consumption such as defence, interest payments, expenditure on law and order, public administration, do not create any productive asset which can bring income or returns to the government. Such expenses are classified as unproductive expenditures.

4.2 Development and Non-Development Expenditure

Modern economists have modified this classification into distinction between development and non-development expenditures.

Development Expenditure :-

All expenditures that promote economic growth and development are termed as development expenditure. These are the same as productive expenditure.

Non-Development Expenditure :-

Unproductive expenditures are termed as non development expenditures.

5. Grants and Purchase Price

This classification has been suggested by economist Hugh Dalton.

Grants :-

Grants are those payments made by a public authority for which their may not be any quid-pro-quo, i.e., there will be no receipt of goods or services. For example, old age pension, unemployment benefits, subsidies, social insurance, etc. Grants are transfer expenditures.

Purchase prices :-

Purchase prices are expenditures for which the government receives goods and services in return. For example, salaries and wages to government employees and purchase of consumption and capital goods.

6. Classification According to Benefits

Public expenditure can be classified on the basis of benefits they confer on different groups of people.

1.     Common benefits to all : Expenditures that confer common benefits on all the people. For example, expenditure on education, public health, transport, defence, law and order, general administration.

2.     Special benefits to all : Expenditures that confer special benefits on all. For example, administration of justice, social security measures, community welfare.

3.     Special benefits to some : Expenditures that confer direct special benefits on certain people and also add to general welfare. For example, old age pension, subsidies to weaker section, unemployment benefits.

7. Hugh Dalton's Classification of Public Expenditure

Hugh Dalton has classified public expenditure as follows :-

1.     Expenditures on political executives : i.e. maintenance of ceremonial heads of state, like the president.

2.     Administrative expenditure : to maintain the general administration of the country, like government departments and offices.

3.     Security expenditure : to maintain armed forces and the police forces.

4.     Expenditure on administration of justice : include maintenance of courts, judges, public prosecutors.

5.     Developmental expenditures : to promote growth and development of the economy, like expenditure on infrastructure, irrigation, etc.

6.     Social expenditures : on public health, community welfare, social security, etc.

7.     Pubic debt charges : include payment of interest and repayment of principle amount.

courses of action in terms of the merits of protection

Public expenditure

Public expenditure effects

e effect of public expenditure on production can be examined with reference to its effects on ability & willingness to work, save & invest and on diversion of resources.

1.     Ability to work, save and invest : Socially desirable public expenditure increases community's productive capacity. Expenditure on education, health, communication, increases people's productivity at work and therefore their incomes. With rise in income savings also increase and this in turn has a beneficial effect on investment and capital formation.

2.     Willingness to work, save and invest : Public expenditure, sometimes, brings adverse effects on people's willingness to work and save. Government expenditure on social security facilities may bring such unfavourable effects. For e.g. Government spends a considerable portion of its income towards provision of social security benefits such as unemployment allowances old age pension, insurance benefits, sickness benefit, medical benefit, etc. Such benefits reduce the desire to work. In other words they act as disincentive to work.

3.     Effect on allocation of resources among different industries & trade : Many a times the government expenditure proves to be an effective instrument to encourage investment on a particular industry. For e.g. If government decides to promote exports, it provides benefits like subsidies, tax benefits to attract investment towards such industry. Similarly government can also promote a particular region by providing various incentives for those who make investment in that region.

2. Effects on Distribution

The primary aim of the government is to maximise social benefit through public expenditure. The objective of maximum social welfare can be achieved only when the inequality of income is removed or minimised. Government expenditure is very useful to fulfill this goal. Government collects excess income of the rich through income tax and sales tax on luxuries. The funds thus mobilised are directed towards welfare programmes to promote the standard of poor and weaker section. Thus public expenditure helps to achieve the objective of equal distribution of income.

Expenditure on social security & subsidies to poor are aimed at increasing their real income & purchasing power. Public expenditure on education, communication, health has a positive impact on productivity of the weaker section of society, thereby increasing their income earning capacity.

3. Effects on Consumption

Public expenditure enables redistribution of income in favour of poor. It improves the capacity of the poor to consume. Thus public expenditure promotes consumption and thereby other economic activities. The government expenditure on welfare programmes like free education, health care and housing certainly improves the standard of the poor people. It also promotes their capacity to consume and save.

4. Effects on Economic Stability

Economic instability takes the form of depression, recession and inflation. Public expenditure is used as a mechanism to control instability. The modern economist Keynes advocated public expenditure as a better device to raise effective demand & to get out of depression. Public expenditure is also useful in controlling inflation & deflation. Expansion of Public expenditure during deflation & reduction of public expenditure during inflation control money supply & bring price stability.

5. Effects on Economic Growth

The goals of planning are effectively realised only through government expenditure. The government allocates funds for the growth of various sectors like agriculture, industry, transport, communications, education, energy, health, exports, imports, with a view to achieve impressive growth.

Government expenditure has been very helpful in maintaining balanced economic growth. Government takes keen interest to allocate more resources for development of backward regions. Such efforts reduces regional inequality and promotes balanced economic growth.

Conclusion

Modern economies have all experienced tremendous growth in public expenditure. So it is absolutely necessary for governments to formulate rational public expenditure policies in order to achieve the desired effects on income, distribution, employment and growth.

Electric Current (SS) gceo physics

The electric charges in motion is called electric current and it forms the basis of current electricity. Static electricity, or electrostatics, on the other hand involves charges at rest.

Electric current (I) is the rate of flow of charges.(Q)

• SI unit: Ampere (A)
• Can be measured by an ammeter (must be connected in SERIES to the circuit)

I=Qt

A current of one ampere is a flow of charge at the rate of one coulomb per second.

For electric current in a metal conductor (a solid), the charge carriers are electrons. For historical reasons, the direction of the conventional current is always treated as the opposite direction in which electron effectively moves.

• Current in gases and liquid generally consists of a flow of positive ions in one direction together with a flow of negative ions in the opposite direction.

Electric current generates a magnetic field. The strength of the magnetic field depends on the magnitude of the electric current.

Current electricity consists of any movement of electric charge carriers, such as subatomic charged particles (e.g. electrons having negative charge, protons having positive charge), ions (atoms that have lost or gained one or more electrons), or holes (electron deficiencies that may be thought of as positive particles)

• If the direction of the current (charge flow) is fixed, it is known as a direct current. If the motion of the electric charges is periodically reversed; it is called an alternating current.
• Analogy to river:

In order to help you understand the concept of current better, you can think of a river. Current in an electric circuit is similar to water flowing through the river.

Propagation Of Sound Waves Gceo level

Tuning Fork

Vibration in the tuning fork produces disturbances in the surrounding air. When the prongs’ movement is outwards, the prongs push the surrounding air molecules away, creating a local compression.

This disturbance of air layers is then passed from molecule to molecule by collisions, causing the local compression to move outwardly.

When the prongs’ movement is inwards, a partial void, or rarefaction is created. Pressure differences causes the air molecules to rush back into the region again. This periodic to-and-fro movement of the prongs will create alternating regions of compressions and rarefactions. The sound waves span outwardly parallel to the direction of the wave propagation (longitudinal nature).

• In air, compressions are regions where the pressure is higher than surrounding air and rarefactions are regions where pressure is lower than the surrounding air.

Notes:

• The energy of the sound waves is propagated and carried by colliding particles of a material medium. Hence, a (material) medium is required in order to transmit these (energy) waves.
• The speed of energy propagation is dependent on the proximity of these particles in a medium. Hence, given that the proximity of particles in the air, liquids or solids is different, the speed of sound differs in air, liquids and solids. Sound travels faster in denser media. It travels faster in liquids than in gases and fastest in solids.

Gceo level Physics Sound

Sound is a mechanical wave phenomenon and is normally associated with our sense of hearing. Sound is a property of vibrating objects.

• Sound is produced by vibrating sources in a material medium. Medium can be any gas, liquid or solid.
• The vibrating sources set the particles of a medium in vibration in such a way that sound travels outwards in the form of longitudinal waves.
• Some of the energy of the vibrations are transmitted over a distance.

Examples of vibrating sources:

• Musical instruments, like drums, guitar
• Hitting a piece of iron with a hammer
• Loudspeakers (Consists of a cone which vibrates under the effects of electricity and magnetism)
• Explosion resulting from explosives.