What is the economy?

July 31, 2015 Leave a comment

A short animated video by the Reserve Bank which shows how the economy works. It also outlines the role of the Reserve Bank of New Zealand. Good for an introductory lesson.

Categories: Economic Cycle Tags:

A “Nudge” to get people to donate

July 28, 2015 Leave a comment

Here is a social experiment to see if people would buy a T shirt if they are aware of how it is made. A vending machine is selling T shirts for €2 and after you put €2 into the vending machine a video is played on how the T shirt is actually made. When it is finished the buyer is asked if they still want to buy the T Shirt or donate the €2. The results are interesting.

HT Grant McKibbin

Categories: Behavioural Economics Tags:

Free Parking = Greater Consumption

July 23, 2015 Leave a comment

Parking MeterAn interesting article from the Daily Telegraph in the UK where the pay-and-display machines were vandalised in Cardigan’s (West Wales) main car parks. The cost to repair them is £22,500 but the council are finding it hard to find the finances required.

In the meantime parking in Cardigan is free and this is having a very positive effect on businesses in the town as trade has gone up between 20% and 50%. People like the idea of not having to worry about how long they have left at the parking meter and can spend more leisure time in the shops and cafés.

This shows the effect of the word FREE as we seem to lose all sense when told that something or other is free. Furthermore, our ability to make intelligent trade-offs deteriorates when the price drops to zero. We may go into Cardigan town centre on a day when parking is free even though we’d be much happier going on another day when parking might be £5. Therefore do we go into Cardigan just because it’s FREE?

HT David Parr

Categories: Behavioural Economics

How much wriggle room do countries have?

July 21, 2015 Leave a comment

The Economist has devised a composite measure of interest rates, deficits and debt which are mechanism that tend to be used by a country’s policymakers to cope with a recession.

Interest Rates
They assign a value of 100 which is maximum wriggling room – that is interest rates that are 10% or above. A value of 0 means there is no room to drop interest rates i.e. interest rate are 0%.

Deficits
They assign a value of 100 to those countries that have budget surplus of 5% of GDP or above. A value of 0 is given to deficits of 15% of GDP or more.

Debt
They assign 100 to a country that, in the IMF’s view, can borrow a further 250% of GDP or more and 0 to those, including Greece, Italy and Japan, that it judges to be testing markets’ faith.

The chart below shows how countries rank. Norway, South Korea and Australia are top and have all kept their interest well clear of 0% and have very low debt levels. On average the rich world’s wriggle room has fallen by about a third since 2007. The leeway of hard-pressed countries such as Italy and Spain has shrunk by nearly half.
Wriggle Rom

Nigeria defend their currency by banning toothpick imports

July 20, 2015 Leave a comment

TothpicksStill on the theme of defending exchange rates and Africa, the Central Bank of Nigeria (CBN) is desperate to defend its currency (the naira) as it has been hit hard by the dramatic fall in the price oil, Nigeria’s main export. Over the last year the naira has fallen by approximately 20% against the US dollar. Instead of letting the currency depreciate the CBN are trying to defend it by blocking imports and therefore decreasing the supply of naira on the foreign exchange market. Foreign reserves have fallen by about 20% and can only cover about 6 months of imports. The CBN is not issuing any foreign reserves for a range of imports that include: Indian incense; wire rods; rice; tined fish and believe it or not toothpicks. They are also not issuing foreign currency for the importation of private jets – I wonder who would import them?

It is usual for central bankers to protect their currencies when they are concerned about inflation or they allow them to depreciate to make exports prices more competitive and imports more expensive. However, it seems that Nigeria wants an uncompetitive exchange rate and higher inflation.
Source: The Economist

Categories: Exchange Rates, Trade

Greek Crisis – a crime against humanity

July 19, 2015 Leave a comment

Another report from Paul Mason in Greece where he explains the third bailout package. He also meets a doctor whose hospital has had its budget slashed from €19 million to €7 million and who says the deal is ‘a crime against humanity’.

Categories: Fiscal Policy Tags: , ,

If only Greece owned Apple

July 17, 2015 Leave a comment

Apple Greece bailoutA HT to colleague David Parr for this piece from The Sydney Morning Herald. Apple are currently worth $US194 billion in cash and securities which equates to €178 billion. This means that Apple have enough to cover the €86 billion Greek bailout deal struck earlier in the week twice over — with a cool €6 billion still left over to maybe buy an island or a port. If Apple were a country, it’d be the 55th richest country in the world.

According to the World Bank’s most recent data on national wealth, Apple is now worth more than the following countries:

Belarus – worth $467 billion
El Salvadore – worth $364 billion
Guatemala – worth $548 billion
Iceland – worth – $268 billlion
Jamaica – worth $211 billion
Kenya – worth $366 billion
Luxembourg – worth $419 billion
Mongolia – worth $34 billion
Nepal – worth $151 billion
Nicaragua – worth $101 billion
Sri Lanka – worth $424 billion
Tunisia – worth $475 billion

Categories: Fiscal Policy Tags: , ,
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