Question 1
The UK economy is currently performing at a level that can considerably said to be good. The economic growth rate is about 2% each year. This economic growth has been stimulated by the gathering of rising debt in the public sector and private sector. By 2008, the saving ratio of the households had fallen to lowest levels. However, the household debt had risen to almost 100% of the total GDP as they borrowed heavily so as to purchase properties which were increasingly becoming expensive. Private consumption accounted for two-thirds of the GDP between the years 2000-2007. During this period, business investment was particularly low. Investment dwellings contributed to about ¼ of the GDP. During the recession, investments were hard-hit.
The UK had a very large deficit structural budget but it has tried to reduce the deficit it is however succeeding. There has been unbalance in sectoral growth in the UK than any other of the G7 countries. This difference is brought about by the difference in the amount of funds that have been invested in the different sectors of the UK economy.
The graph below shows percentage change Real GDP, Unemployment % and Inflation % in the UK over the years. .
The world economy is undergoing changes every day. At times the economy is at recession while in other times it reaches its peak. The UK has not been spared as well. The economy keeps alternating between peak and recession. This brings about a change in so many aspects of the economy. This includes employment, interest rates and inflation. In the period 2000-20007 the inflation and unemployment rates were high. However, in the recent years, the government has tried as much as possible to reduce inflation and unemployment rates. However, the economy still expects further increase in GDP, reduction of the rates of interest and unemployment. The UK economy still expects a very positive growth even in future. These are issues of great importance to economists.
Question
In the 18th century, firms had a problem in producing since products are produced at a cost and it would take time for the firm to sale the product and recover the cost plus profit so as to restart produce other products. Therefore, to produce continuously a company would require a large reserve of money that is kept idle so as to cover up for the interruptions in the flow os cash. In an effort to solve this problem firm owners extended credit to each other by issuing it in form of commercial bills of exchange. The bill promised to pay in future an agreed amount of money to the creditor who has been named in the bill. At times, the bill holder may need cash immediately after issuing the credit yet the money had to be paid in the agreed upon date. This problem brought the need for banks. The bank would buy the bill of exchange and issue cash notes to bill holder and holds the bill till the debtor pays the bank the amount in the bill plus some interests. That’s how the banking system started. By 1800 bank of England was producing banknotes and lending it to other banks.
During the industrial revolution, textile industries were making a lot of profit. In the 1820s railway industry had had to replace its trains and rails in order to continue providing transport services. It had no money to do this yet the banks were issuing short term loans. Rail companies combined and set themselves up as Joint Stock Companies and immediately started issuing shares. The share issue was used to build the rail and the profits realized from operation of the companies would be in form of dividends to shareholders. This led to the development of the stock market where companies would sell their shares to people and raise the required money. The market later developed to provide long-term credit to firms.
