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The Economic Situation: Chapter I. The Home Economy

Published online by Cambridge University Press:  26 March 2020

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Extract

This analysis and forecast for the economy is mainly concerned with the effects of devaluation and the associated measures taken. It begins, therefore, with a separate analysis of these effects. These are then superimposed on the pre-devaluation forecast for 1968. Briefly, this pre-devaluation forecast showed a rise in real gross national product of 3½ per cent between the years 1967 and 1968, and a rather higher rise than this—of nearly 4 per cent—between the fourth quarters of 1967 and 1968. It also showed a ‘basic’ deficit, on current and long-term capital account (including a ‘normal’ balancing item) of £275 million in 1967 and £250 million in 1968.

Type
Research Article
Information
National Institute Economic Review , Volume 42 , November 1967 , pp. 4 - 19
Copyright
Copyright © 1967 National Institute of Economic and Social Research

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References

note (1) page 4 This is not the forecast published in the August Economic Review, but a full revised forecast which had been prepared just before devaluation was announced.

note (1) page 4 There are a wide number of estimates of the price elasti city of demand, or of substitution, for imports and exports. In arriving at the figures quoted in the text we have consulted, amongst others, the following: A. J. Brown, ‘The Funda mental Elasticities in International Trade’ in Ed. T. Wilson and P. W. S. Andrews Oxford Studies in the Price Mechanism (Oxford, 1951), 91-106. Arnold C. Harberger, ‘Some Evidence on the International Price Mechanism’, Journal of Political Economy, vol. LXV, No. 6 (December 1957), 506-521. Z. Kubinski,’ The Elasticity of Substitution between Sources of British Imports’, Yorkshire Bulletin of Economic and Social Research, vol. 2, No. 1 (January 1950), 17-29. G. D. A. MacDougall, ‘British and American Exports : a Study suggested by the Theory of Comparative Costs’, Part I, Economic Journal, vol. LXI (December 1951), 697-724; Part II, Economic Journal, vol. LXII (September 1952), 487-521. M. FG. Scott, A Study of United Kingdom Imports (Cambridge, 1963).

note (2) page 4 The increase from $2.40 to $2.80 is a rise of 16.7 per cent, whereas the decrease from $2.80 to $2.40 is a fall of 14.3 per cent.

note (3) page 4 Indeed the parties to the Commonwealth Sugar Agree ment, in a meeting ending on 23 November, agreed to a price of sugar for 1968 which was the same, in sterling terms, as that for 1967. This, of course, is for the quotas which are subject to the agreement; they cover just over three- quarters of our sugar imports.

note (1) page 5 This is based on an exercise conducted for the analysis of the effect of the import surcharge.

note (2) page 5 The calculation on page 53 suggests an effect of the surcharge of about £350 million, over two years, on a total of surcharged imports worth about £1,500 million.

note (1) page 7 The figures given in table 4 are in terms of sterling. The balance of trade is shown to improve, even when the elasticities sum to unity, despite the initial (pre-devaluation) import surplus and despite the fact that the rise in the sterling price of imports is greater than the fall in the foreign price of exports. The improvement in the balance in the face of these adverse influences is due to the assumed 9 per cent rise in the sterling supply price of exports.

note (1) page 8 Andreas S. Gerakis, Effects of exchange-rate devaluations and revaluations on receipts from tourism’, IMF Staff Papers, November 1965.

note (1) page 9 A table on the changes in hire purchase controls in the last two years is given as Appendix I, page 19.

note (1) page 13 The peak in total unemployment, unadjusted for seasonal influences, is likely to be reached in February 1968, at a level around 600 thousand unemployed persons—including school-leavers and the temporarily stopped.

note (2) page 13 An alternative explanation of the unusually sharp increase in unemployment relative to the course of output would be that a marked change has occurred in the relationship between changes in employment and unemployment. A change in this relationship seems in fact to have occurred—but it has operated in the direction of mitigating the effects on unemploy ment of restraint on the growth of output. Between June 1966 and March 1967 employment fell by 488 thousand. The rise in unemployment was only 176 thousand, whereas on the basis of past relationships one might have expected it to be 260 thousand. This consequently only throws more weight upon a change in the employment-output relationship as an explanation of the problem.

note (1) page 15 In the second quarter of 1967, there was a marked increase in this category of investment, but a part of this was a ‘statistical’ phenomenon reflecting the making of progress payments for ships.

note (1) page 17 The basis for estimating exp orts of manufactures to industrial countries is discussed in the special article, Fore casting British exports of manufact ures to industrial countries’, contained in this Review, pages 3 5-51.

note (2) page 17 The methods employed are discussed in detail in the special article,’ Forecasting imports : a re-examination’, contained in this Review, pages 52-57.