Economics is a branch of social science that deals with the production, dissemination and utilization of products and services. It deals with the study of the different approaches adopted by different individuals and business organizations in budgeting their resources to satisfy their requirements. With the help of economics, these individuals and business organizations are expected to utilize minimum resources to obtain maximum output.
Economics is dependent on two school of thoughts – Monetarist and Keynesian. The Monetarists believe that the free market is the best place to allocate resources from. They also believe that the best policy to manage a country is the stable monetary policy. In the contrary, the Keynesian approach depends on the line of thought that markets often do not work in coordination to be the ultimate source for allocation of resources.
What are the different types of economics?
Macroeconomics takes an approach of looking at the economy to determine the outlook and fate of the economic condition and stability of an entire group. Microeconomics, on the other hand, is used mainly to determine price levels.
The major difference between the two branches of economics is that macroeconomics adopts a top-down approach while microeconomics is based on a bottom-down approach. Investors generally rely on microeconomics while making investing decisions, whereas macroeconomics is used to formulate economic and fiscal policies.
Macroeconomics is more of an analytical tool compared to microeconomics. Even though defined to be separate branches of economics, macroeconomics and microeconomics are inter-related and influence each other strongly.
How economics is different from finance?
Much to the popular belief, economics and finance are inter-related and influence each other. Finance is an offshoot arising from economics.
How can economics be used in understanding human behavior?
Economics is considered a branch of social science only because it takes an approach used in the field of sociology and psychology to understand human behavior regarding trade. Human action and behavior is unpredictable. However, economists can use their various theories and different types of curves to predict a trend in the human behavior if not the exact action.
What are the latest developments in the field of economics?
Just like latest discoveries in the field of science make a huge impact on the lives of human beings, so does economics. With new developments of theories and finding of latest data, economics also has a strong impact on human lives and its different aspects.
The internet broke when Brexit was announced. So, let us take a deeper look at decoding Brexit and finding what impact is has on the lives of human beings.
What is Brexit?
In June 2016, with a majority of vote by approximately fifty two percent, United Kingdom started a two-year process of its withdrawal from the European Union. This withdrawal of United Kingdom is known as Brexit.
What led to Brexit?
- Britain has a stark different history when compared to the rest of the European countries. Britain had decided to join the European Union only because of its financial status which seemed to be dominating at that point of time. However, if a close look is taken at the newspapers of the years when Britain was a part of the European Union, it will be seen that Britain never missed an opportunity to shame the systems of the European Union and almost always opposed them.
- A more recent act which had a major role to play in the exit of Britain was the decision taken by the Blair government in 2003 where they decided that all accession states will be given full freedom to move around anywhere.
- Another obvious reason that led to Brexit was the failure of the Eurozone. It failed to reform itself and failed to strategize the exit for the states which were not supported by the German policies of fiscal transfer.
- The failure of the European Union to understand China’s ploy eventually failing in dealing with the unwillingness of the Chinese market to acquiesce with the standards of WTO had a detrimental effect on employment in the industrial sector all around Europe. This sense of unemployment made people of the working class opt for and vote to leave the European Union.
- The leave campaign was primarily targeted towards issues pertaining to sovereignty and immigration. According to the common man who voted for the exit from the European Union, the main reason was that the decisions about United Kingdom was being taken elsewhere and not in United Kingdom. It was also concluded by economists that the high rates of change due to excessive immigration, led voters to opt out of the European Union.
- The age of voters and their educational qualification also played a major factor in the exit of Britain from the European Union.
The economic impact of Brexit
The exit of Britain from the European Union is supposed to have a shocking impact on the economic stability. It is predicted that there will be a repeat of the style shock situation of the 1970s.
It is estimated by the government that there will be considerable decrease in the GDP in the coming fifteen years. This is summed up to be a loss of over hundred billion pounds. But, if United Kingdom reaches a settlement with the European Union like that in Canada trade circle, then the GDP will be reduced by only approximately six percent which is way better compared to the fifteen percent of the earlier situation.
The conclusion by the economists bring forth a stark truth wherein they conclude that in no situation will there be an improvement in the economic condition and stability.
What are the consequences of Brexit?
The ultimate impact of Brexit will not be clearly understood right at this point of time. With years, the impacts will start showing its effect on the society. Nonetheless, there are certain confirmed consequences that’s going to impact the society and the lives of human beings.
- A single vote by Britain – A member state to exit from the European Union is a blow to the image of the union. With the existing euro crisis of the European Union, Britain leaving the union questions the credibility, political capacity and legitimacy of the union. If a single state can leave the union, then other member states can do the same in the future.
This weakens the hold of the European Union over its members. The chances of the expansion of the union is threatened and the risk of losing more members is a direct impact of Britain leaving the European Union.
- United Kingdom was one of the most flexible members in terms of liberal approach in the field of economy. Losing Britain’s support is going to cost the European Union as the development of the market will be slowed down. Adding to this, the gains from the single market may be lost owing to the increase in the interaction among different states rooting from rising nationalism.
- Furthermore, United Kingdom acted as a shock absorber regarding employment for the different member states of the Eurozone. United Kingdom leaving the European Union implies that they are no longer going to extend the right to European Union individuals to work on their territory.
This will also come as a low to the economy and financial stability of the European Union. This will also have an impact on the political condition of the different member states.
- The economic stability of Britain post Brexit is a threat to the European Union. This is because Britain can still borrow money at fine rates for a period of twenty years in its own currency. This will ensure the industrialization and modernization do not face a halt in Britain. This situation will only make the European Union vulnerable as the other member states can use the example of Brexit to leave the European Union.
What is the future of Europe post Brexit?
The European Union is currently facing immense pressure post the Brexit vote in October 2016. The major reasons are euro crisis, maneuvering of the Russian military on the border of Russia and Ukraine, Turkey welcoming more influx of migrants and the continuous threat of the ISIS.
However, despite all challenges, the European Union may continue to rule its way. But there might be serious political consequences. The political hierarchy may need to be restructured with certain exceptions made to already existing regulations and decisions made by the European Union so that they can continue rebuilding their empire.
Impact of Brexit on Global Economy:
There is no definite pattern on how Brexit will have a global impact. However, it is confirmed that Brexit will have global impact in the following years. The immediate global consequences of Brexit are –
- The shift in focus in monetary terms from the United Kingdom to the United States and Japan will lead to a reduction in the interest rates in the market and increase currency values relatively.
- The increase in the dollar and yen value in the United States and Japan respectively will have negative impacts on the export sectors of both the economies. This situation will particularly bring down Japan’s initiatives in trying to inflate its economy after years of deflation in economy.
- The higher dollar value in the United States will have an impact on the currency in China. It will cause the yuan value to be lowered because China is stuck between the markets of the United States and the United Kingdom.
- The negative impact on the economy of the United States will be relatively negligible. However, there will be a strong drift between the strong inflation of the services sector and the deflating economy of the goods industry.
- Due to massive increase in risk premium, the European Central Bank will have to intervene in proceedings. Italy is at present the most vulnerable country. However, with any blow to the economic condition of any member state, the most affected will be Germany.
What is the current impact of Brexit after almost two years?
It’s been a while since the historic Brexit resulted in a global upheaval causing a political and economic tension across the world.
Following Brexit, the Scandinavian politicians rooted for another independence referendum, but their wish was done with when the election results of June 2017 rejected their demand. Scotland’s present economic condition also questions about its status as an independent country.
Who is the next member to leave the European Union?
Britain is not the sole power when it comes to political brawl over Europe. There are many member states of the European Union who have been trying to break-free but failed to win at the national level. However, the blow to the European Union with Britain leaving the union has made the path for other member states to do the same. The highest probability of leaving the European Union next is that of Italy.
The feeble banking sector of Italy is one of the major reasons pushing Italy towards leaving the European Union. The Italian government was forced to give up on its budget in 2019 when the European Union declined its sanctions.
Following Italy’s footsteps is France. French people have the idea that leaving the European Union, enabled the British to achieve certain goals which were previously considered impossible to achieve. Being so heavily inspired by the exit of the United Kingdom from the European Union, leads to heavy chances that France might itself want to leave the European Union soon enough.
Evelyn W. Minnick is a renowned name in the field of finance. After graduating from Harvard Business School, she started her career in one of the world’s best multinational firms. She is an individual with a motto of inspiring the upcoming generation to pursue a career in finance. In doing so, she provides academic help and counselling to students both online and offline. She is easily accessible and has a style of personal assistance when dealing with her students.