Victor T. A Level Economics tutor, GCSE Economics tutor, A Level Math...

Victor T.

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Economics (Bachelors) - Cambridge University

5.0
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61 reviews

This tutor is also part of our Schools Programme. They are trusted by teachers to deliver high-quality 1:1 tuition that complements the school curriculum.

78 completed lessons

About me

Hi I'm Victor and I am a second-year economist at Cambridge having achieved a First last year. I very much enjoy teaching and my aim to instil my passion and enthusiasm for Maths and Economics in my students. I got 12 A*s at GCSE and 5 A*s at A Level so I understand the system well and the difficulties and pressures that come with exams. Please message me if you are interested and I look forward to working with you.Hi I'm Victor and I am a second-year economist at Cambridge having achieved a First last year. I very much enjoy teaching and my aim to instil my passion and enthusiasm for Maths and Economics in my students. I got 12 A*s at GCSE and 5 A*s at A Level so I understand the system well and the difficulties and pressures that come with exams. Please message me if you are interested and I look forward to working with you.

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Ratings & Reviews

5from 61 customer reviews
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Sara (Parent from Guernsey)

November 12 2016

excellent

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Sara (Parent from Guernsey)

May 18 2018

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Sara (Parent from Guernsey)

May 15 2018

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Sara (Parent from Guernsey)

May 10 2018

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Qualifications

SubjectQualificationGrade
MathsA-level (A2)A*
Further MathsA-level (A2)A*
EconomicsA-level (A2)A*
HistoryA-level (A2)A*
SpanishA-level (A2)A*

General Availability

Pre 12pm12-5pmAfter 5pm
mondays
tuesdays
wednesdays
thursdays
fridays
saturdays
sundays

Subjects offered

SubjectQualificationPrices
EconomicsA Level£36 /hr
MathsA Level£36 /hr
-Oxbridge Preparation-Mentoring£36 /hr
-Personal Statements-Mentoring£36 /hr

Questions Victor has answered

If full employment real interest rates are determined by investment (the demand for loanable funds) and savings (supply of loanable funds), is there any reason to suppose that there is a lower bound on real interest rates?

In theory, the loanable funds market can reach an equilibrium at any level and thus there should be no lower bound on real interest rates. Nonetheless, in practice, people only encounter nominal interest rates in the real world and it is reasonable to believe that there is a lower bound on nominal rates near zero. This is because you would not put your money in the bank if you could get a better return from simply having your cash under your pillow. This means that nominal interest rates cannot fall appreciably below zero putting a constraint a real interest rates since:

real interest rate = nominal rate - inflation

However, inflation would seem to negate our constraint on real rates since inflation could be very high allowing real rates to reach very negative levels. Thus we appear to be back where we started but we must analyse why nominal interest rates would be so low?

The simple answer is central banks have attempted to revive Western economies since the financial crisis of 2008 implying that performance has been weak. The crisis destroyed confidence meaning firms put off investment and consumers slashed spending acting to reduce the demand but increase the supply of loanable funds sending the full employment or equilibrium real interest rate spiralling downwards becoming negative. However, owing to the low levels of demand in the economy inflation remained very low and since central banks reduced rates to nearly zero (0.5% in UK), there is a floor on real interest rates near the zero lower bound since:

real interest rate = nominal rate - inflation

rmin = 0.5 - 0.7 = -0.2

0.7% was the average inflation in UK between 2014-16 thus there was a floor on real interest rates of -0.2%. This problem is called the zero lower bound and has serious consequences as highlighted by the theory of secular stagnation. We can discuss the consequences in depth and even causes/solutions.

In theory, the loanable funds market can reach an equilibrium at any level and thus there should be no lower bound on real interest rates. Nonetheless, in practice, people only encounter nominal interest rates in the real world and it is reasonable to believe that there is a lower bound on nominal rates near zero. This is because you would not put your money in the bank if you could get a better return from simply having your cash under your pillow. This means that nominal interest rates cannot fall appreciably below zero putting a constraint a real interest rates since:

real interest rate = nominal rate - inflation

However, inflation would seem to negate our constraint on real rates since inflation could be very high allowing real rates to reach very negative levels. Thus we appear to be back where we started but we must analyse why nominal interest rates would be so low?

The simple answer is central banks have attempted to revive Western economies since the financial crisis of 2008 implying that performance has been weak. The crisis destroyed confidence meaning firms put off investment and consumers slashed spending acting to reduce the demand but increase the supply of loanable funds sending the full employment or equilibrium real interest rate spiralling downwards becoming negative. However, owing to the low levels of demand in the economy inflation remained very low and since central banks reduced rates to nearly zero (0.5% in UK), there is a floor on real interest rates near the zero lower bound since:

real interest rate = nominal rate - inflation

rmin = 0.5 - 0.7 = -0.2

0.7% was the average inflation in UK between 2014-16 thus there was a floor on real interest rates of -0.2%. This problem is called the zero lower bound and has serious consequences as highlighted by the theory of secular stagnation. We can discuss the consequences in depth and even causes/solutions.

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2 years ago

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