IF 1203 United Kingdom Economy Paper

Description

5 attachmentsSlide 1 of 5attachment_1attachment_1attachment_2attachment_2attachment_3attachment_3attachment_4attachment_4attachment_5attachment_5.slider-slide > img { width: 100%; display: block; }
.slider-slide > img:focus { margin: auto; }

Unformatted Attachment Preview

IF1203 Macroeconomics
Coursework Instructions
“Choose any one country, assess its current macroeconomic position and discuss what policies have
been adopted by the monetary and fiscal authorities in the recent past. What should the monetary
and fiscal authorities be doing over the next year or so?”
This can be done in groups of up to four people. (You can do it alone if your circumstances make it
hard to work with a group, but it is better if you can work with others, as this kind of cooperation is
good experience.)
The skills associated with writing a report are among the most important things you should acquire
at university. I will be posting a note based on feedback from previous years to help you with style
and structure.
A note giving further guidance is attached below.
Be very careful not to copy chunks of material from internet sites or other publications as this will
constitute plagiarism. Quotations from other material are fine as long as they are marked as such
and the source is clearly stated, however, the best work will be in your own words but referring to
official data in the form of charts or tables. Do not use sites on the internet that have no obvious
quality control. This includes Wikipedia. Official sources (such as governments and central banks)
and international agencies, as well as academic journals and working papers can be assumed to have
good quality control.
Coursework should be submitted on Moodle by Friday 22nd April 4pm.
Notes for guidance on Macroeconomics Coursework Term 2
The work should be typed and around 1500 words in length, and certainly not longer than 2000
words. Charts, references, and tables may be included in addition to this word limit. References
should be given to data sources and any other material used. Any direct quotes from source
material should be clearly indicated and the source attributed
The central focus should be on real GDP and its recent history. Is GDP below trend, is there a
significant GDP gap? [For major countries, estimates of the GDP gap are available from the IMF, but
for others you would have to compare actual GDP with its trend.] Is it positive or negative? If
negative, why is demand weak…..is it C, I, G or net trade? Look for other indicators of slack or
overheating, what is happening, for example, to inflation and unemployment? If inflation is high the
economy may be overheating, but if unemployment is high and rising then the economy may need
some stimulus. What is the state of the balance of payments? Does the economy need some
stimulus or some slowing down?
In most countries the dominant issue of the past decade has been after-effects of the 2008/9 global
financial crisis (or the Eurozone debt crisis of 2011/12). This cut demand and led to output falls and
higher unemployment. Most economies have now recovered from this, but have recently been hit
by the Covid crisis? What else should now be done in the near future to help your economy recover
from this crisis? Inflation is currently on the rise in many countries. What should policy makers do
about this?
What have monetary and fiscal policy makers been doing recently? Have there been announcements
of tax or spending changes from the government? If so, what reasons were given? Have official
interest rates been rising or falling? What is quantitative easing (QE) aimed to achieve and how well
has it done? Is it now being reversed?
For information about UK monetary policy you can access the Monetary Policy Report via
www.bankofengland.co.uk and you can search on “monetary policy” on the Bank’s home page. UK
fiscal policy links can be found via the Treasury web site: http://www.hm-treasury.gov.uk/ Look also
at the lates OBR Economic and Fiscal Outlook (obr.uk) and the lates Budget from HM Treasury.
Data for other countries can be found from the IMF on www.imf.org. Search for World Economic
Outlook (WEO) and this will lead you both to IMF assessments and to annual data since 1980 plus
latest IMF projections (via WEO database).
Feel free to contact me if you have any other questions.
KAC
January, 2022.
IF1203 Macroeconomics
BSc BIF, A&F, IFRM, Fin.
Slides for live Zoom session week 9: Balance of
Payments and the Exchange Rate
a.chrystal@city.ac.uk
What BoP does and does not measure
• Balance of payments accounts have 2 main components:
• Current account measures purchases of goods and services,
net income and transfers.
• Capital and financial account measures transactions in assets
and liabilities
• These two accounts must add to zero.
• Balance of trade in goods and services is difference between
domestic spending and domestic production:
• X-IM = Y – (C+I+G)
• Current account balance = X-IM plus net income from overseas
assets.
• BoP only measures current flows, it does not measure changes in
net wealth, that is, it does not measure capital gains on foreign
assets.
Does the balance of payments matter?
• Overall balance of payments accounts must balance
so this cannot be a problem.
• Deficit in trade in goods and services means that
domestic spending exceeds domestic production
(C+I+G) > Y
• A current account deficit means that the country is
borrowing from abroad.
• Net borrowing could be a “good thing” if associated
with investment that increases wealth.
• Net borrowing could be bad if it increases debt with no
increase in capacity to repay.
Another way in which balance of payments
can be problematic
• If domestic monetary authority is pegging the
exchange rate, they have to buy domestic currency
with FX reserves if sales of £ exceed purchases.
• Excess supply of £ could come from current account
or capital account or both.
• Crisis arises if authorities are running out of reserves
and sales of domestic currency persist.
• This was problem for UK in ERM crisis of 1992, for
Argentina in early 2002, and for Iceland in 2008/9.
• Either have to borrow more reserves or devalue
currency…..and maybe float.
• Floating means that market forces determine the
exchange rate.
China FX Reserves, USD billions
Latest= $3.214 trillion (7th March 2022)
The Determination of Exchange Rates
• When the authorities do not intervene in the foreign
exchange market, there is a flexible, or floating,
exchange rate.
• Under fixed exchange rates the authorities intervene in
the foreign exchange market to maintain the exchange
rate within a specified range.
• To do this, they must hold sufficient stocks of foreign
exchange reserves.
• Under a flexible [or floating] exchange rate regime the
exchange rate is market-determined by supply and
demand for the currency.
UK sales to US generate offers of dollars
in exchange for pounds
UK exports
US offer $ for £
USA
UK
US Exports
UK offers £ for $
US sales to UK generate offers of pounds
in exchange for dollars
S
The Market for Foreign Exchange
D
0
Quantity of Pounds per period
S
e0
The Market for Foreign Exchange
D
0
q0
q2
Quantity of Pounds per period
S
e0
The Market for Foreign Exchange
e1
D
0
q3
q0
q2 q1
Quantity of Pounds per period
D2
S
D1
D0
Managing Fixed Exchange Rates
$1.60
$1.50
0
q2
q3
q4 q1
Quantity of Pounds per Period
Exchange rates and “News”
• Flows in FX markets are dominated by professional
investors and dealers in asset markets.
• They are using all available information to assess
likely returns in two countries well into future.
• Best available information is currently reflected in
actual prices.
• Only new information will change assessment.
• New information is not what happens but rather the
unexpected and unpredictable part of what happens.
• The unpredictable element is the news and news is
intrinsically random.
Daily Exchange Rate Change (%)
1990-1996
0.04
0.03
0.02
0.01
0.00
-0.01
-0.02
-0.03
-0.04
DEM
IF1203 Macroeconomics
BSc Banking and International Finance
BSc Accounting and Finance
BSc IFRM
BSc Finance
Live session week 2: A basic model of the
determination of GDP in the short run
a.chrystal@city.ac.uk
GDP, GNI, and GNP
• Gross domestic product, [GDP] can be calculated in three
different ways:
• [1] as the sum of all values added by all producers of both intermediate
and final goods;
• [2] as the income claims generated by the total production of goods and
services; and
• [3] as the expenditure needed to purchase all final goods and services
produced during the period.
• By standard accounting conventions these three aggregations
define the same total, so long as we add taxes on products
[minus subsidies] to the first two in order to measure GDP at
market prices.
• “Market prices” are the prices paid by consumers.
Outline of lecture
• Assumptions used in building a macro model
• Key relationships:
• consumption
• investment
• The determination of GDP
• The multiplier
• The “big idea”: the Keynesian revolution
A simplified macro model
• Economy assumed to be one big industry
• Final spending is demand for output of this one
industry
• Government purchases, consumption, investment and
exports are all demands for the same output.
Labour
Output of
goods
Consumer
spending
Investment
Government
purchases
Exportsimports
More assumptions
• Temporary assumptions:
• Price level held constant, so all changes are in real (volume)
terms
• There is excess capacity in production, so output is demand
determined
• Closed economy with no government (dropped in video 2c)
• (We drop the first two assumptions next week)
• Focus this week on:
•
•
•
•
•
GDP = C + I [+ G + (X-M)]
Use symbol Y for GDP
So today explain GDP using determinants of C and I.
C is an endogenous variable determined within the model
I is an exogenous variable determined outside the model
The Circular Flow of Income, Output, and Expenditure
Domestic
households
Financial
System
Abroad
Government
Domestic
producers
Consumption and saving
• A change in personal disposable income leads to a change in
private consumption and saving.
• The responsiveness of these changes is measured by the
marginal propensity to consume [MPC] and the marginal
propensity to save [MPS], which are both positive and sum to
one.
• This indicates that, by definition, all disposable income is either
spent on consumption or saved.
• Relation between consumption and income might be:
•
•
•
•
C = a + bY
this implies a relation for saving:
S = -a + (1-b)Y
“a” is referred to as “autonomous consumption”. It is the amount that
consumers spend when income is zero
• “b” is the marginal propensity to consume.
Consumption and saving relationships for
empirical example:
• C = 100 + 0.8Y
• where C is consumer spending in a period, Y is
personal disposable income (which in absence of
taxes and retained profit = GDP). Autonomous C =
100; Marginal propensity to consume = 0.8.
• S = -100 + 0.2Y
• Marginal propensity to save = 0.2
450
The Consumption and Saving Functions
2000
C
1500
500
S
1000
250
500
0
-100
450
500
-500
1000
1500
2000
Real Disposable Income
(i). Consumption Function[£ million]
500
1000
1500
2000
Real Disposable Income
(ii). Saving Function[£ million]
Disposable
Income
0
100
400
500
1000
1500
1750
2000
3000
4000
Desired
consumption
100
180
420
500
900
1300
1500
1700
2500
3300
Consumption and Saving Schedules [£ Million]
Desired
saving
-100
-80
-20
0
+100
+200
+250
+300
+500
+700
Investment
• Today we treat investment as an exogenous variable,
that is, it is determined outside the model.
• Later we will make investment depend on the interest
rate.
• In general investment will depend on expectations of
future demand growth as well as interest rates.
• For our numerical example Investment is constant at
250.
GDP
[National Income]
[Y]
100
400
500
1000
1500
1750
2000
3000
4000
Desired
consumption
expenditure
[C = 100 +0.8Y]
Desired
investment
expenditure
[I = 250]
180
420
500
900
1300
1500
1700
2500
3300
250
250
250
250
250
250
250
250
250
Desired aggregate
expenditure
[AE = C + I]
The Aggregate Expenditure Function in a Closed Economy With No
Government [£ Million]
430
670
750
1150
1550
1750
1950
2750
3550
An Aggregate Expenditure Function
5000
AE
4000
3000
2000
1000
350
1000
2000
Real GDP [£m]
3000
4000
5000
Equilibrium GDP
• At the equilibrium level of GDP, purchasers wish to buy exactly
the amount of national output that is being produced.
• At GDP above equilibrium, desired expenditure falls short of
national output, and output will sooner or later be curtailed.
• At GDP below equilibrium, desired expenditure exceeds national
output, and output will sooner or later be increased
• In a closed economy with no government, desired saving equals
desired investment at equilibrium GDP.
• Equilibrium GDP is represented graphically by the point at which
the aggregate expenditure curve cuts the 450 line, that is, where
total desired expenditure equals total output.
• This is the same level of GDP at which the saving function
intersects the investment function.
Equilibrium GDP
450
3000
E0
2000
1000
350
0
450
1000
Desired saving (£m)
[AE = Y]
Y0 2000 3000
Real National Income [GDP] [£m]
S
500
250
I
0
-100
-500
Y0
1000
2000 3000
Real National Income [GDP] [£m]
[i]. An Aggregate Expenditure Function[AE = Y] [ii]. Saving Function[S = I]
GDP
[National Income]
[Y]
100
400
500
1000
1500
1750
2000
3000
4000
Desired aggregate
expenditure
[AE = C + I]
430
670
750
1150
1550
1750
1950
2750
3550
The Determination of Equilibrium GDP
Pressure on Y
to rise
Equilibrium Y
Pressure on Y
to fall
How does the equilibrium come about?
• For GDP to remain unchanged injections of spending
and leakages must be just equal; otherwise GDP
would be changing
• Imagine a bath with the tap running and no plug. For
the water level to be stable the water flowing in and
the water flowing out must be the same.
The model “solution”
• The model is:
Y=C+I
C = a + bY
• Solve for Y by substituting for C in first equation
Y = a + bY + I
so: Y – bY = a + I
or Y = (a + I)/(1-b)
In equilibrium: Y = C + I; that is aggregate spending =
aggregate output and saving = investment
• In our numerical example: C = 100 + 0.8Y & I = 250
So Y = 100 + 0.8Y + 250
Or Y = (100 + 250)/ (1- 0.8)
= 350 x 5
= 1750
• Where I = 250 and Y = C + I and Y = 1750 then:
• C = 1500 (that is 100 + 0.8Y)
• Saving is given by:
S = -100 + 0.2Y
So when Y = 1750 then
S = -100 + (0.2 x 1750)
= -100 + 350
= 250
So Saving = Investment
Changes in GDP
• Equilibrium GDP is increased by a rise in exogenous spending or
“injections” or a fall in “withdrawals”.
• Equilibrium GDP is decreased by a fall in injections of a rise in
withdrawals.
• The magnitude of the effect on GDP of shifts in exogenous
expenditures is given by the multiplier.
• The full expression for the multiplier is derived in Video 2c where
it included taxes and imports.
• In the absence of taxes and foreign trade the multiplier is:
• 1/(1-b) where “b” is the marginal propensity to consume
• If b = 0.8 then the multiplier = 5.
The Simple Multiplier
AE = Y
AE0
e0
E
0
450
0
Y0
Real National Income [GDP]
The Simple Multiplier
AE = Y
AE1
E1
e1
a
e’1
AE0
?A
e0
E0
?Y
450
0
Y0
Y1
Real National Income [GDP]
New solution when I rises from 250 to 350
• Old level of GDP was 1750
•Y=C+I
• Y = 100 + 0.8Y + 350
• Y – 0.8Y = 450
• Y = 450 x 5
• Y = 2250
• Increase in Y is change in I times the multiplier
• Change in I is £100 and multiplier is 5
• So change in Y is £500.
• At new level of GDP: S= -100 + (.2 x 2250)
= 350
The multiplier: intuition
If there is an increase of exogenous spending of £100, this
generates £100 of extra income and £80 gets spent.
The £80 generates extra income of £80 and 0.8 of this gets spent–creating £64 of extra income. 0.8 of this gets spent generating
£51.20 of extra income.
Total income generated is:
£100 + £80 + £64 + £51.2 + £40.96 + £32.768 + £26.21 + £20.97
+£16.78 + £13.43 + £10.74 + £8.59 + £6.87 + £5.5 + £4.4 + £3.52
+ £2.82 + £2.25 + £1.8 + £1.44 + £1.15 + £0.92 + £0.74 + £0.59 +
£0.47 + £0.38 + £0.3 + £0.24 + £0.19 + £0.15 + £0.12 + £0.1 +
£0.08 + £0.064
This sum converges to £500.
The Multiplier: a Numerical Example
500
400
300
200
100
0
1 2 3 4 5 6
7 8 9 10
15
Spending round
20
The “Big Idea”: Keynesian Revolution
• An economy can get stuck with GDP below potential
• This is because there is “aggregate demand failure”
• Aggregate spending is inadequate to generate GDP at
its potential level.
• This could be because of consumer caution or low
investment
• It could also be because of low world demand.
• The “solution” was for government to use its own
spending (and tax changes) to increase demand.
• The budget then became a tools for managing the
economy, rather than just an exercise in funding
government spending plans.
The Keynesian Revolution
AE = Y
AE0
e0
E0
450
0
Y0
Y*
Real National Income [GDP]
Professor Alec Chrystal
a.chrystal@city.ac.uk
Week 8
Comparing the 2008/9 GFC with the
Covid crisis…..and beyond.
UK Monetary Policy Forecast.
The GFC was the result of a banking crisis
?Banking crises are generally linked to boom and bust in the broader
economy.
?Asset price bubbles are both created by easy bank credit and raise
collateral values that make credit even easier to obtain.
?Rising asset prices lead others to try to profit by buying and driving
prices up further.
?When confidence is pricked by some external (or internal event) the
assets prices collapse through panic selling.
?Bank balance sheets collapse as bank assets lose value or default and
bank liabilities are largely fixed in money terms.
?1929 was triggered by an equity price collapse and over 10,000 banks
went bust. The 2007/8 crisis was triggered by the end of a house price
bubble and the credit boom that was built on it.
?Other banking crises have been linked with currency crises: eg The
1998 Asian crisis and Argentina 2001-2.
Anatomy of the 2007/8 banking crisis: Global imbalances and
the credit crunch
• Globalization of finance meant events were similar in many
countries…..Especially UK, US and Eurozone.
• Reform of 1933 Glass-Steagall Act made investment banks riskier.
• World “savings glut” drove down real returns on assets while
creating a big stock of liquid funds.
• Investors started to seek higher returns by moving into riskier
assets……. the “ferocious search for yield”. [Turner Review, 2009]
• Banks found they could satisfy the demand for higher yielding
securities by packaging assets (“securitization”) such as mortgages.
• Securitisation enable banks to lock in a fee without tying up capital.
• Risk spreads on a wide range of assets narrowed.
• BUT the bubble was burst by a collapse of US house prices which
undermined the market in mortgage-backed securities.
• Inter-bank loan markets then froze and these are unsecured
markets and nobody knew who was exposed and who was really
safe.
The 2007-8 financial crisis.
?Run on Northern Rock in September 2007.
?Wholesale inter-bank markets froze.
?But this was just the start……
?The big banking collapse happened in September 2008 with the
collapse of Lehman and the bailout of RBS and Lloyds.
?Governments had to inject huge amounts of capital into banks,
organize takeovers and suffer massive increases in budget
deficits….putting their own finances at risk.
?Monetary policy hit interest rate lower-bound problem.
?QE involved big asset purchases in US, UK and euro zone.
?The crisis led to redesign of the regulatory structure.
?Increased capital requirements phased in slowly made banks (even the
solvent ones) reluctant to take on new risks (i.e. lend)
Selected asset prices(a)
Sources: Halifax, IPD, JPMorgan Chase & Co., Merrill Lynch, Nationwide, Thomson Datastream and Bank calculations.
(a) Data to close of business on 20 October 2008.
(b) Sub-prime series is the A-rated 2006, H2 vintage ABX.HE index.
(c) Series inverted.
(d) Average of Halifax and Nationwide house price indices.
(e) Dashed line shows start of July 2007.
Costs of Banking Crises:
Quote from Reinhart and Rogoff AER May 2009
Broadly speaking, financial crises are protracted affairs. More often than not, the
aftermath of severe financial crises share three characteristics.
First, asset market collapses are deep and prolonged. Real housing price declines
average 35 percent stretched over six years, while equity price collapses average 55
percent over a downturn of about three and a half years.
Second, the aftermath of banking crises is associated with profound declines in output
and employment. The unemployment rate rises an average of 7 percentage points
over the down phase of the cycle, which lasts on average over four years. Output falls
(from peak to trough) an average of over 9 percent, although the duration of the
downturn, averaging roughly two years, is considerably shorter than for
unemployment.
Third, the real value of government debt tends to explode, rising an average of 86
percent in the major post–World War II episodes. Interestingly, the main cause of debt
explosions is not the widely cited costs of bailing out and recapitalizing the banking
system. Admittedly, bailout costs are difficult to measure, and there is considerable
divergence among estimates from competing studies. But even upper-bound
estimates pale next to actual measured rises in public debt. In fact, the big drivers of
debt increases are the inevitable collapse in tax revenues that governments suffer in
the wake of deep and prolonged output contractions, as well as often ambitious
countercyclical fiscal policies in advanced economies aimed at mitigating the
downturn.
UK Public sector net borrowing, % of GDP.
The Covid Crisis…..almost over except for the impact on
government finances and inflation.
?Forced lockdown of specific sectors, including hospitality, travel and some
retail can be thought of as a fall in AD, as people cannot spend in many
areas, and a temporary fall in LRAS as many businesses close.
?BUT in many countries workers are paid by massive fiscal support and
businesses are given loans and tax breaks to keep them alive.
?So personal incomes generally hold up and saving rises sharply…..but some
of the poorest badly hit.
?C, I and trade are modestly subdued but budget deficits hit the roof.
?Measured GDP falls sharply in 1st lockdown but recovers a bit later.
? Vaccination drive associated with much weaker effects of later lockdowns.
?Fiscal red ink flows everywhere as government spending rises.
?Monetary policy does what it can with more QE and very low interest rates.
?By 2022, GDP is about back where it started, unemployment is also back to
previous levels but employment has fallen as the labour force has shrunk.
?The worldwide recovery makes INFLATION pick up sharply.
Contributions to UK CPI Inflation, 2020Q1 to 2027Q1
UK real GDP growth
UK Output Gap
UK Unemployment Rate
Change in real household disposable income per person since 1956-57
Conclusion
?The Covid crisis (in UK and elsewhere) is seeing a much more rapid
recovery than in other recent (banking-style) crises.
?Government budget deficits have shrunk fast as tax revenue is
buoyant and spending has been cut.
?Both supply and demand have recovered to be close to where they
were before the pandemic.
?Unemployment is back to pre-crisis levels but employment is about 0.5
million lower owing to a mix of retirements, greater student numbers
and some long-term illness.
?Public debt levels will be higher for many years. Debt sustainability will
depend on interest rates staying low and that may require inflation to
return closer to target.
?Inflation has become a big current issue: how to control it without a
wage-price spiral taking off BUT also without creating a recession or
excessively slowing the recovery.
BSc Accounting and Finance
BSc BIF
BSc IFRM
BSc Finance
Lecture 10: Economic Growth
and Sustainability
Live Zoom session week 10.
a.chrystal@city.ac.uk
Plan of session
• Focus on the long term trend
• Benefits of Growth
• Costs of Growth
• Change of strategy needed to ensure sustainability?
Benefits of Growth fairly clear
• Significant increases in real living standards around the
world.
• Labour saving technology + information and
communications technology.
• Substantial medical advances lead to greater life
expectancy and healthier lives.
• Benefits of all of this are spreading to most of the world
(but not all) and a lot more catching up is still needed.
• The Covid crisis will delay progress in the poorest most,
even though the mortality impact has been worst in
richer countries.
Key message from the theory
?The big take-away from the neoclassical theory is that long term
growth in living standards (via real wages) depends on technical
progress.
?A higher rate of investment buys a one-off increase in real incomes but
not a permanent increase in the growth rate.
?This is why the productivity growth fall is worrying….assuming that we
do want real growth in living standards.
?Some want a halt to economic growth, but should not poorer countries
have a right to catch up?
?AND a greener future may need growing productivity to deliver.
?However, the way forward cannot be based on more of the same.
World population expected to stabilise
?UN projections are for world population to stabilise at around 11 billion
by around 2100.
?This is due to a much lower birth rate combined with a slightly higher
death rate…..due to an aging population.
?This gives some possibility that human pressure to expand and occupy
the land may diminish.
?However, before that we have to face the issues of climate change and
ongoing destruction of the natural world.
?This is not just a global warming problem but a much wider issue of
how we preserve species and their habitats.
?There have been “natural” extinctions before but not caused by the
action of humans.
Evidence of CO2 concentration from the ice core.
Global CO2 concentration from the ice core. Latest data point 4th April 2022
UN IPCC Report in April 2022 makes clear that much greater action is needed AND SOON
if the world is to avoid global warming in excess of 2 degrees C.
Climate change is important but it is not the only issue
?Species are dying off 1,000 times more frequently today than during the 60
million years before the arrival of humans.
?Scientists refer to what as happening now as the “sixth extinction”…..the fifth
was the end of the dinosaurs.
?Over a million species of animal and plant life are now threatened with dying out
– more than ever before in human history.
?Some 100 million hectares of tropical forest were lost between 1980 and 2000.
?Four in 10 (39.4%) plants are at risk of dying out.
?Dramatic rates of decline could lead to over 40% of the world’s insect species
disappearing within decades – with habitat loss due to industrial agriculture the
main driver behind the decrease.
?The loss of habitats and species pose as much of a threat to life on Earth as
climate change. Biodiversity is not only vital for a flourishing natural world. Its
deterioration also threatens the livelihoods, economies, food security and health
of the world’s eight billion people….and affects the poorest, who live closest to
nature, most.
?Half of species in critical risk of extinction by 2100
?More than one in four species on Earth now faces extinction, and that will rise to 50% by the
end of the century unless urgent action is taken.
?Scientists have labelled the biodiversity crisis as worse than the threat from climate change
Over 37,000 species are directly threatened with extinction. That is 28 % of all species
assessed.
?Most threatened by extinction
?Amphibians are under the highest threat but all groups of species are at risk.
?Amphibians: 41 %
?Conifers (type of land plants): 34 %
?Reef corals: 33 %
?Sharks and rays: 36 %
?Mammals: 26 %
?Birds: 14 %
?…and it only gets worse from there
?Global mass extinction could further accelerate by 2100 because of global warming caused by increased
levels of CO2 in the atmosphere.
?“The Earth is set to cross a ‘threshold of catastrophe’ by the end of this century because of fossil fuels”.
?- Professor Daniel Rothman, co-director of the Massachusetts Institute of Technology.
?Species are becoming extinct faster now than at any point in modern history
?The current rate of extinction is up to 10,000 times higher than the average historical extinction rates. We, the
humans, are almost wholly responsible for this increase.
?Species are disappearing as you read this
?We don’t know exactly how many species go extinct every year but it could be 100,000 – about 1 every 5
minutes.
?It’s getting worse
?The worsening and loss of biodiversity are projected to continue, and even accelerate.
?Species on Earth
?Estimates of the total number of species on Earth range from 8.7 million to a trillion. Of all the species that
have existed on Earth at some point over the past 3.5 billion years, over 95% have gone extinct. That’s part of
the natural process of evolution. The difference is that the current level of extinction is almost solely caused by
one particular species – humans.
?The extinction of species is just one consequence of a deeper problem: We are exploiting Earth far beyond
what is sustainable.
?What are the causes of the extinction of species?
?Direct human activity and climate change is the cause of this – for example through the destruction of forests
and coral reefs.
?“Rich western countries are now siphoning up the planet’s resources and destroying its ecosystems at an
unprecedented rate (…) We want to build highways across the Serengeti to get more rare earth minerals for
our cellphones. We grab all the fish from the sea, wreck the coral reefs and put carbon dioxide into the
atmosphere. We have triggered a major extinction event. The question is: how do we stop it?”
?- Biologist Paul Ehrlich of Stanford University in California.
?The main threats causing extinction of species
?According to Nature, the main threats for biodiversity on Earth are:
?Exploitation: 37 % (hunting, fishing).
?Habitat degradation and change: 31 %
?Loss of habitat: 13 %
?Climate change: 7 %
?Invasive species: 5 %
?Pollution: 4 %
?Disease: 2 %
?Possible mass extinction
?There is a wide belief that a “mass extinction” is underway. Some predict that half of all living species could be
gone within 100 years.
?Who are they?
?Within the next 15 to 40 years it is likely that the following animals will become extinct: polar bear,
chimpanzee, elephant, snow leopard, tiger, mountain gorilla, orangutan, giant panda, rhino, and the koala
bear. Unfortunately, these are just a few of many…
Action needed at all levels for sustainability
?The Economics of Biodiversity: The Dasgupta Review. February
2021.
?Ensure that our demands on Nature do not exceed its supply, and that
we increase Nature’s supply relative to its current level.
?Change our measures of economic success to guide us on a more
sustainable path.
?Transform our institutions and systems – in particular our finance and
education systems – to enable these changes and sustain them for
future generations.
Balancing demand and supply of nature
?Food production is the most significant driver of terrestrial biodiversity loss. As the global
population grows, the enormous problem of producing sufficient food in a sustainable
manner will only intensify. Technological innovations and sustainable food production
systems can decrease the sector’s contribution to climate change, land-use change and
ocean degradation; reduce environmentally damaging inputs and waste; improve production
system resilience, through methods such as precision agriculture, integrated pest
management and molecular breeding techniques; and are likely to have a positive economic
impact, including the creation of jobs. Demand for energy is a major contributor to climate
change and resulting biodiversity loss. Decarbonising our energy systems is a necessary
part of balancing demand and supply.
?But if we are to avoid exceeding the limits of what Nature can provide on a sustainable basis
while meeting the needs of the human population, we cannot rely on technology alone:
consumption and production patterns will need to be fundamentally restructured. Breaking
the links between damaging forms of consumption and production and Nature can be
accelerated through a range of policies that change prices and behavioural norms, for
example enforcing standards for re-use, recycling and sharing, and aligning environmental
objectives along entire global supply chains.
Measurement issues
?Nature needs to enter economic and finance decision-making in the same way buildings,
machines, roads and skills do. To do so ultimately requires changing our measures of
economic suc