A deflationary spiral occurs when falling prices cause further deflationary pressures to cut prices. Deflation creates expectations of further price falls, and therefore consumers reduce their spending because they expect goods to become spending in the future. This fall in spending creates further deflationary pressure in the economy. Deflation increases the real value of debt. …
Readers Question: What is the cause of deflation? Deflation involves a fall in the price level – a negative rate of inflation. From a very basic standpoint, there are two main potential causes of deflation: A fall in aggregate demand (AD) A shift to the right of aggregate supply (AS) – i.e. lower costs of …
Readers Question: What Happens when Inflation is Higher than Interest Rates? A negative real interest rate means that inflation is higher than interest rates. Therefore, savers will see a fall in the real value of their savings. For example in 2011, CPI inflation was 5%. Bank of England Base interest rates are 0.5% In theory, …
The claimant count records the number of people receiving unemployment benefits from the government. In the UK, the claimant count currently measures everyone who receives Job Seekers Allowance (JSA). To receive JSA, the applicant must be actively seeking work and provide evidence and commitment of efforts to find work. The claimant count method is one …
Due to lack of space in the book, we have published full bibliography on this website. Bibliography Chapter 1 Is it OK to be selfish? Frank, R H (1988) Passions Within Reason: The Strategic Role of the Emotions, p. xi. New York: W W Norton & Co. Galbraith, J K (1982) “Recession economics”, The New …
The real interest rate is the nominal interest rate – inflation rate. For example, if the Bank of England set base rates of 5.5% and the CPI inflation rate is 3.4%. Then the real interest rates is said to be 2.1% A higher real interest rate is good for savers and bad for borrowers. Note, …
A lagging indicator is an economic statistic that tends to have a delayed reaction to a change in the economic cycle. A leading indicator is an economic statistic that tends to predict future changes in the economic cycle. A co-incident indicator is a variable that changes with the whole economy. The recession of 2008 was …
The Brexit vote has led to sharp fall in the value of the Pound, at one stage falling to £1 = $1.22 – a fall of over 15%. This will have a significant impact on British firms, consumers and also those outside Europe. In short: Winners from weak Pound UK exporters who will be more …