The UK government has given the Bank of England an inflation target of CPI 2 % +/-1. The Bank of England is responsible for using monetary policy (e.g. interest rates) to achieve this goal of low inflation. But, as well as targeting inflation, the Bank of England also has a wider remit of considering objectives …
I’ve been studying economics for 13 years and I can still get confused at the bewildering array of interest rates. Basically, interest rates can range from anywhere between 0% and 2,316% The most important rate is the base rate (sometimes referred to as the repo rate). This is the rate set by the Bank of …
The natural or (equilibrium) level of unemployment is determined by calculating the level of unemployment when the labour market is in equilibrium. Diagram Showing Natural Rate of Unemployment The labour force includes everyone of working age who is either working or looking for work. The Aggregate Supply (AS) of labour is every one who is …
The aim is to measure how consumers’ purchasing power is affected by rising prices. There are three main steps to measuring inflation Give a weighting to the importance of different goods to the typical basket of goods. Measure the change in price Convert into the index – multiplying the weight by the price change. Steps …
The Natural rate of unemployment is mainly composed of frictional and structural unemployment. Therefore, factors that affect these types of unemployment will alter the natural rate. It is argued the level of unemployed benefits can affect frictional unemployment. If the ratio of benefits to paid employment is high, then there is little incentive to take …
The natural rate of unemployment occurs when the labour market is in equilibrium; it is mainly composed of frictional and structural unemployment. The natural rate of unemployment is affected by supply-side factors such as geographical/occupational immobilities and labour market imperfections. Firstly, it is argued the level of unemployment benefits can affect the level of frictional …
Should the government be concerned if the CPI rises to 5%? Costs of Inflation The Government set the MPC a target for CPI of 2.% +/-1. It believes inflation higher than 3.0% is potentially damaging to the economy. Decline in relative competitiveness. If inflation in the UK is higher than elsewhere, then UK goods will …
Readers Question: It has been suggested in a philosophy/economics class that I am taking that given the current state of income inequality between the 1% and 99%, that a period of stagflation might be an effective equalizer. I don’t see it. Any thoughts? Stagflation is a period of negative economic growth (or very low growth) …