A key factor in determining inflation is people’s expectations of future inflation. If firms and consumers expect future inflation then it can become a self-fulfilling prophecy. If workers expect future inflation, they are more likely to bargain for higher wages to compensate for the increased cost of living. If workers can successfully bargain for higher …
Monetarists argue that if the Money Supply rises faster than the rate of growth of national income, then there will be inflation. If the money supply increases in line with real output then there will be no inflation. M.Friedman stated: “Inflation is always and everywhere a monetary phenomenon in the sense that it is and …
Definition of Rational expectations – an economic theory that states – when making decisions, individual agents will base their decisions on the best information available and learn from past trends. Rational expectations are the best guess for the future. Rational expectations suggest that although people may be wrong some of the time, on average they …
A look at the extent to which policy makers face a trade off between unemployment and inflation. The Phillips curve suggests there is a trade off between inflation and unemployment, at least in the short term. Other economists are more sceptical.
Readers Question: When considering national economic policy government must accept that there is a trade-off between inflation and unemployment. Discuss. National Economic Policy will be concerned with these main macro economic objectives Sustained and sustainable economic growth Low Unemployment Low inflation (inflation target often 2%) Low current account deficit (satisfactory balance of payments) Stable Exchange …
These are a collection of essays written for my economic blogs. Exchange Rate Essays Effects of a falling Dollar Why Dollar keeps falling Discuss Policies to Stop the Dollar Falling Does Devaluation Cause Inflation? Benefits and Costs of Falling Dollar Reasons for Falling Dollar The Dollar as the World’s Reserve Currency Economic Growth Essays Evaluate …
Adaptive expectations is an economic theory which gives importance to past events in predicting future outcomes. A common example is for predicting inflation. Adaptive expectations state that if inflation increased in the past year, people will expect a higher rate of inflation in the next year. A simple formula for adaptive expectations is Pe = …
The great moderation refers to a period of economic stability characterised by low inflation, positive economic growth, and the belief that the boom and bust cycle had been overcome. In retrospect, economists look back on the great moderation in a different light because although inflation was low, there was great volatility in financial markets and …