The output gap is a measure of the difference between actual output (Y) and potential output (Yf). A positive output gap means growth is above the trend rate and is inflationary. A negative output gap means an economic downturn with unemployment and spare capacity The output gap = Y- Yf Diagram for Output Gap The …
Biflation is a term used to describe a period where some prices are rising and some prices are falling. It can appear we have both inflation and deflation at the same time. CPI = Headline inflation rate CPI less food and energy = underlying or core inflation. In the above example, the headline rate is …
Readers Question: What will happen to the value of a currency during times of deep recession and high inflation? There is no hard and fast rule about what will happen to the value of a currency during a deep recession – though, a currency is likely to fall because country becomes a less attractive place to …
Summary: Wage inflation is an increase in nominal wages, meaning workers receive higher pay. Wage inflation tends to cause price inflation and higher growth. The impact of wage inflation depends on whether it is a real increase (higher than inflation) or just nominal increase (same wage increase as inflation). The effect also depends on labour …
The main sectors of the economy are: Primary sector – extraction of raw materials – mining, fishing and agriculture. Secondary / manufacturing sector – concerned with producing finished goods, e.g. Construction sector, manufacturing and utilities, e.g. electricity. Service / ‘tertiary’ sector – concerned with offering intangible goods and services to consumers. This includes retail, tourism, …
A look at the main causes of unemployment – including demand deficient, structural, frictional and real wage unemployment. Main causes of unemployment 1. Frictional unemployment This is unemployment caused by the time people take to move between jobs, e.g. graduates or people changing jobs. There will always be some frictional unemployment in an economy because …
Since the financial crisis, we have seen an unprecedented stagnation/decline in real wages. This decline has been most noticeable for low-income workers, with growing levels of inequality. The decline/stagnation in real wages is a global phenomenon – though some countries have been more affected than others. Reasons suggested for falling/stagnant wages since 2008 include: Recession …
This decision tree is a simple example of game theory for firms deciding whether to enter the market and how existing firms should respond. If firm A (new firm) does not enter the market it makes £0 profit and the incumbent firm, firm B makes £3 profit. However, if Firm A does enter the market, …