Aggregate supply is the total value of goods and services produced in an economy. The aggregate supply curve shows the amount of goods that can be produced at different price levels. When the economy reaches its level of full capacity (full employment – when the economy is on the production possibility frontier) the aggregate supply …
Since 2010, the UK economy has been dominated by spending cuts and the desire to run a budget surplus as soon as possible. In the political world, the government deficit is often portrayed as the source of many economic ills and eliminating the deficit one of the highest macro objectives. However the government deficit (see: …
I’m currently reading a book Blood, Iron and Gold by Christian Wolmar about how railways transformed the world. This interesting extract from the political economist Friedrich List, explains some of the economic benefits of railways: “Railways would carry wood, turf and coal at less than half the present costs. Bavaria, where flour, meat and other …
Firms generally prefer inflation to be low and stable. If inflation rises above 3 or 4%, firms may see a rise in costs and uncertainty. Inflation can also cause firms problems of rising costs, falling profitability, and a decline in international competitiveness. However, inflation is not necessarily damaging for a firm – especially, if they …
What factors should we consider when setting monetary policy? Basics of monetary policy If inflation is above the target and economic growth too fast, the Bank will likely increase interest rates. Higher interest rates increase the cost of borrowing and reduce investment/consumer spending – leading to a lower rate of economic growth. See more at …
Readers Question: When does velocity of money pick up and why will it? Clearly, the reason US inflation worriers have been wrong so far (NB). Is it confidence or policy? The velocity of circulation / velocity of money refers to how frequently the money stock in an economy is used in a given period. In …
An examination of the advantages and disadvantages of congestion charges: Some cities, such as London have introduced a congestion charge. The aim of a congestion charge is: Reduce congestion. Therefore reduce time wasted and reduce costs for business Reduce pollution. Fewer cars will lead to less pollution. Make city centres more attractive for pedestrians and …
The natural rate of interest is the interest rate consistent with maintaining economic growth at its trend rate and stable inflation. Another definition of the natural rate of interest is: “the real interest rate consistent with real GDP equalling its potential level (potential GDP) in the absence of transitory shocks to demand. (FR) In other …