Solution to Stagflation

SRAS-shift-left

Readers Question: what is the solution for stagflation? Stagflation occurs when there is an increase in inflation and also at the same time an increase in unemployment and lower economic growth. Typically stagflation will be caused by an increase in the cost of production which shifts the SRAS curve to the left. This could be …

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Shortage of Labour and Inflation

labour-shortages

Readers Question: Discuss whether a widespread shortage of labour might be a major cause of inflation. Often a shortage of labour causes inflationary pressure. If firms are struggling to employ sufficient labour, workers are in a position to demand higher wages. This can easily lead to wage inflation which causes inflation. Micro-theory of labour shortages …

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Low economic growth and unemployment

Readers Question: Why is it that when there is low economic growth, unemployment rises? A low rate of economic growth can cause higher unemployment. Though it is not always the case. During 2010-13 the UK experienced a slow rate of economic growth, but unexpectedly unemployment fell. If there is negative economic growth (recession) we would …

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Polluter pays principle (PPP)

pollution-smog

The polluter pays principle  (PPP) is a basic economic idea that firms or consumers should pay for the cost of the negative externality they create. The polluter pays principle usually refers to environmental costs, but it could be extended to any external cost. In a purely free market, you would only face your private costs. …

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How can the government avoid public sector failure?

government-failure

Readers Question: how can the government avoid public sector failure? Firstly, it makes a change to consider a question like this. Usually, the question is – Why is the government inefficient? Why do we get government failure? Should we privatise public services? But, here we can examine whether the tendency to government failure can be …

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Dual economy

dual-economy

Readers question: What is a ‘dual economy’? A dual economy refers to the existence of two distinct types of economic segments within an economy. This involves: A capitalist based manufacturing sector (geared towards global markets) Labour intensive agricultural sector (low productivity, geared towards subsistence farming or local markets) The British economist W. Arthur Lewis wrote …

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Economic trade-offs

phillips-curve2

Readers Question Q) evaluate the view that ‘trade-offs will be required over the period of the cycle’? In the economic cycle, there is often a trade-offs between different macroeconomic objectives. The main macroeconomic objectives include: Low inflation Higher economic growth Low unemployment Low current account deficit Low government borrowing Stable exchange rate. For example, if the …

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