Readers Question: What do you understand by the terms ‘monetary policy’ and ‘fiscal policy’? Explain with reference to a country of your choice:- a) How these policies have been used by the government to try to achieve its objectives Definition – monetary and fiscal policy Monetary policy is managed by the Bank of England. They have …
Transfer earnings are the minimum income a worker needs in order to supply their labour. Economic rent is the extra income a worker receives – above the minimum level they need in order to work. Diagram for Economic Rent and Transfer Earnings Definition of Economic Rent Economic Rent refers to income earned from a factor …
The Bank of England is responsible for managing UK monetary policy and maintaining the supply of money in the economy. The Bank of England is independent of the government. Although, the government can appoint members and set the inflation target. However, the Bank has a key role to play in the management of the economy …
An adverse supply-side shock is an event that causes an unexpected increase in costs or disruption to production. This will cause the short-run aggregate supply curve to shift to the left, leading to higher inflation and lower output. Diagram showing supply-side shock SRAS shifting to the left causes a higher price level and lower real …
How can a change in the terms of trade affect the balance of payments ? How can a change in the balance of trade affect the terms of payments ? The terms of trade is the index of export prices divided by index of import prices (*100) The current account balance of payments is primarily …
Readers question: “Can an economy achieve low unemployment, low inflation and economic growth at the same time?” To achieve low unemployment, low inflation and economic growth at the same time is possible. For example, the UK economy 1993-2006 saw a prolonged period of low inflationary growth. Since early 2000, the Chinese economy has been growing …
Inflation targeting means Central Banks are responsible for using monetary policy to keep inflation close to the agreed target (usually around 2%). Since the mid-1990s, inflation targeting has become widely adopted by developed economies, such as UK, US, and the Eurozone. Inflation targets were introduced to help reduce inflation expectations and help avoid the periods …
Readers Question: What is the relationship between inflation & economic growth? If economic growth is caused by aggregate demand (AD) increasing faster than productive capacity (LRAS) – if economic growth is above the ‘long-run trend rate‘ then economic growth is likely to cause inflation. If economic growth is caused by increased productivity (LRAS), then the …