Summary Natural gas is a key raw material for heating and electricity generation, therefore higher prices will significantly increase the cost of living, increase inflation and could slow down economic growth. In the long term, higher gas prices will encourage consumers to find alternatives and firms to increase supply (e.g. fracking for natural gas), but …
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 …
A zero-sum game is a situation where one party benefits at the equal cost of another. If we add gains and losses the net benefit will always be zero. If two players have an arm wrestle challenge, there can only be one winner and one loser. It is not possible to arm wrestle and both …
Definition Wage-push inflation is the increase in general price level resulting from higher wages in an economy. Explanation of wage-push inflation If firms increase nominal wages by 5%, they experience higher costs of production. This is likely to cause firms to pass the cost increases onto consumers in the form of higher prices. Firms increase …
Economics is a broad subject concerned with the optimal distribution of resources in society. Within the subject, there are several different branches which focus on different aspects. Also, there are different schools of thought which generally have different views on aspects of economics. The first way to split economics is microeconomics and macroeconomics. Microeconomics – …
Definition: Underemployment is defined as a situation where people are working fewer hours than they wish; e.g. you would like to work 40 hours a week, but the firm only gives you 30 hours. Underemployment may also refer to the fact workers accept jobs that don’t utilise their skills. e.g. graduate working in McDonald’s may …
A fall in oil prices should cause a reduction in transport and fuel costs for firms. Consumers who will also benefit from the lower prices of transport and fuel. The lower oil prices will effectively increase their disposable income and enable them to spend more on other goods Because oil is the most traded commodity …