In a recession, you would usually expect a fall in the inflation rate due to lower demand and lower economic activity. The inflation rate fell in major recessions like 1929-32, 1981, 1991 and 2020.. However, it is not guaranteed inflation will fall in recession. For example, we could have a period of stagflation – rising …
Deflation is defined as a fall in the general price level. It is a negative rate of inflation. The problem with deflation is that often it can contribute to lower economic growth. This is because deflation increases the real value of debt – and therefore reducing the spending power of firms and consumers. Also, falling …
The short run, long run and very long run are different time periods in economics. Quick definition Very short run – where all factors of production are fixed. (e.g on one particular day, a firm cannot employ more workers or buy more products to sell) Short run – where one factor of production (e.g. capital) …
Global economic imbalances refer to an unfair distribution of resources between different countries or it may refer to a one-sided trade situation. Global economic imbalances include Balance of Payments. Unbalanced trade between different economies, e.g. US trade deficit with China Unemployment levels, e.g. high unemployment in southern Europe versus low unemployment in US, UK. Poverty …
Financialisation is a term used to describe the increased role of the financial sector in a modern economy. Source: NYT 2013 Financialisation also refers to particular trends in the financial sector of the economy. This includes: Increased use of financial intermediaries Increased use of futures markets. For example future contracts for bonds, shares, currencies and …
Evolutionary economics is a branch of economics which views the economy through a dynamic model of constant change, adaptation, chaos and revival. Evolutionary economics was coined by radical economist Thorstein Veblen (1857-1929). Veblen was interested in psychological factors that often gave better explanations for economic behaviour than traditional rational choice theory. For example, Veblen noted …
The long-run trend rate of growth is the average sustainable rate of economic growth over a period of time. It could also be termed as the ‘underlying trend rate of economic growth’ The long-run trend rate is determined by growth in productive capacity (AS). It is the rate of growth which is consistent with low …
An inflation target means the Central Bank has the objective to use monetary policy in order to keep inflation close to an agreed level (e.g. 2%) If inflation is forecast to rise above the target, they are likely to increase interest rates to moderate demand and slow down inflationary pressures. If the Central Bank is …