Readers’ Question: What is the difference between the Monetary base and the money supply? The monetary base is part of the overall money supply. The monetary base refers to that part of the money supply which is highly liquid (i.e. easy to use). The monetary base includes Notes and coins Commercial bank deposits with the …
With UK interest rates close to zero, who benefits from low-interest rates? In summary, the main effects of low-interest rates are: Savers will get lower interest payments on their savings. Borrowers, especially mortgage owners will see lower interest payments on their debt, increasing discretionary income. The government can borrow from the private sector at a …
There are many areas of economics where respected economists may take up contrary opinions. Some of the main macroeconomic controversies include Keynesian vs Monetarist views on managing the economic cycle (role of fiscal policy) Real business cycle theories – the argument the economic cycle comes from supply, not demand. Whether there is a trade-off between …
Between 2009 and 2015, the Bank of England has been authorized to create £375bn of assets by the creation of central bank reserves. This new money was used to purchase government gilts. The theory is that by creating extra money and buying gilts from financial institutions, there would be an increase in the money supply …
Readers Question: What effect do interest rates (either a rise, fall or steadying) have on both monetary and real wages? I think I’ve got my head around it, but I’m looking for a nicely explain summary (understanding that there are probably a million of contributing factors that can lead to a million outcomes!) You are …
The wage-price spiral refers to the strong mutual link and between wage growth and inflation. Rising wages invariably put upward pressure on prices and inflation. High inflation creates upward pressure on wages as workers seek to gain an increase in wages to meet the rising prices and maintain living standards. Thus a wage-price spiral can …
Prices and incomes policy is an attempt by the government to set the rate of increase in prices and the rate of wage increases in the economy. The government do not seek to control individual prices but control the general rate of increase in prices and incomes. Price and incomes policy may involve ‘voluntary’ agreements …
Food prices are typically fairly stable in a recession. If the recession is very deep and it leads to a period of deflation (fall in the general price level) then food prices may fall by a similar amount. US Deflation 1929-33 For example, in the great depression (1929-33), we saw a prolonged fall in prices. …