Readers Question: What Happens when Inflation is Higher than Interest Rates? A negative real interest rate means that inflation is higher than interest rates. Therefore, savers will see a fall in the real value of their savings. For example in 2011, CPI inflation was 5%. Bank of England Base interest rates are 0.5% In theory, …
A niche product is a product targeting a specific section of a larger industry and market. Niche products are often (but not always) more expensive than more generic products. Because niche products are fulfilling a particular specialist demand, we find that demand tends to be more price inelastic. This enables a firm selling niche products …
The aggregate demand curve (AD) is the total demand in the economy for goods at different price levels. AD = C + I + G + X – M If there is a fall in the price level, there is a movement along the AD curve because with goods cheaper – effectively, consumers have more …
The real effective exchange rate measures the value of a currency against a basket of other currencies; it takes into account changes in relative prices and shows what can actually be bought. Sterling effective exchange rate index. Nominal exchange rate The nominal exchange rate measures the current value of a currency against another. For example, …
A look at factors that explain wage inequality – including classical economic theory and labour market imperfections. Readers Question: Idealized free market theory argues that it is automatic for each worker to receive just what he or she is worth; otherwise, an “underpaid” worker could just look elsewhere to bid a higher salary. Could established …
For those born in the digital age, a paper copy of business listings may seem something of an anachronism. Why leaf through a telephone directory, when you can search online and get more information at the tips of your fingers? Yellow Pages have announced that their paper directory will cease publication in 2019, and it …
Monetarists argue that if the Money Supply rises faster than the rate of growth of national income, then there will be inflation. If the money supply increases in line with real output then there will be no inflation. M.Friedman stated: “Inflation is always and everywhere a monetary phenomenon in the sense that it is and …
The manufacturing sector takes raw materials and converts them into finished products. The manufacturing sector is concerned with using raw materials from the primary sectors, such as iron and coke and the production of finished goods, such as cars. These manufactured goods can then be sold in the tertiary sector. The manufacturing sector is to …