Definition of Fiscal Drag Fiscal drag is a concept where inflation and earnings growth may push more taxpayers into higher tax brackets. Therefore fiscal drag has the effect of raising government tax revenue without explicitly raising tax rates. This fiscal drag has the effect of reducing (or limiting increase) in Aggregate Demand and becomes an …
What factors should we consider when setting monetary policy? Basics of monetary policy If inflation is above the target and economic growth too fast, the Bank will likely increase interest rates. Higher interest rates increase the cost of borrowing and reduce investment/consumer spending – leading to a lower rate of economic growth. See more at …
Readers Question: I only recently discovered your site, which is spectacular, and have been reading every article since then. However, I found that two of your articles are contradicting. In your article “Problems of Deflation” you state that the current monetary policy of the EU is tight due to 0.5% inflation and interest rates. In …
Tight monetary policy implies the Central Bank is trying to reduce the demand for money and limit the pace of economic expansion. A tightening of monetary policy, could involve an increase in interest rates. – Higher interest rates increase the cost of borrowing and discourage investment and consumer spending. A tightening of monetary policy would …
Fiscal Illusion definition. This is a concept that governments find it easy to raise tax revenues because of consumer ignorance about the way the tax system works. For example, fiscal drag is a way that more taxpayers can end up in a higher tax rate. Public Choice theorist often argues that more needs to be …
Definitions of Unemployment Unemployment Rate. This is the % of people in the labour force without a job but registered as being willing and available for work Labour Force Those people holding a job or registered as willing and able to work Therefore this is the number employed plus number unemployed (but actively seeking work) …
The UK is heading for an energy crisis this winter, with average bills set to rise from £1,100 per year to at least £3,600. And with the possibility of prices rising to over £5,000 in January 2023. The lowest income families may see energy costs rise from 7% to 24% of income. (Link) For better-off …
In theory, there is a strong link between the money supply and inflation. If the money supply rises faster than real output, then prices will usually rise. This means if a Central Bank prints more money, we will often (though not always!) get higher inflation. Explanation of why increased money supply causes inflation The money …