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 …
Definition of experience effects When a single personal experience has a profound impact on future decisions by individuals. Example of experience effects 1. Bad experience never use the company again. A friend of mine was on an American Airlines flight when the wings caught fire. They had to make an emergency landing. As a result, …
Skimpflation is a situation where firms – in response to higher costs – reduce the quality of a good/service. Skimpflation means consumers get less for the same price. Skimpflation is related to inflation in that rising prices and costs in the economy lead to lower living standards for consumers. The difference is that although prices …
Definition – Collective bargaining refers to the negotiations between a group of workers and firms. Workers, usually through a trade union, form a unified approach to negotiate wages and work conditions with their firm (or group of firms). Collective bargaining can involve many different aspects of work – including pay, health and safety, working hours, …
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 …
There are many costs associated with inflation; the volatility and uncertainty can lead to lower levels of investment and lower economic growth. For individuals, inflation can lead to a fall in the value of their savings and redistribute income in society from savers to lenders and those with assets. At extreme levels, inflation can destabilise …
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 …