Inflation means a sustained increase in the cost of living. It means the value of money will decrease. If you owe someone £1,000, inflation will make this relatively easier to pay off. Assume that if prices go up by 10% a year wages also increase by 10% a year. This means each year you …
There are various economic costs associated with inflation – uncertainty, decline in investment, redistribution from savers to borrowers – but although there are costs with inflation, is zero inflation actually desirable? Governments usually set an inflation target of around 2%. (UK CPI target is 2% +/-1) There are reasons for targetting inflation of 2% – …
An economic downturn implies a fall in real GDP. A downturn also includes that period just before a recession – with a fall in the rate of economic growth and a widening output gap. A downturn will also include a period of negative economic growth and recession. An economic downturn is part of the economic …
Deflation means a fall in prices (a negative inflation rate). Though policymakers should generally be concerned if there is an inflation rate less than the target of 2%. For example, in the Eurozone Jan 2015, the headline inflation rate is -0.2%. Even if we strip away volatile prices like oil, core inflation is 0.8%. …
Interest rates are the cost of borrowing money. Interest rates are normally expressed as a % of the total borrowed, e.g. for a 30-year mortgage, a bank may charge 5% interest per year. Interest rates also show the return received on saving money in the bank or from an asset like a government bond. Different …
UK inflation since 1989. Definition – Inflation – Inflation is a sustained rise in the cost of living and average price level. Causes Inflation – Inflation is caused by excess demand in the economy, a rise in costs of production, rapid growth in the money supply. Costs of Inflation – Inflation causes …
Deflation Definition Deflation is defined as a decrease in the general price level. It is a negative inflation rate. Deflation means the value of money will increase. Deflation is often associated with periods of negative or stagnant economic growth (Great Depression, Japanese economy in the 1990s, early 2000s). In fact, deflation is often used to …
Negative bond yields (e.g. -0.04% on 2 year gilt) mean that those who hold the bond to maturity will receive less than the value of the bond. A negative bond yield is usually very rare. In normal circumstances, investors require some yield (interest) to give an incentive to buy government bond. There is no good …