The Bank of England is responsible for managing UK monetary policy and maintaining the supply of money in the economy. The Bank of England is independent of the government. Although, the government can appoint members and set the inflation target. However, the Bank has a key role to play in the management of the economy …
An adverse supply-side shock is an event that causes an unexpected increase in costs or disruption to production. This will cause the short-run aggregate supply curve to shift to the left, leading to higher inflation and lower output. Diagram showing supply-side shock SRAS shifting to the left causes a higher price level and lower real …
Keynesian economics developed in the 1930s offering a response to the unique challenges of the Great Depression. Keynesian economics involves: Government intervention to stabilise the economic cycle e.g. expansionary fiscal policy – cutting tax and increasing spending. The argument is that governments can speed up economic recovery. Criticisms of Keynesian Economics Borrowing causes higher interest …
From an economic perspective, the EU can be criticised for various reasons including Common agricultural policy (CAP) Regulated labour markets – higher structural rates of unemployment Deflationary bias of ECB Problems of Euro Problems of free movement of labour Common Agricultural Policy CAP The CAP was one of the most inefficient economic policies and a …
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 …
Poverty implies low income and struggling to meet basic needs. There are two main types of poverty Absolute poverty – income below a certain threshold necessary to meet basic necessities of life (food, shelter, clothing, rent) Relative poverty – Individuals receiving income a certain level (e.g. 50%) below the median income of the general population. …
Is deflation good or bad? Mostly experiences of deflation in western economies have been damaging – deflation has been associated with falling rates of economic growth and higher unemployment. However, it is possible to have a different type of deflation – from rapidly improving productivity; then deflation can be consistent with higher rates of economic …
Definition deflationary gap – This is the difference between the full employment level of output and actual output. For example, in a recession, the deflationary gap may be quite substantial, indicative of the high rates of unemployment and underused resources. A deflationary gap is also known as a negative output gap. Causes of deflationary gap Fall …