Definition of an economic boom A boom is a period of rapid economic expansion resulting in higher GDP, lower unemployment, a higher inflation rate and rising asset prices. Booms usually suggest the economy is overheating creating a positive output gap and inflationary pressures. A boom suggests the economy is growing at a faster rate than …
Inflation targeting means Central Banks are responsible for using monetary policy to keep inflation close to the agreed target (usually around 2%). Since the mid-1990s, inflation targeting has become widely adopted by developed economies, such as UK, US, and the Eurozone. Inflation targets were introduced to help reduce inflation expectations and help avoid the periods …
Readers Question: What is the relationship between inflation & economic growth? If economic growth is caused by aggregate demand (AD) increasing faster than productive capacity (LRAS) – if economic growth is above the ‘long-run trend rate‘ then economic growth is likely to cause inflation. If economic growth is caused by increased productivity (LRAS), then the …
Explanation of why government intervention to try and correct market failure may result in government failure. Summary Market failure is a socially inefficient allocation of resources in a free market. Market failure can occur for various reasons Externalities Demerit/merit goods Public goods Monopoly power Government failure occurs when government intervention results in a more inefficient …
Definition and explanation of different types of goods Free good – no opportunity cost Private – Good with opportunity cost, rivalry and excludable Public good – non-rivalry, non-excludable Free Good A free good is a good needed by society but available with no opportunity cost. It is a good without scarcity. For example, air is …
The current US administration have suggested they want to increase the US budget deficit to enable higher rates of economic growth. What does economic theory state about this idea? “We need to have new deficits because of that. We need to have the growth,” Mulvaney said. “If we simply look at this as being deficit-neutral, …
Nearly all economists advise keeping inflation low. Low inflation contributes towards economic stability – which encourages saving, investment, economic growth, and helps maintain international competitiveness. Governments usually target an inflation rate of around 2%. This moderate but low rate of inflation is considered the best compromise between avoiding the costs of inflation but also avoiding …