Higher interest rates increase the cost of borrowing, reduce disposable income and therefore limit the growth in consumer spending. Higher interest rates tend to reduce inflationary pressures and cause an appreciation in the exchange rate. Higher interest rates have various economic effects: Effect of higher interest rates Increases the cost of borrowing. With higher interest …
Definition: Cost-push inflation occurs when we experience rising prices due to higher costs of production and higher costs of raw materials. Cost-push inflation is determined by supply-side factors, such as higher wages and higher oil prices. Cost-push inflation is different to demand-pull inflation which occurs when aggregate demand grows faster than aggregate supply. Cost-push inflation …
Inflation is a period of rising prices. The primary policy for reducing inflation is monetary policy – in particular, raising interest rates reduces demand and helps to bring inflation under control. Other policies to reduce inflation can include tight fiscal policy (higher tax), supply-side policies, wage control, appreciation in the exchange rate and control of …
Readers Question: Does rising interest rates always result in a fall in house prices? No. It doesn’t always cause a fall in house prices. But, looking at historical data, when there is a sustained and significant rise in interest rates, it is very likely house prices will fall. For example, the 1981 and 1991 house …
Current UK Inflation Rate CPI inflation rate: 2.3% (headline rate) CPI – D7G7 at ONS Source: Raw data General inflation tables | CPI annual % change D7G7 at ONS Other measures of inflation (CPIH) CPI including owner occupiers’ housing costs – 6.2% (CPIH – L550) See: Measures of inflation Reasons for low inflation in …
The UK like Europe and the US is facing an unwelcome return of stagflation – a period of higher inflation and lower growth. In March 2022, UK GDP fell 0.1%, yet at the same time, inflation has jumped to 7% with forecasts of 10% inflation by the end of the year. The Bank of England …
Specific syllabus
Bottlenecks refer to the situation where firms are unable to meet demand because of delays, shortages and lack of spare capacity. Bottlenecks can occur from a spike in demand or disruptions to supply. They can lead to higher prices, inflation, shortages of goods and even lower economic growth. For many years, we have grown accustomed …