A look at the extent to which policy makers face a trade off between unemployment and inflation. The Phillips curve suggests there is a trade off between inflation and unemployment, at least in the short term. Other economists are more sceptical.
Interest rates have a strong influence on house prices, principally because changes in the interest rate affect the cost of mortgage payments. How do interest rates affect house prices? If interest rates rise it will have a significant effect on increasing the cost of mortgages. Higher mortgage payments will deter prospective home-buyers – it becomes …
Readers Question: In finance and economics, there are such things as “bubbles” in the economy. And when bubbles start forming, it normally isn’t a good thing. My question is, how many different kinds of “bubbles” are there? Such as the property bubble or stock market bubble. And how do they form and what are their …
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Readers Question: what is the solution for stagflation? Stagflation occurs when there is an increase in inflation and also at the same time an increase in unemployment and lower economic growth. Typically stagflation will be caused by an increase in the cost of production which shifts the SRAS curve to the left. This could be …
The Neo-classical synthesis (also referred to as the neo-Keynesian theory) refers to the post-war macroeconomic development which combined elements of Keynesian macroeconomics with more classical microeconomic theory. (This is not relevant for A-Level economics, you may be relieved to know) Up until the 1930s, economics had been dominated by classical economists who argued that markets …
Readers Question: Could you differentiate between micro economics and macro economics? Microeconomics is the study of particular markets, and segments of the economy. It looks at issues such as consumer behaviour, individual labour markets, and the theory of firms. Macro economics is the study of the whole economy. It looks at ‘aggregate’ variables, such as …
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%. …