Between 2009 and 2015, the Bank of England has been authorized to create £375bn of assets by the creation of central bank reserves. This new money was used to purchase government gilts. The theory is that by creating extra money and buying gilts from financial institutions, there would be an increase in the money supply …
Prices and incomes policy is an attempt by the government to set the rate of increase in prices and the rate of wage increases in the economy. The government do not seek to control individual prices but control the general rate of increase in prices and incomes. Price and incomes policy may involve ‘voluntary’ agreements …
Readers Question: What is the difference between monetary and fiscal policy? Monetary policy involves changing the interest rate and influencing the money supply. Fiscal policy involves the government changing tax rates and levels of government spending to influence aggregate demand in the economy. They are both used to pursue policies of higher economic growth or …
In a recession, you would usually expect a fall in the inflation rate due to lower demand and lower economic activity. The inflation rate fell in major recessions like 1929-32, 1981, 1991 and 2020.. However, it is not guaranteed inflation will fall in recession. For example, we could have a period of stagflation – rising …
This is a review of economics and its relationships with other social sciences and subjects, such as philosophy, politics, maths, physics, anthropology, psychology and sociology. Also, to what extent does economics benefit from expanding into other subjects? What is economics? Economics a social science that studies the production, consumption and distribution of goods and services. …
Definition of a liquidity trap: When monetary policy becomes ineffective because, despite zero/very low-interest rates, people want to hold cash rather than spend or buy illiquid assets. A liquidity trap is characterised by Very low-interest rates Low inflation Slow/negative economic growth Preference for saving rather than spending and investment Monetary policy becomes ineffective in boosting …
Hedonics is the science of trying to work out how much product quality has changed and adjusting inflation to take account of the fact more expensive products are not just inflation, but also improved quality. It is used in the US and UK calculation of inflation. If a TV increases in price by 10%, and …
Readers Question: How does the MPC predict future inflation? Inflation is caused by a mixture of demand-pull and cost-push factors. Therefore, the MPC will look at many statistics which give an indication of whether the economy is reaching full employment and causing inflationary pressures. This will include rate of economic growth, unemployment and the amount …