Outline some of the problems the economy might face in recovering from a period of recession. To recover from a recession there needs to be either a rise in AD or a readjustment in prices and wages. An increase in aggregate demand will increase GDP and help the economy recover from recession. Low Consumer …
Should the government be concerned if the CPI rises to 5%? Costs of Inflation The Government set the MPC a target for CPI of 2.% +/-1. It believes inflation higher than 3.0% is potentially damaging to the economy. Decline in relative competitiveness. If inflation in the UK is higher than elsewhere, then UK goods will …
A currency carry trade occurs when people borrow in one currency and invest in another country. For example, suppose Japanese interest rates are 0% and US interest rates are 5%. In this case, an investor can buy Yen and borrow from a Japanese bank at 0% interest. He can then exchange Yen for Dollars and …
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 …
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 …
Readers Question: It has been suggested in a philosophy/economics class that I am taking that given the current state of income inequality between the 1% and 99%, that a period of stagflation might be an effective equalizer. I don’t see it. Any thoughts? Stagflation is a period of negative economic growth (or very low growth) …
Readers Question: Evaluate the possible consequences of a falling rate of inflation for the performance of the UK economy. A falling rate of inflation means that prices will be rising at a slower rate. A fall in the inflation rate could cause various benefits for the economy: Goods of that country becoming more internationally competitive …
Readers Question: What influences consumer spending Consumption is financed primarily out of our income. Therefore real wages will be an important determinant, but consumer spending is also influenced by other factors, such as interest rates, inflation, confidence, saving rates and availability of finance. Interest Rates – Interest Rates influence the cost of borrowing and mortgage …