Low Inflation
Low inflation over the past decade Introduction The last ten years has produced the lowest average level of inflation for decades which has been fantastic for the UK economy. This report will elaborate on what we mean by inflation as the persistent increase in the price levels in the economy and will also be looking at the causes of inflation such as demand-pull inflation, cost-push inflation, and expectations of inflation. All with the knowledge that inflation is a macroeconomic problem faced by nations. Measuring inflation as the rate of inflation annually is also explained. In assessing why inflation has been so low we shall look at the various scenario that have helped keep inflation low such as tight margins in the distribution sector, fall in domestic and imported goods prices, and the use of policies by the government to control inflation. Such policies include fiscal policy, monetary policy, inflation targeting, and supply side policy. The main inflationary pressures in the economy have also been outlined like the rising oil prices, the rising food prices and the rapid economic growth. The economic effects of high levels of inflation are included to explain the cost of inflation such as redistribution of income and reduced economic growth. Economics and Macroeconomics Economics as I know is the social science which deals the production of goods and service with
Examine the impact of the international oil-price rise of 1973 on the economies of Western Europe
Christopher Marshall EH 1602 Tutor: Dr. Smith Towards A New Europe 1939-1992 Examine the impact of the international oil-price rise of 1973 on the economies of Western Europe The international oil-price rise of 1973 had a significant impact on the economies of Western Europe because it was the catalyst that aggravated existing and accumulating problems already present in the economic structure. There had been a decline in world economic growth in the late 1960s, and though there was rapid economic recovery in Western Europe by 1973, the economy was still unstable and had inherited problems. I believe this caused the decline of economic growth. The Organisation of Petroleum Exporting Countries (OPEC) had increased the initial price of oil by four times by 1974. Europe's largest economies were severely hit, and in 1975 recession was widespread for the first time in post-war Europe. Though exports and productivity continued to grow, measures taken to combat the crisis could not manage the interplay of problems related to the economic sector. These problems included stagnation output; stagflation, which described the combination of high levels of inflation and unemployment; and balance of payments deficits. Also, there was a radical change in the management of western economies: the Keynesian demand strategy could not survive the magnitude of the oil crisis and was
What determines the choice of an optimal exchange rate regime? Identify a set of conditions that would constitute a case against fixed exchange rate regimes.
Optimum Currency Areas 3 a) What determines the choice of an optimal exchange rate regime? Identify a set of conditions that would constitute a case against fixed exchange rate regimes. There are two broad types of exchange rate regimes. These are flexible and fixed. The regimes between them consist of a currency union, currency board, adjustable peg, crawling peg, basket peg, target zone and managed float. Economic theory suggests that the larger the economy the stronger the case for a flexible exchange rate regime. This is due to the fact that a large economy is likely to be more open to international currency movements. A fixed exchange rate would be unsustainable in such an environment. A flexible exchange rate is also extremely useful when wages and thus prices are sticky downwards. Any external shocks can be dealt with by changing the exchange rate rather than the domestic price level. A fixed regime would not allow this with the only option being a deflationary policy to increase competitiveness. A government cannot use monetary policy when their currency has a constant value. If fiscal policy is the main tool used to establish economic stability rather than monetary strategy, a fixed exchange rate will be easier to introduce. Similarly a fixed exchange rate is also more suited to economies where foreign trade makes up a large percentage of GDP. A fixed exchange rate
Discuss the benefits and problems of the European single currency, the Euro
Discuss the benefits and problems of the European single currency, the Euro The Euro was launched in 1999, replacing a wide range of currencies throughout continental Europe with a single currency of equal value in all nations. The main aim of the single currency was to assist in the movement of trade and labour, by making it easier for businesses and individuals to compare costs, prices and salaries across the entire EU. However, as will be shown below, the Euro has not always had the desired benefits, and has in fact led to some serious issues due to the lack of structural flexibility in many of the Eurozone countries. The major benefit of the Euro is that it offered common stability across a large portion of the European Union, helping weaker currencies such as the Franc and Lira by coupling them to the stronger ones such as the DeutscheMark. As such, this prevented the previous swings in currency value which periodically affected several European currencies, and thus helped stabilise the value of the high volume of trade within the European single market. Indeed, until the launch of the Euro, it was argued that the common market in the EU has delivered very few gains in productivity or efficiency, as trade in the market still had to take place with different currencies and the same exchange rate exposure risks. However, the Euro has made it easier to compare wages,
Macroeconomics questions - Supply and demand of labour, effects of a minimum wage, labour force participation in Australia.
ECON1102: Submission Question 2 Draw the demand and supply model of the labour market. What determines the slope and position of each curve? What factors may cause the demand for labour curve to shift? Price D S Quantity Labour Demand Curve (D) - Negative slope is due to diminishing marginal product of labour - Position of curve is determined by relative price of a firm's output, and the productivity of a firm's workers Labour Supply Curve (S) - Positive slope reflects fact that higher real wages are required to induce an increased supply of labour. - Position of curve is primarily affected by size of working age population Use the model to show the possible effects of a minimum wage law on the level of employment in an economy. Briefly explain which workers benefit and which workers lose from a minimum wage. Minimum wage laws prescribe the lowest hourly wage that employers must pay to workers. The demand and supply model shows that this law must raise the unemployment rate. The real wage is when the quantity of labour demanded equals the quantity of labour supplied (X). If a minimum wage is imposed (Wm) that exceeds the market clearing wage, then the number of people who want jobs exceeds the number of people who are willing to hire, thus creating unemployment. D S Wm X This law benefits especially low skilled workers, who would have not otherwise earned
Compare the positions of the New Classicals and New Keynesians regarding: (a) market competition; (b) flexibility of prices and wages and (c) speed of price and wage adjustments.
Rajiv Y. Tanna 25th February '03 Money & Banking; Coursework Essay; Dr. Dimitrios Asteriou. Compare the positions of the New Classicals and New Keynesians regarding: (a) market competition; (b) flexibility of prices and wages and (c) speed of price and wage adjustments. According to the New Classical view, what can be accomplished with an activist monetary policy? Why? (b) Compare the positions of the New Classicals and New Keynesians regarding: flexibility of prices and wages and (c) speed of price and wage adjustments. Classical and Keynesian economists - although agreeing on many points - differ primarily in their views on how rapidly prices and wages adjust to restore general equilibrium after an economic shock. Neo-Classical economists maintain that all markets clear immediately, they assume that prices and wages adjust quickly to equate quantities supplied and demanded in each market and therefore output is maintained at full employment level which therefore produces the vertical long run Phillips Curve. Classical macroeconomists assume that prices and wages adjust quickly to equate quantities supplied and demanded in each market; as a result, they argue, a market economy is largely 'self correcting', with a strong tendency to return to general equilibrium on its own when it is disturbed by an economic shock or a change in public policy. Classical economists
Is the world heading into a world reccession?
Is the World heading into a World recession? The Macroeconomic Environment unit Introduction The main objective of this essay is to discuss a question: "Is the world heading into a world recession?" In order to do so we will look at economic trends in the largest world economies and also in the emerging markets. We will look in more detail at the subprime mortgage crisis in the USA, credit crunch (financial sector), interest rates movements, unemployment, and growth rates. Furthermore we will discuss decoupling argument. In order to answer and analyse our main question we will refer to the economic theory. I think firstly we need to object that all talks about world recession started after multiple debates about USA recession. What really our main question sound is: If USA will go to recession, what impact it will have on the world economy? USA recession In the past few months economists from different parts of the world were discussing is USA heading into recession. It started to be very confusing to define the answer, because there are too many opinions on this topic. We will try to systemize these opinions, but before we will define what we mean by the word- "recession". Economic dictionaries gives different definitions, but all of them we can divide into two categories: One defines that by recession we mean any declining GDP, and others define it as the GDP growth
The purpose of this report is to explore Australias current economic conditions and how the government and central bank utilizes its macroeconomic instruments Fiscal and Monetary policies to accommodate the financial crisis. Moreover, th
Executive Summary The purpose of this report is to explore Australia's current economic conditions and how the government and central bank utilizes its macroeconomic instruments - Fiscal and Monetary policies to accommodate the financial crisis. Moreover, the report endeavors to justify the reasons for the government's end of its stimulus package. Australia is one of the advanced economies that are performed comparably well when the global recession hit. It is evident as the Australian economy grew by 1.42% while other advanced economies contracted by a record of 3.2% in 2009 (Australian School of Business, 2010). Firstly, Australia is able to avoid been severely affected by the GFC mainly due to Australia's well regulated banking system. Australian economy recovered quickly due to strong demand in the resource sector and the government and central bank's implementation of expansionary macroeconomic policies to accommodate the Global Financial Crisis. Furthermore, the reduction of government's spending was to avoid inflation as high inflation will cause interest rate to increase which diminishes the level of economic activities Introduction The Global financial crisis (GFC) is considered to be the worst financial crisis since the Great Depression in 1930. There are several factors that triggered this global recession, however it is initiated by the increased
Causes of Inflation.
TABLE OF CONTENTS QUESTION A 1 ANSWER 1 Inflation 1 Causes of Inflation 1 * Demand pull Inflation 1 * Cost push Inflation 2 QUESTION B 3 ANSWER 3 . Low wage inflation from the labour market 3 2. The success of monetary policy in the UK 3 3. Information technology effects 3 4. Increased competition 3 The main policies followed by UK government to maintain inflation level 4 . Fiscal Policy 4 2. Monetary Policy 4 3. Supply side policy 4 QUESTION C 5 ANSWER 5 QUESTION D 6 ANSWER 6 REFERENCE 7 BOOKS 7 E-BOOKS 7 WEBSITES 7 Question A Explain the meaning and summarize the main causes of inflation. Answer Inflation It has been observed that inflation have been varied since last 20years, in UK and other parts of world. One of the key tribulations of economics is inflation. Basically inflation means the constant and noticeable boost in the prices of goods and services or in general inflation is allied with periods of expansion in addition to high employment-increasing pounds chasing a dwindling supply of goods, and when prices rise 100% or more a year is known as hyper-inflation that cause people to lose confidence in the currency. Source: http://news.bbc.co.uk/olmedia/1380000/images/_1384495_inflation_may_300.gif Causes of Inflation * Demand pull Inflation When the consumer find their selves with spare money then they need to utilize it somewhere and
Explain the concept of Price Elasticity of Demand and discuss its relevance for Business and Government.
Explain the concept of Price Elasticity of Demand and discuss its relevance for Business and Government. Assignment 1 Business Environments Module: 26301 Tutor: Leigh Davison Student Number: 2011432859 There are a several factors in a market economy that influences the purchasing decisions of consumers. One of the main factors is the price of the good or service, and the law of demand explains the general relationship between price and consumption where "the quantity of a good demanded per period of time will fall as the price rises and rise as the price falls, ceteris paribus" (Sloman et al, 2004). The price elasticity of demand expands on this concept and studies the degree of the change of quantity in relation to price. The extent of the change in demand in response to price changes is of significance to businesses and the government, and hence the various methods such as the total revenue method, arc method and point method have been used to assess the concept. The price elasticity of demand measures the responsiveness of quantity demanded to a change in price and the most widely used method because of its simplicity is the percentage method (Begg, 2006). The elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. Demand can be judged to be relatively elastic, relatively inelastic or unitary