Politics Information |
Is Inflation Harmful
Q. Should the Government be concerned if the CPI rises to 5% ? The Govt set the MPC a target for CPI of 2% +/-1 therefore it believes inflation higher than 3% is potentially damaging for the economy. It depends on inflation in other countries. If inflation in the UK is higher than elsewhere then UK goods will become uncompetitive leading to a fall in demand for UK exports. If there is a fall in demand for Exports then there may be a deficit on the current account Balance of Payments. However this may be offset by a devaluation that is likely to occur However if inflation is high there will be a devaluation of the exchange rate, This is something the govt wishes to avoid as it creates uncertainty amongst business. Higher rates of inflation may cause menu costs, which means firms have to change price lists quite often. However this is not that significant when inflation is only 5%. If inflation is caused by unsustainable economic growth then the boom may be followed by a recession . To keep inflation within target the Bof E will have to increase interest rates, this causes problems because AD will fall causing lower growth. Higher rates of inflation are disliked by business because it makes it more difficult to predict future costs. Therefore investment will be lower, Countries with lower inflation rates generally have poorer economic growth. A high rate of inflation would make it more difficult to join the EURO, because it would breach the Maastricht criteria. If inflation in the UK was higher than Europe a single Monetary policy would be ineffective for the UK If the inflation was world wide caused by an increase in the oil price, it may be necessary to revise the inflation target of 2.5% . The UK would not lose its competitive advantage because every country would have higher inflation. TO reduce inflation would cause stagflation (lower growth and lower prices) Inflation may cause redistribution of income from savers to borrowers, although this will depend upon the rate of interest. E.g. if interest rate were 8% savers would still have a real interest rate of 3% It depends on whether wages are keeping up with inflation. If wages were only increasing by 4% then real wages would be falling. Should the govt be concerned with inflation falling below 2%? If prices are falling because AS shifts to the right because of new technology, this is beneficial for the economy, because growth is increasing and jobs being created If deflation is cause by falling AD then this is serious economic problem because it indicates a recession with problems such as unemployment, lower output and a negative multiplier effect Deflation can cause problems for the economy. It means that those who have debts will see the real value of debts increase, this will lead to lower consumer confidence and possibly lower AD and economic growth Deflation makes monetary policy ineffective. This is because interest rates cannot be reduced below 0%. Companies cannot alter real wages easily because workers are very resistant to any cut in nominal wage wages. It is more difficult to set prices when there is deflation - Richard Pettinger 1/12/2002 Copyright (c) Richard Pettinger http://www.richardpettinger.com/
MORE RESOURCES: Unable to open template $TEMPLATEfilename, exiting |
RELATED ARTICLES
Abu Ghraib: Our Surprise is the only Surprise As pictures and videos surface showing young American soldiers humiliating and dehumanizing Iraqi prisoners, we, as a society, recoil in disgust and disbelief. Friends and family of those charged with such crimes, shake their heads in bewilderment and assure the world that the perpetrators are normal, caring, loving individuals without any prior sadistic or bullying traits. For they know not what they do; Federal Regulators destroying business Federal Regulations on Business Destroy America, these regulations are a tax passed onto the every American. How much does Federal Regulations Cost each year to our society. The History of Trade and Using it as a Weapon for Peace The Flow of Trade is a major consideration of civilizations and cultures working together to insure that they can get what they need. Some areas have special crops, which grow in their regions, which the other regions would like to have. The Elephant Roared and Brought Forth a Turd: A Case Against Democratizing the Middle East The original vulgarity was bylined: ?The Constipation of America's Mid-East Peace Policy!It is with some trepidation that I embark upon this discourse; for one, out of respect for elephants, but more so because within the American framework of democracy I have so greatly benefited. Thus, to liken the extension of America's efforts to democratize the civil administrations of Moslem states-even with the caveat "considering cultural sensitivities"-to the intestinal hardships of our beloved pacaderm is in itself cause for internal consternation, reflection, and a longing for interior relief. An Overlooked Plan for Bush, Kerry, Democrats, Republicans, and Healthcare Costs In an effort to assist our political leadership it would be wise to have a simple solution to a life threatening problem. The much talked about Medicare Medication benefits are going to waste if the medications are not taken properly. The Truth About Power and Absolute Zero Societies have always had a problem of what to do with their young males with high testosterone. In many countries it is important for them to kill off many of them. Will Cloning of Super Families Lead to Slavery If slavery has not worked well, then cloning if it heads down the path of clones being considered less than equal could spell disaster for the future of humanity. Yet if there was a limit on the number of clones, then one could transfer their thoughts to the next clone and thus all the knowledge and experiences of mankind would not be lost in each period due to the people who perished in the previous period. Workers We have read about the unemployment rate being high. Really anything around six percent is pretty good and it is less than that now according to the statistics, but some politicians say it is terrible and others say it is reasonable. Elliot Spitzer for NY Governor I believe it would be good for the economy for Elliot Spitzer to be the governor of New York. It would be the best thing that ever happened to the economic well being of our nation. Jobs and the Flow of Fuel We see today a fierce unspoken competition between trucks and trains. It is well known in those industries and with those who ship the products, components, parts, natural resources, produce and event he fuel itself. The Options For Regime Change In Iran If recent speeches by US officials on Iran's plans to become a nuclear power can be seen as part of a build-up to a possible US-evoked regime change in Iran, the intelligence behind it is at once scant and abundant. Whatever the real official US policy toward Iran is aiming for exactly is hard to get clear, but it is noteworthy that off late, US officials have stepped up their campaign of Iran criticism. Immigration: Ten Points to Ponder 1. Why is it that no one seems to notice, much less ever mention, that the World Bank and the IMF have implemented economic measures that have left large sections of their populations unemployed and destitute? (The illegals are not doing this, you see, but this population is easier to attack and is more defenseless than the World Bank and the IMF. Colonel Boyd on Limited War and Iraq Victory In discussing the OODA Loop theory on Limited War by Colonel Boyd with in the context and patterns of conflict, it appears that we as a nation have forgotten the other options dictated by previous conflicts in the works of von Clauswitz "On War" in that we are disregarding such options and scenarios entirely. In our attempt to move the human race into a different space we are also changing the theory of war in order to do so. Voters are to Blame for Bad Politics When I was growing up, I actually considered a career in politics. I quickly changed my mind, though, when I discovered that there was way too much politics involved in it. Time for a New Canadian Party It is time for a change. A change in philosophy, a change in the 3 party system. National Security; College Campuses I have witnessed a new era of security in the US. It is by far more prevalent than ever before. The Self-Appointed Altruists Their arrival portends rising local prices and a culture shock. Many of them live in plush apartments, or five star hotels, drive SUV's, sport $3000 laptops and PDA's. American Eugenics "When you are right you cannot be too radical; when you are wrong you cannot be too conservative." - Dr. Colts' Stadium Short on Horse Sense The predominant discussion in the Indianapolis media over the proposed $500 million Colts stadium is how to fund it, not over the wisdom and propriety of taxpayers going into debt to build it.Apparently the leaders of both major political parties in Indiana have signed off on the concept, including a poor building design, and are content to confine their discussion to who's picking up the tab. How Can We Elect Good Leaders? Absolute power corrupts absolutely. Men desire power. |
home | site map | contact us |