Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Description of Inflation in detail
Inflation is the rate at which average price level of services and goods rises in a given time period. In UK the Office for National Statistics uses two major indices to measure inflation: Consumer Prices Index (CPI) and Retail Prices Index (RPI).
The role of inflation expectations in influencing future inflation was an area of economic analysis established by Professor Milton Friedman in the 1970s. Friedman argued that firms and workers' pay careful attention to their past experiences when developing expectations about future inflation. If they have experienced inflation in the past workers would expect prices to go up in the future and will make pre-emptive wage demands on the ground which without an inflation-adjusted pay rise they will experience a pay cut in real terms. This behaviour will actually create the conditions for inflation. Confronted with increased wage demands and accepting inflationary record of the past, firms will give in to higher wage demands and pass on cost increases to consumers in form of higher prices.
Changes in costs of production will also affect inflation. In the summer of 2008 UK experienced increased inflation as price of energy raised in world markets. In July 2008 price of oil broke $100 a barrel mark for the first time though it did fall sharply after financial crisis. It has, though, risen steeply again because of the high levels of demand from emerging markets that may well see the price of a barrel of oil break the $200 mark in the subsequent few years. The British economy is dependent upon oil as a main source of energy so when oil prices increase, costs of production of almost all firms increase either indirectly or directly. This feeds into the inflation indexes.
Cost-push inflation is illustrated on the aggregate demand and supply diagram below. Initially, macroeconomic equilibrium is at point X with real output and price level correspondingly at y1 and P1. Firms' money costs of production rise - for instance since money wages or price of imported raw materials increase - that causes the SRAS curve to move upward and to left from SRAS1 to SRAS2. The cost-push inflationary process increases price level to P2 however higher production costs have reduced the equilibrium level of output which firms are willing to produce to y2. The new macroeconomic equilibrium is at point Z.
Flossy has a quasi-linear utility function, 16q1^0.5 + q2. The price of good 1 is fixed at one. Thus, Flossy's budget constraint is q1 + p2q2 =Y, where Y denotes income. 6.1 Compu
Discuss about the Keynesian economists The Keynesian economist A. W. Phillips developed short-run Phillips curve analysis in the 1950s. Phillips had researched the relationshi
ACCOUNTING SYSTEM-EXAMPLE Let us now introduce a complication. There are three firms in the production sector. The Fruit Extracts Company manufactures from raw fruit, fruit ext
State the term- - GDP is a flow Lastly, note that GDP is a flow variable and not a stock variable. By a flow variable we mean a variable which is measured in something per uni
given the consumer maximizing problem subjest to consumption, the firm''s maximizing problem subject to revenue as a function of labour demand, and the government''s budget as G=T.
Q. Explain the basic characteristics of IS-curve? IS-LM diagram IS-curve The IS curve shows all combinations of R and Y where the goods marketis in
what is the formula for calculating investment multiplier for 4 sector economy?
how to relate macro economics theories with current indian economy
The following information has been extracted from the recently published accounts of Noddy Plc: Balance sheet as at 31 st May
explain approaches of national income?
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd