inflation and monetary policy Flashcards
what is disinflation
when the inflation rate is falling
real interest rate d
interest rate corrected for inflation
menu costs d
resources used in setting and changing prices
why is deflation bad
people postpone consumption because they expect goods will be cheaper in the future,
increases debt burden of borrowers
protectionist policies d
measures taken by a government to limit trade, in particular to reduce the amount of imports
what is a wage price spiral
workers anticipate prices to rise so ask for real pay rise so firms have to raise prices in order to maintain profitability
what could shift the wage curve upwards
improves generosity of unemployment benefits,
stronger trade unions
real wage d
money wage, adjusted to take account of inflation
what is the bargaining gap
difference between the wage curve and the profit curve
think about the diagram,
x=output
y=aggregate demand,
what shape are the two lines on it
there is the 45 degree line ourput=ad,
there is the AD line which is an upward sloping line that has a positive y intercept (less steep than 45 degree),
y=0.5x+10
expected inflation d
opinion that wage and price setters form about the level of inflation in the next period
what is the formula for inflation
expected inflation + bargaining gap
what happens to the profit curve and inflation if there is an increase in oil prices
profit curve shifts down (to make more profit) and there is a bargaining gap between profit curve and wage curve at that level on employment so inflation (until new post shock inflation stabilising employment rate reached)
what are problems with using interest rates to stimulate the economy
time lag,
cant go below zero,
country without own currency doesn’t have own monetary policy
how does quantitative easing work
central banks buy securities such as government bonds from banks (with new money),
banks now have more money so should encourage banks to make more loans
exchange rate d
number of units of home currency that can be exchanged for one unit of foreign currency
how can reducing the interest rate increase ad through the exchange rate
fall in demand for currency, depreciation, exports become cheap, increase trade balance, increase ad
which way round do they do the phillips curve
unemployment decreasing on the y axis,
curve is like a j,
y=x^2
Who introduced flying machines to the public
Sir George white
When did sir George white introduce flying machines to the world
November 1910
What company was sir George white a director of
British and colonial airline company
What was significant about flying machines and the downs
He introduced them to the public in November 1910 on the downs and 30,000 people came to watch
What was the first plane called from the British and colonial airline company
Bristol biplane which we know as the box kite
