polciies to reduce inflation

Question 1

what is the macor econ obj for inflatino

Answer 1

low and stable

hit target 2+-1%

Question 2

policies to bring inflation to target depend on

Answer 2

type of inflation

Question 3

what policy can we use to bring down inflatino

Answer 3

contractionary

monetary and fiscal policy

Question 4

why is contractionary fiscla policy to target DPI unlikely

Answer 4

its central banks job in econ to use omentary policy to bring inflaiton to target

Question 5

why is monetary policy more likely to target inflation

Answer 5

ir got many avenues to feed through to econ herfor emore liekly to have an impact in affecting AD to reach inflation target rate

cb independent from gov therefore theyre more transparent , trustworthy and successful i gettign to inflaitno target

Question 6

how do we draw contractionary Moneaty and fiscla policy on diagram

Answer 6

shift ad left

from lras line

reduce price levle - we see reduction in demand pull infltion

y - price level
x- rgdp

Question 7

what ar ehte 4 eval point for using monetary and fiscla contracionary to reduce dpi

Answer 7

conflict of objectives

impact on ivnestment

impact on te indebted

strong er and ca deficit

Question 8

explain conflict of macro objetoves

Answer 8

yes we see reduciton in dpi

but at a cost

leads to lower econ groeth - hihg unemployment which could lead to recssion in econ which isnt desirable

not desirable as macro all about achievein macro econ obj at the same time

Question 9

explain conflict of macro objetoves

Answer 9

yes we see reduciton in dpi

but at a cost

leads to lower econ groeth - hihg unemployment which could lead to recssion in econ which isnt desirable

not desirable as macro all about achievein macro econ obj at the same time -w hcih cwe loose i use contractionary MP

Question 10

EXPLAIN eval impact on investmetn

Answer 10

high ir detract I as increases COB

bad news for sreg and lreg

lreg rates will be lower

we also get issues liek lower productivity and worsening of ocmpetitiveness of econ

we dont want these -ve side effects

Question 11

explain eval of impact on indebted

Answer 11

when we say indebted taling about hh and firms with lots of debt

if IR go up - hh may default on loans- go bankrupt and become homeless potentially their living standrads suffer - may get assets taken away from em

is bs default on loans they could go bankfrupt creating unemployment - decrease SOL / they may pass on prices whihc can cause CPI whihc is hard to slow and result in stagfalion

Question 12

explain eva of strenghten er and current account deficit

Answer 12

stregnthen ER which could widen CA deficit

as higher ir mean hot money inflows which strenghtens pound as more dmadn

SPICEE

Not good if youre a trade econ e.g china and japan + african
this cna elad to further conflict of macro obj

but if goods inelastic this cna be good for developemtn

Question 13

to recify cost push inflation we need policies that

Answer 13

target cuases of cost push inflation

Question 14

how do we show cost push inflation

Answer 14

sras shift left

Question 15

what are the ways we can reduce cost push inflation

Answer 15

implement/reduce inflation target

reduce vat/subsidides to firms but ….

intervene in forex markets to strenghten the ER - but….

Question 16

explain implemt/reduce inflaitn target

Answer 16

good idea cause will reudce the amount wages rise in the economy

cuz workers will think yearly inflaiton is gonna be target so wage bargainnig wikll be at that rate

therefore you can limit extent to whihc rages rise on a yearly basis and bring inflaitno down yearly

this is smart if wages are the dominant reason for higher inflaitno

Question 17

explain reduce vat ir subsidise firms

Answer 17

we cna cut vat / subsidies firms

this reduces their cop whihc cna bring inflaiton down as lower prices

but depends if past savings onto customers and econ if not pointless - some may use highe rprofit margns to rewards sh or be inefficne t

but also big cost to gov and can worsen gov finnces
+ there is no way goc gonna offer subsidies to all firms in econ- this is ludicrous idea

vat wierd to

this is all yes in theory relaity elsewise

Question 18

explain interbening in forex markets to strenghten ER

Answer 18

IF WEAK er driving up the price of raw materials and leading to cost push infaltion

in theory cb cna interven in forex mkt to strnehten er

spicee

if imports cheaper can reuc price of imported materials and reduce COP for firms who import RM

BUT IN THEORY YES , in reality ludicrous as many cunch in world got freely floating ER so this wouldnt occur in relaity

Question 19

depper eval for CPI

Answer 19

we need to think about the cause

lots of causes often ST bouts e.g high rm prices
rm prices odnt stay high forever
e.g weak ER increase rm wont stay forever
er strenghten on own whihc can get rid of cpi

sometimes we cant do anything about them therfore we shoulnt worry and try impltm polices that got horrible side effects
e.g cnat do anything if rm is high

so with cpi dont worry as much as often st cases + we cant do much about them

so just gotta wait it out and let it ocme back down naturally

Question 20

high lt inflaiton rates becuase

Answer 20

econ doesnt have enoguh/low levels spare cpapcity

Question 21

how do we rectify lt inflation rates

Answer 21

supply side policies

Question 22

why do we rectify high lng term inflation rates with supply side policies

Answer 22

increase productive cappacity of eocn - increase LRAS to reduce pressure on FOP consitleynt and reduce lt rates of inflaio

Question 23

how do we show supply side polciies to rectify infltino

Answer 23

shift lras right

reduce the price level

increase productive capacity of the econ

increase econ growht

Question 24

list the ssp

Answer 24

interventionist

market based

Question 25

eval ssp for rectify high lt growth rates

Answer 25

no uarantee of success - esp interventionst ssp

cost- also -ve stkh impact if mkt based ssp used

time lags - time before htey shift lras - therfore of need to get inflatino down quickly we wont necessarily see it

Question 26

what is the key eval point

Answer 26

type of inflation

in realoty hard sometimes ot dissect and know what type of inflation is dominating and pushign inflation rate beyonf target

therfore range of policies need to be used to control inflatino overall

there isnt much neceesarily you can do about cost push inflaiton

rate of inflatino - obj low and stable 2% if inflation is around there we dont need policies to reduce inflatino

inflation gets too low and into defaltion teritory major issues