About inflation.

So, what is inflation?
inflation, in simple words sounds like: sustained rising in general price level.

We also have 2 types of inflation:
1) the first one is demand pull inflation: so when ot occurs?
it happens when AD risen so much(shifted to the right) at the time when economy is operating to full capacity, that we have rising in prices, rather than we have economic growth.
Or AD is rising so fast than AS, so in this case we also got inflation. BUT: if economy has a spare capacity, and rising in AD happens, we have NOT inflation, WE HAVE ECONOMIC GROWTH!

2) the second type is cost push inflation: it when AS decreasing(shifting to the left),so we have rising in the price level and also decreasing in real GDP!

How can we do to prevent or decrease inflation?

1) using fiscal policy: the government can put higher taxes or decrease gov.spending. So people will encouraged to save more rather to spend, and if nobody consumes goods and services, so therefore firms and companies have to decrease their prices, in order to make profit.

2) using monetary policy: through this policy the government can rise the interest rates, this also will encourage people to save more, therefore firms have to decrease their prices in order and bla bla bla...

So in general, if we wanna decrease the inflation rate, the government tries to make people to save in different possible ways...

To Chris!

Mr. Chris, I finally moved to another economic group!!!!)))
Yeah!!))

MPC!!!!!!!!

The Monetary Policy Committee (MPC) is a committee of the Bank of England, which meets every month to decide the official interest rate in the United Kingdom. It comprises:

The Governor of the Bank
The two Deputy Governors
The Executive Director for Monetary Analysis and Statistics, the Bank's Chief Economist
The Executive Director for Markets
Four external members, appointed by the Chancellor of the Exchequer for a renewable three year term

Each member has one vote of equal weight. The Governor chairs the meeting and is the last to cast his vote, which effectively acts as a casting vote in event of a tie. Representatives from the Treasury can attend the meeting, but only as non-voting observers.

Meetings are held on a Wednesday and Thursday, typically following the first Monday of each month but this is sometimes deviated from in order to interact with the quarterly inflation report process and to take into account other major commitments or to occur when there are relatively fewer data announcements. The interest rate decisions are announced at noon immediately following the Thursday meeting. Minutes of each meeting, which explain the reasons for the decision and list the votes of each member, are published on the Bank's website after a two-week delay.

In each meeting, the committee studies data relating to the UK economy, as well as the worldwide economy, presented by the Bank's economists and regional representatives. Decisions are made with a primary aim of price stability, defined by the government's inflation target, set each year in the Budget (since January 2004 the target has been 2% on the Consumer Price Index). The secondary aim of the committee is to support the government's economic policies, and targets for growth and employment.

Under the Bank of England Act 1998 the Bank's Governor must write an open letter of explanation to the Chancellor if inflation exceeds the target by more than one percentage point in either direction. On April 16, 2007, Mervyn King, wrote the first such open letter in the life of the MPC to Gordon Brown, explaining why the inflation reached 3.1 %, one point beyond the target 2 %. (BBC News)

Traditionally, it was the Treasury that set interest rates. On May 6, 1997, the Bank was granted operational responsibility to set interest rates by Gordon Brown, who was at that time the Chancellor of the Exchequer, and the guidelines for this were formally laid out in the Bank of England Act 1998. The government reserves the right to instruct the Bank on what rate to set in times of emergency.


In other words, MPC it is a special "group" of people of the bank of england. they meet every month on wensdays and thursdays to "discuss" how to control different things such as inflation rate, rate of the interest and other "rubbish".

AD/AS

There are five main AD/AS diagrams showing:

a. demand pull inflation
b. cost push
c. economic growth s/r and l/r
d. deflation
e. macroeconomic equilibrium

Also of course negative and positive output gap.

MPC

MPC is the Monetary Policy Committee

i will write about this later

Various Economic things

Today i want to talk about the IMF.

This is their home page.

I quote:

The International Monetary Fund (IMF) is an organization of 186 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

I also want to talk about the ILO:

The International Labour Organization (ILO) is devoted to advancing opportunities for women and men to obtain decent and productive work in conditions of freedom, equity, security and human dignity. Its main aims are to promote rights at work, encourage decent employment opportunities, enhance social protection and strengthen dialogue in handling work-related issues.
In promoting social justice and internationally recognized human and labour rights, the organization continues to pursue its founding mission that labour peace is essential to prosperity. Today, the ILO helps advance the creation of decent jobs and the kinds of economic and working conditions that give working people and business people a stake in lasting peace, prosperity and progress.

There are some notes about measuring unemployment by the ILO here

This is a video about the IMF:

chapter 6. revision.

The application of macroeconomic policy instruments and the international economy.

Fiscal policy: the taxation and spending decisions of a government.
Monetary policy: central bank and/or government decisions on the rate of interest, the money supply and the exchange rate.
Supply-side policies: policies designed to increase aggregate supply by improving the efficiency of labour and product markets.
Reflationary: of policy measures designed to increase aggregate demand.
Deflationary: of policy measures designed to reduce aggregate demand.
The nature of fiscal policy:
A government may seek to influence aggregate demand to ensure that it matches AS and so avoid unemployment and inflation.

Definitions:
Discretionary fiscal policy: deliberate changes in government spending and taxation designed to influence aggregate demand
Automatic stabilizers: forms of government spending and taxation that change automatically to offset fluctuations in economic activity.
Economic cycle: the tendency for economic activity to fluctuate outside its trend growth rate, moving from a high level of economic activity(boom) to negative economic growth(recession).
Progressive tax: a tax that takes a higher percentage from the income of the rich.
Regressive tax: a tax that takes a greater percentage from the income of the poor.

Government spending.
Government spending, which can also be called public spending or public expenditure, can be divided into:
1) Capital expenditure on hospitals, schools, roads.
2) Current spending: on the running of public services and including, for example, teatcher’s pay and the purchase of the medicines to be used in NHS.
3) Transfer payments: money transferred from taxpayers to recipients of benefits for example, pensioners and the unemployed.
4) Debt interest payments: payments made to the holders of government debt, for example, interest paid to holders of national savings certificates.
The budget.
In the UK the chancellor of the exchequer outlines government spending proposals in three-year spending reviews and any tax changes are announced in the annual budget.

Definition:
Recession: a fall in the real GDP over a period of six months or more.

Monetary policy:
Fiscal policy and monetary policy are sometimes referred to as demand-side policies as both seek to influence AD.
The monetary policy committee.
The monetary policy committee of the Bank of England sets the rate of interest with the main objective of achieving the government’s target annual rate of inflation of 2 %, as measured by the consumer price index.
Supply-side policies.
While fiscal and monetary policies seek to influence aggregate demand, supply-side policies aim to influence aggregate supply.
Examples of supply-side policies.
Government investment in education and training and government encouragement to firms to increase their training should raise the occupational mobility of labour and labour productivity. New, small firms provide employment, develop entrepreneurial skills and introduce new ideas. As well as increasing in AD, lower direct taxation may also increase AS. There is some debate about whether the introduction of a national minimum wage or the removal of an NMW is a supply-side policy. A reduction in job seeker’s allowance will widen the gap between income from employment and the benefit. Reducing other benefits that support people who are economically inactive will increase the productive capacity of the economy if it does encourage them to enter the labour force. A reduction in trade union power may increase the efficiency of labour markets. Some economists argue that government intervention should be reduced. They believe that private sector firms are in the best position to make decisions about what to produce, how to produce and what to charge. Deregulation is the removal of rules and regulations that affect firms.

Policies to reduce unemployment.
There is a range of policy measures a government may employ to reduce unemployment.

Demand-side policies: If the economy is operating below its productive capacity, unemployment may be reduced by increasing in AD.
Supply-side policies: unemployment can exist even where there is not a shortage of AD if there are supply-side problems.

Policies to control inflation.
If a country is experiencing inflation, the measures it implements will be influenced by what is thought to be causing the inflation.
Cost-push inflation.
There is a number of policy measures a government may take to control cost-push inflation in the short-run.
Demand-pull inflation.
To reduce demand-pull inflation, a government may use deflationary fiscal and/or monetary policy instruments.

Inflation targeting.
Inflation targeting can lower the chance of both types if inflation by reducing expectations of inflation.
Long run: in the long run, a government is likely to seek to reduce the possibility of the inflationary pressure by increasing aggregate supply.
Policies to promote economic growth.
1) Short run: increases its output in the short run can occur due to increases in AD if the economy is initially producing below full capacity.
2) Long run: in the long run, increases the country’s output can continue to be achieved only if the productive capacity of the economy increases.
3) Stable growth: this objective is for actual growth to match trend growth and for that trend growth to rise over time.

Policies to improve the balance of payments.
1) Short run: in the short run there are three main ways a government may try to raise export revenue and/or reduce import expenditure in order to correct a current account deficit.
2) Exchange rate adjustment: a country may seek to reduce the exchange rate if it believes that its current level is too high and as a result is causing its products to be uncompetitive against rival countries’ products.
3) Deflationary demand management: to discourage expenditure on imports, a government may adopt deflationary fiscal and monetary policy instruments.
4) Imports restrictions: a country may seek to reduce expenditure on imports by imposing import restrictions including tariffs and quotas.
5) Long run: if a deficit arises from a lack of quality competitiveness, low labour productivity or high inflation, then reducing the value of currency, deflationary demand-side policy instruments and imports restrictions will not provide long run solutions.

Definitions:
Tariff: a tax on imports.
Quota: a limit on imports.
Human capital: education, training and experience that a worker possesses.
Current account surplus.
A balance of payments disequilibrium may also arise because of a current account surplus.
Effectiveness of fiscal policy.
Fiscal policy has a number of advantages. As we have seen, a number of taxes and forms of government spending adjust automatically to offset fluctuations in real GDP.
The effectiveness of monetary policy.
As with fiscal policy, monetary policy depends on reliable information. There is a risk that data, for instance, business confidence, may be misleading, and forecasts of trend in unemployment may be inaccurate.
The effectiveness of supply-side policies.
Supply-side policies are selective, targeted at particular markets, and are designed to raise efficiency.
Possible conflicts between policy objectives.
The objectives of economic growth and low unemployment may benefit from expansionary demand-side policy measures.
Changes in the UK’s pattern of international trade since 2000.
International trade plays an important role in influencing output, employment and the price level in the UK.
Advantages that may be gained from international trade.
International trade involves the exchange of goods and services across national borders. Being able to trade with other countries can bring a number of advantages.
Methods of protection.
Protectionism: the protection of domestic industries from foreign competition.
1) Tariffs: tariffs are the best known method of protection. They can also be referred to as customs duties or import duties.
2) Quotas: the second best known measure is probably a quota. This is a limit of a good or service.
3) Voluntary export restraint: a limit placed on imports from a country with the agreement of that country’s government.
Definition:
Occupational immobility of labour: difficulty in moving from one type of job to another.

Foreign exchange restrictions.
A government may seek to reduce imports by limiting the amount of foreign exchange made available to those wishing to by imported gods and services or to invest or to travel abroad.

Embargoes.
An embargo is a ban on the export or import of a product and/or a ban on a trade with a particular country.

Red tape.
Time-delaying customs procedures may be used to discourage imports.

Other measures.
Two additional measures are quality standards and government purchasing policies. Quality standards may be set high and complex requirements may be put in place with the intention of raising the costs of foreign firms seeking to export to the country. A government may also try to reduce imports by favoring domestic firms when it places orders, even when the domestic firms are producing at a higher cost or lower quality.