Inflation Priority Of Uk Macroeconomic Policy? Parmiters School Economics Essay

1228 words - 5 pages

To what extent do you agree that maintaining inflation at the target rate of 2% should be the top priority of UK macroeconomic policy? Justify your answer
The UK government has given the Bank of England an inflation target of CPI 2 % +/-1. The Bank of England is responsible for using monetary policy (e.g. interest rates)  to achieve this goal of low inflation. But, as well as targeting inflation, the Bank of England also has a wider remit of considering objectives such as economic growth.
During 2008 and 2010 the UK had inflation above the target as Bank of England were more concerned about recession
Summary – Should we aim for low inflation as the primary objective?
Since the spikes in inflation during the 1970s and 1980s, many economies have prioritised low inflation as the primary objective of monetary and economic policy. Low inflation has many benefits for an economy; it is seen as a building block for stability and encouraging investment. The hope is that by keeping inflation low, the economy will avoid ‘boom and bust’ economic cycles and provide a framework for economic stability and prosperity. If inflation gets out of hand, the economy will experience various costs of uncertainty, menu costs and loss of international competitiveness.
However, since the crisis of 2008, some economists have become increasingly critical of monetary/economic policy which targets low inflation and ignores other economic objectives such as full employment and economic growth. Critics argue that inflation targets can become too rigid, and recently (especially in Europe) the goal of low inflation has caused unnecessarily high unemployment and a prolonged recession.
Reasons why low inflation is a primary macroeconomic objective
There are many benefits of low inflation. Firstly, if inflation is low and stable, firms will be more confident and optimistic to invest; this will lead to an increase in productive capacity and enable higher rates of economic growth in the future.
Inflationary boom caused recession of 1991
If inflation is allowed to increase because monetary policy is too lax, there could be an economic boom. But if this rate of economic growth is above the long run trend rate of growth, it is likely to be unsustainable, and the boom will be followed by a bust (recession). This occurred in the UK in the late 1980s and 1990s. Economic growth was too fast, causing demand-pull inflation. By the time inflation increased to 10%, it was too late, and the UK needed a rapid increase in interest rates, which caused the recession of 1991/92. Maintaining low inflation will help avoid these cyclical fluctuations in the economy which can cause booms and recessions
If inflation in the UK is higher than other countries, UK goods will become uncompetitive causing a fall in exports and possibly a deterioration in the current account of the balance of payments. This is particularly important if a country is in a single currency or fixed exchange rate because they can’t...

Other Essays On Inflation priority of UK macroeconomic policy? - Parmiters School Economics - Essay

The effect of poverty on children in the UK - harvard university - essay

1196 words - 5 pages health. 85% of children living in houses and flats ridden with damp suffer breathing problems such as asthma, and almost half of the children in the UK who suffer from asthma are in the poorest 10% of families. Families have to strategically place their child’s bed in their bedroom to avoid being directly underneath the damp, so that they do not inhale anything harmful from it. Children in poverty are 2.5 times more likely to be absent from school

The demand for takeaways in the UK - Economics - Essay

1155 words - 5 pages The demand for takeaways in the UK Takeaway has been a concept that originated during ancient times; it is a meal or other food related items that is usually prepared by a fast food restaurant and one’s has to go pick it up or it can be delivered to one’s doorstep. Nowadays takeaways are very common worldwide and especially in the United Kingdom since most of the citizen are always busy and occupied with work. The demand for takeaways has

Benefits and Costs of Economic Growth - Economics class - Essay

862 words - 4 pages can speed up depletion of non-renewable resources.Such negative externalities can greatly worsen the standard of living for people. Furthermore, inflation can arise. This is as economic growth can lead to aggregate demand exceeding aggregate supply which will cause firms to push prices up as there isn’t enough supply for this increased demand. Because of this the central bank may reside to a monetary policy and decide to raise interests in hopes

The Economics of the Clothing Industry - Microeconomics - Essay

2360 words - 10 pages Mendez Jayden Mendez Prof. Frederick Coscia April 29, 2019 Economics of Streetwear/ Designer Clothing The clothing economy is truly worldwide. The average person spends around $161 per month on clothes; Others spend that on a shirt. From the earliest times, clothing has stretched out to the furthest reaches of human kind. In each geographic area of the world, individuals used whatever was readily available to them to craft clothing in their own

Sanctions as Instruments of US Foreign Policy - university of buckingham - essay

1989 words - 8 pages Cuban Sanctions', Mondaq Business Briefing, 2016, General OneFile, EBSCOhost, viewed 13 June 2017. LeoGrande, WM 2015, 'A policy long past its expiration date: US economic sanctions against Cuba', Social Research, 4, p. 939, Academic OneFile, EBSCOhost, viewed 13 June 2017. Neuenkirch, M, & Neumeier, F 2016, 'The impact of US sanctions on poverty', Journal Of Development Economics, 121, pp. 110-119, ScienceDirect, EBSCOhost, viewed 13 June 2017

The fact of taxation on consumption of sugary drinks - A level Economics - Essay

935 words - 4 pages Asses the effectiveness of different government policies that could be introduced to reduce the consumption of sugary drinks(use examples from the UK economy) (25marks) (In) The economic policy of governments covers the systems for setting levels of taxation, government budgets, the money supply and interest rates as well as the labour market, national ownership, and many other areas of government interventions into the economy. Market failure

Zero Tolerance Policy and Detention Centers - High school/ English - Essay

657 words - 3 pages Zachary Quinteros Mrs.Donahoe English 12 November 2018 Title Have you ever hated the feeling of being alone? Currently there are multiple children feeling immense despair due to the prolonged absence of their parents. As of October 12th, 2018 there are still 250 children separated from their parents according to the Washington Post. The reason behind the separation is fueled by The Department of Homeland Security and their policy on prosecuting

a role of government in policy making - texas government - essay

732 words - 3 pages Chapter 5 &11 Campaigns and Elections Political campaigns are exceptionally huge in American governmental issues and decisions. It is the period before the electorate settles on political choices as elections. The consideration of the citizens towards governmental issues increases as the date of the elections moves close. The striking nature of voters improves as the election date moves close and could show as expanded media consideration

Policy of Apeasment in World War II - Woodbridge High School, American History - History Question and Answer

960 words - 4 pages 1) The purpose of the above political cartoon to illustrate the concept of APPEASEMENT (A) 2) Which event was most recently preceded the creation of this cartoon? Blitzkrieg of Poland (B) 3) The purpose of the above cartoon is to illustrate the concept of APPEASEMENT (A) 4) Which of the following leaders WINSTON CHURCILL (C) 5) Why were the leaders of European democracies seen as “spineless” THEY THOUGHT GIVING HITLER WHAT HE WANTED (B) 6) Which

Explain how the business cycle model represents the dynamic nature of the economy - Castle Hill High School - Economics - Research Paper/ Essay

2099 words - 9 pages Year 11 Economics – Assessment Task 1 – Daniel Morris Part 1 – Explain how the business cycle model represents the dynamic nature of the economy Definition and Diagram of the Business Cycle Business Cycle The business cycle shows the rise and fall of economic activity in an economy. The business cycle is generally measured using the rise and fall in gross domestic product (GDP). The business cycle is split into four main phases which are

Sociology is the study of human interaction - Assignment school - Essay

1636 words - 7 pages understanding the production and distribution of diseases. This essay will showcase the two major sociological theoretical perspectives on health and illness which are functionalism and Weberianism. The essay will demonstrate the comparison between the two. Furthermore, it will briefly discuss how concepts from the two theories will contribute to the knowledge of health practitioners. One of the major sociological theoretical perspectives on health and

Similar Papers

Economics Macroeconomic Policies Hillsdale Essay

2885 words - 12 pages redistributing income, as well as reducing the level of inflation and unemployment within the economy. In this manner, fiscal policy is able to address areas of market failure, especially market instability, wherein there are severe fluctuations in the level of economic growth that distort economic decision-making, reduce consumers’ purchasing power, and force an increase in interest rates. A QUOTE OR TWO The main instrument used by the

Rigging The Game: Cpa As An Illegitimate Strategic Business Action London School Of Economics Essay

2165 words - 9 pages , 2000; Broadbent, 2000), South Korea (Kang, 2002) and Russia (Kubicek, 1996). Hillman (2004) identifies two types of CPA: proactive and reactive. Proactive CPA includes informing the decision makers about the impact of a policy, trying to reduce government regulation of the firm, making campaign contributions and lobbying (influencing legislative/regulatory process). Reactive CPA is mainly concerned with the tracking of the development of

Foundation Of Economics Essay Question Leicester Essay

1801 words - 8 pages provision of a good and this would cause market failure. Total word count for Q1 & Q2: 1454 References Parkins, M. (2012), Economics, Chapter G-11 Gronau, R. (1997), Journal of Transport Economics and Policy, Volume 33, Part 2, pp. 163-72 Litman, T. (2016), Victoria Transport Policy Institute [Retrieved from http://www.vtpi.org/tranben.pdf on the 30/11/2016] TFL. (2016), Camera Captures and Confirmed Vehicles seen in the Congestion Charge Zone by

Enterprise Analysis Of A Uk Company Asda Business School Essay

607 words - 3 pages . Asda is performing well to an extent. In the 2017 Financial Year, the company posted pre-tax profits of £791.7 million. However, this was a 19 percent decline from the previous year. Furthermore, sales declined by £700 million to £21.6 billion (Home Office, 2017). The company however reported that that they had 398,000 new shoppers. This increase in customer base, despite marginal market share decline, is promising because the UK Food and