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    How would foot and mouth affect house prices in britain?
    And secondly, explain why the rate of inflation is likely to increase if the rate of growth of GDP rises above the long run trend of growth of GDP.
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    All growth is inflationary as it is derived from an increase in aggregate demand. When demand in the economy increases, prices are driven up at least until the economy returns to equilibrium. There will come a point when an increase in aggregate demand has no impact on output and is purely inflationary.

    As for the first question, I can't really offer an explanation. It seems to be a rather bizarre link. Perhaps house prices in rural areas would fall due to a lack of demand? People may not want to live in affected areas. There would be a general slump in rural economies. Not only farmers but dairies, butchers and woolen mills would also be affected by the outbreak. It is probable that this slump would be reflected in local property prices
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    (Original post by calderstonesLFC)
    How would foot and mouth affect house prices in britain?
    And secondly, explain why the rate of inflation is likely to increase if the rate of growth of GDP rises above the long run trend of growth of GDP.
    I can think of two indirect causes. The first being that people in rural areas would see their income fall sharply, thus making it less impossible to afford new houses. And the second being that the uncertainty caused by such a disease would lead people to forego the chance to buy houses until the situation clears up. I don't think the effect would be very significant though.
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    (Original post by deutsch isttoll)
    All growth is inflationary as it is derived from an increase in aggregate demand.
    Incorrect.
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    Indeed growth can be stimulated from the supply side but this must be me by an increase in demand. New jobs cannot be created if there is insufficient demand in the economy. Firms will not produce items people do not want to buy and hence aggregate supply will not increase. I did not go in to aggregate supply initially as it wasn't really necessary in order to answer the question.

    One cannot deny that growth is inflationary. Sustained, above trend growth will cause inflation to build. During a boom, inflation poses a problem and so either interest rates are raised or the money supply is cut. This slows growth levels and brings inflation under control. Conversely, during a recession, a higher rate of inflation may be required to avert deflation. Cutting interest rates or increasing the money supply will stimulate growth and increase the rate of inflation.
 
 
 
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