badaman
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#1
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#1
How do Inflation and Unemployment conflict?
How do Inflation + Balance of payments equilibrium conflict?
(+ evaluation)
Cheers x
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Eeyeche
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#2
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If inflation is cost push inflation companies may look to layoff workers to reduce costs

If inflation is high our exports are less competitive internationally and so reduce causing the deficit to widen


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jesus313
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this thread is so moist loooooooooool
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aniqaaai
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#4
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#4
(Original post by badaman)
How do Inflation and Unemployment conflict?
How do Inflation + Balance of payments equilibrium conflict?
(+ evaluation)
Cheers x
Inflation is typically manipulated by the Monetary Policy Committee and to sustain inflation they may increase interest rates. This means that people save more as they get higher returns and spend less as it costs more to borrow, resulting in less money flowing in the economy. This might mean that firms are unable to sell as many goods and services leading to them having to lay off workers, which means higher unemployment.

Also the government might increase taxes to control inflation which means people have less disposable income and so consumption as a component of aggregate demand reduces leading to the same effects as above.

The same applies for controlling unemployment because the government might spend more to train workers which increases the overall spending in the economy and would make prices rise = inflation.

Do you know the Phillips curve? It shows that you can't have both sustainable inflation and low unemployment and that can be used as evaluation.

For inflation and balance of payments it's pretty similar. If you're controlling inflation by raising interest rates it can cause the exchange rate to go up. Strong pound means that exports are more expensive and imports are cheaper, so you'll import more and export less creating a disequilibrium on the current account.

For evaluation you could say that it may not be as significant as the UK has a marginal propensity to import due to our lack or raw materials etc.

(Sorry for the essay, hope it helped though)
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badaman
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#5
Report Thread starter 6 years ago
#5
(Original post by aniqaaai)
Inflation is typically manipulated by the Monetary Policy Committee and to sustain inflation they may increase interest rates. This means that people save more as they get higher returns and spend less as it costs more to borrow, resulting in less money flowing in the economy. This might mean that firms are unable to sell as many goods and services leading to them having to lay off workers, which means higher unemployment.

Also the government might increase taxes to control inflation which means people have less disposable income and so consumption as a component of aggregate demand reduces leading to the same effects as above.

The same applies for controlling unemployment because the government might spend more to train workers which increases the overall spending in the economy and would make prices rise = inflation.

Do you know the Phillips curve? It shows that you can't have both sustainable inflation and low unemployment and that can be used as evaluation.

For inflation and balance of payments it's pretty similar. If you're controlling inflation by raising interest rates it can cause the exchange rate to go up. Strong pound means that exports are more expensive and imports are cheaper, so you'll import more and export less creating a disequilibrium on the current account.

For evaluation you could say that it may not be as significant as the UK has a marginal propensity to import due to our lack or raw materials etc.

(Sorry for the essay, hope it helped though)
Don't be sorry, now I think I can get a High A due to that essay.
Cheers.
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