We can explain the acceleration in the rate of inflation by looking at what happens in the labour market. As output rises, unemployment will fall and supply of labour is reduced (Tightening Labour Market). Firms must compete to attract skilled workers and as a result wages rise, this leads to an increase in costs of production, which ultimately feeds through as higher prices. If AD continues
Chapter 15 Price Levels and the Exchange Rate in the Long Run ( Answers to Textbook Problems 1. Relative PPP predicts that inflation differentials are matched by changes in the exchange rate. Under relative PPP, the franc/ruble exchange rate would fall by 95 percent with inflation rates of 100 percent in Russia and 5 percent in Switzerland. 2. A real currency appreciation may result from an increase in the demand for nontraded goods relative to tradables which would cause an appreciation of the exchange rate since the increase in the demand for nontradables raises their price, raising the domestic price level and causing the currency to appreciate.
There are several ways in which changes in interest rates influence aggregate demand, one of the main changes are through the housing market & house prices. For example higher interest rates increase the cost of mortgages and eventually reduce the demand for most types of housing. This will slow down the growth of household wealth and put a squeeze on equity withdrawal (consumers borrowing off the back of rising house prices) which adds directly to consumer spending and can fuel inflation. Another situation where the monetary policy increases AD is through disposable incomes of mortgage payers. For example, if interest rates increase, the income of homeowners who have variable-rate mortgages will fall – leading to a decline in their effective purchasing power.
If anything affects these factors will result in affecting the demand. For example, if inflation is getting too high, interest rates will be increased to stabilize the economic growth in the economy. This is the result of having the economy already close to full capacity which means that a further increase in AD will mainly cause inflation. Demand side policies include monetary policy and Fiscal policy. Monetary policy are actions of central bank, currency board or other regulatory committee that determines the size and rate of growth of the money supply, which in turn affects interest rates.
ECO1101: Principles of Microeconomics Introduction In the world today, there are many reasons why the price of petroleum is increasing. In this assignment I have explained why the petroleum price increases and the demand and supply factors are causing the price to increase. Statistics show that the price increases because of income, expectation and so on. What the government do to subsidise the price from rising to high is caused by the instability of the Middle East market. This is the statistic graph: i) Using demand and supply analysis (market analysis), discuss in detail TWO demand factors and TWO supply factors that have led to the increase in price of petroleum in the world.
First, when demand is greater than supply the gas prices rise; if it costs more to produce and supply it or if people buy more of it at the current price. On the other hand, when supply becomes greater than demand the gas prices fall; if it costs less to produce and supply or people buy less gas at the current price. When the price where the quantity consumers demand matches the quantity that producers supply the prices will stop rising or falling and become steady. Second, how high or low the price of gas is will be determined by how the consumers and producers respond to these price changes. The most important factor in the price of gasoline in the U.S. is the worldwide supply, demand and competition for crude oil.
Q1) what are the driving forces in the fast food industry in 2004? Ans: - The main driving forces in the fast food industry in U.S fast food industry were the economic, social and technological factors. Economic factors:- a) Inflation rates: - Food prices, worldwide have shot up over the decade or so. Food cost is the highest expense in the chain’s total costs; thus inflation of food costs would result in profit margins being squeezed. For e.g.
Consequently, inflation also reflects erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. Different economists have defined the term ‘inflation’ in different ways. Basically inflation can be defined in two ways. Earlier writers based their definition on the well known Quantity theory of money and explained inflationary trends in prices in terms of an increase in the supply of money. Irving Fisher is of the view that the prices are affected much more by the supply of money than by supply of goods.
The higher the rate there will be more increase in price of goods, which is called high inflation. Before 2012 we can see the rate of inflation is very high (5%) compare with 2013 rate (2.7). There are two general theories which are the causes of high inflation: - Demand pull inflation: When there are high amount to spend and fewer amounts
Expansion is measured from the trough of the previous cycle to the peak of the current cycle, while recession is measured from the peak to the trough. During a boom there is high levels of consumer spending, business confidence, profits and investment. In addition, prices and costs also tend to rise faster and unemployment tends to be low as growth in the economy creates new jobs. During a recession falling levels of consumer spending and confidence means lower profits for businesses, which then start to cut back on investment. Also recession increases spare capacity and unemployment rises as businesses cut back and reduce stocks.