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Inflation and Monetary Policy

Inflation remains an issue in the UK economy as it stays stubbornly above the Bank of England's target rate, despite the economic slowdown.  Here are the kind of questions you should be able to answer as an economist:

Read the following article:

http://www.bbc.co.uk/news/business-15344297

1.  Identify three points of interest in the graph.

2.  Explain what is meant by inflation and why it is regarded as a 'bad' thing for an economy.

3.  Using the article identify two main contributors to inflation and, with the use of a graph, explain what is meant by cost-push inflation.

4.  Explain the process by which monetary policy can be used to reduce inflation.

5.  Evaluate the extent to which the use of a 'tighter' monetary policy would be an effective way of reducing inflation in the current economic climate. Conclude with justified recommendations for the Monetary Policy Committee.

GDP and the economic cycle

You may have noticed that there is a bit of an economic downturn going on at the moment.  For students of economics this means that you need to understand the background to this, possible causes and possible solutions.

As a starting point you should be able to do the following:

1. Explain what is meant by GDP.

2. Identify three points of interest on the diagram below.

3. Using the diagram, explain what is meant by the economic cycle.

4.  Identify each of the components of Aggregate Demand and, using these, explain some of the reasons why the UK is currently experiencing low levels of economic growth.

5.  With regards to solutions, do some research as to how different countries are coping with the current economic crisis.  You might also want to look at how different political parties and different commentators view the issues.


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