Effects of Raising Interest Rates on Inflation

Effects of Raising Interest Rates on Inflation What causes inflation? How is inflation bad for the economy? How can raising interest rate lower inflation? (1000) Introduction Inflation is defined as continuing rise in the general level of prices, such that it costs more to purchase a typical bundle of goods and services that is produced or consumed or both. In simple words, inflation leads to a decline in the real value of money. Sloman (2006) explains that the rate of inflation measures the annual percentage increase in prices. Consumer Price Index (CPI), which is published every month, is used to measure the rate of change in consumer prices. Undoubtedly, inflation is an undesirable condition for an economy. Prior to discussing the consequences of inflation in the economy, it is important to understand the causes of inflation. Inflation may be caused by demand side factors or supply side factors. As it can be seen from the above diagram in the case of demand pull inflation the AD curve shifts to the right because of an increase in demand which leads to an increase in output. Thus it is associated with a booming economy. The suppliers will only be willing to supply more at a higher price therefore increase the level of price. Whilst in the case of cost push inflation, there is an increase in price as a result in an increase in the cost of production independent of aggregate demand. This may occur as a result of increase in wages, or it might be that import price has increased irrespective of an increase in demand. There might be an increase in the level of taxes as well. Therefore any factor which contributes to an increase in the cost of production which leads to a rise in inflation causes cost push inflation. As a result of which there is a shift in the AS curve to the left. The suppliers will not bear the increased cost of production and instead will shift the price to the consumers by increasing prices and as a result fuelling inflation. Amongst several harmful effects highlighted Gwartney et. al (2000) argued that inflation distorted the information delivered by prices. They further stated that people responded to high and variable rates of inflation by spending less time producing and more time trying to protect themselves from inflation. Furthermore, inflation results in increased uncertainty which reduces the level of investment. A reduced level of investment would hamper economic growth, which further restricts people having a better standard of living and may also lead to unemployment. Further criticisms are that inflation redistributes income away from those on fixed incomes and those in a weak bargaining position to those who can use their economic power to gain large pay, rent or profit increases. Higher levels of inflation also worsens balance of payments position, a higher rate of inflation makes a country’s export less competitive in world markets and imports become cheaper and more attractive. Bes ides, extra resources are used to cope with the effects of inflation. Increasing interest rates has been one of the solutions offered to combat increasing level of inflation. Inflation has for long been considered a monetary phenomenon and economists believe that inflation can best be tackled by adopting the monetary policy approach. The UK economy recently has been a good example of such measure. Inflation was 3.79% well above the 2% target and after the increase in interest rate in the past months to 5.5% and also an anticipated increase in interest rate has led the inflation rate to fall to 2.8% in April (Website: BBC). In the UK Bank of England sets the interest rates which controls the money supply and in turn controls inflation as well. The UK government follows a target and instrument approach to keep inflation under control. Increasing interest rates with a view to controlling inflation works in a manner that it reduces the money supply. People have an incentive to save rather than spend, therefore controlling the increasing rise in prices. Thi s measure is a useful approach though the government should be careful to not continuously raise interest rates and curb spending because it would then adversely affect aggregate demand thereby slowing economic growth. Besides interest rates, the government could also opt for fiscal policy measures by increasing level of taxes or may be reducing government spending and in that manner controlling supply of money, To tackle cost-push inflation, government could provide tax relief or provide subsidies to firms so that the cost of production reduces which could lead to the producers maintaining the level of prices rather than increasing them. Some economists have also stated that costs of inflation may be mild if the inflation is kept in single figures. Conclusion From the preceding paragraphs it can be said that increased level of inflation is not a desirable situation for an economy. However, a certain level of inflation is required in the economy to incentivise producers to produce more and better variety of goods and services. Inflation poses to be a problem when the level of increased prices dampens exports, reduces the competitiveness of a country and starts affecting the economic growth of the country by creating uncertainty and therefore leading to reduced level of investments. However, fiscal and monetary policy measures can be taken to control the increasing level of inflation. Increasing interest rates, leads to a restricted flow of money supply, resulting in reduced level of spending, saving more, demanding less of goods and services and therefore leading to a slower increase in price levels. Fiscal policy measures could also be used to combat inflation. More importantly for an economy to grow reducing levels of inflation is an imp ortant macroeconomic objective. In conclusion it can be said inflation can be adversely affect levels of economic growth if allowed to go out of hand and increasing interest rates is undoubtedly one of the ways, though not the only way, to tackle inflation. BIBLIOGRAPHY Dornbusch, R., Fisher, S., Macroeconomics, (2000), Eighth Edition, Mc-Graw Hill Education Griffiths, A. and Wall, S., Applied Economics, (2001), Ninth edition, FT Prentice Hall Gwartney, James D., Stroup, Richard L., and Sobel, Russell S., Economics Private and Public Choice, (2000), Ninth Edition, The Dryden Press. Sloman, J., Essentials of Economics, (2004), Third edition, FT Prentice Hall Howells, P and Bain, K, The Economics of Money, Banking and Finance, (2002), Prentice Hall Journals and Articles Carlstrom, Charles., Money Growth and Inflation: Does Fiscal Policy matter?, Federal Reserve Bank of Cleveland, April 15, 1999 Internet and Other Sources: http://news.bbc.co.uk/1/hi/business/6656899.stm

Motivation other than Money in the Workplace Essay -- Business Managem

The Motivation of Money Many people believe that they are motivated by earning money, but this is not always completely true as there are many other factors such as the conditions of the workplace and the need to be appreciated. There are many arguments that are both for and against money being the key motivator in the workplace. Some argue that being paid a good salary is important in attracting employees to a job and helps to keep them in the job. Although this money can become less of a motivator once the employee has been working for a time and the pay has become routine and expected. Although money may not be the only motivator in the workplace, it is the basis for the attitudes and behaviours of employees. If an employee feels they are being well paid and rewarded financially for their hard work and any extra effort, then they will be more likely to work hard and strive to gain these financial rewards. However if an employee is unhappy with the money that they are receiving for their work then it will be very difficult for them to be motivated in their work. One other view that supports money being a key motivator is that people feel that they are highly valued if they are receiving a decent salary. The higher their salary the more valued they feel within the organisation and so the more likely they are to work hard in their job and be motivated in their work. Cash awards can be a very effective way of motivating employees to meet targets and excel in their work. McGregor's theory of the reasons why people work shows that using these sorts of 'carrot' methods of motivating employees are often successful with the Th... ...ir needs have been met at a lower level before moving upward. For example, a person will not be motivated by love until they have had both their physiological and security needs met. Maslow's Model So in conclusion it is not always money that motivates, as although for a lot of people it is money that drives them this is not always the case. Money does however provide people with the ability to make choices and improve their quality of life. In order to motivate people, you need to find out what their wants are. It may be money, but this may not always be the case. People are motivated by a variety of items. It is the responsibility of the manager to find people's individual wants. In order to have motivated workers it is important for a manager to try to meet and attempt to satisfy these needs in some way.

Journal Entry African American Essay

Hello my precious unborn child. I am not really sure where to begin. The doctor is saying that I might not make it through this pregnancy but they will make sure you live to see this crazy world that we live in. I want to make sure that you understand your history and where you come from! What a journey our family has been through. They just don’t make it easy for an African American Family. Here we are and we have struggled just to make it here to the Deep South. We settled here in Ole Miss just like lots of other black folks and you would think that after they freed us from slavery they could just leave us be. I guess I should tell you a little about who we are and what we have been through so you have a clearer understanding. Well it started when we got here. Brought over on ships, our family was slaves to the white folk right here in Mississippi. There have always been stories told. Why, I remember when I was a little girl my grandma telling us the story of Nat Turner. (1998) He went on a rebellion right here in the South. He was on a mission fighting for what he believed in. He may not have gone about it the right way but he fought until his death on October 30, 1831. After that it seemed to be one person after the next until finally Abraham Lincoln issued the Emancipation Proclamation. This was issued in 1863. (1998)This was a valiant attempt at freeing the slaves here in the United States but it technically only freed slaves in the states that were under the jurisdiction of the Confederacy. You would think that would make things better. Nope! There was a 12 year period after that that they worked hard on trying to make things fair for us. Your great-great-grandma was around through the reconciliation period. She said that we were finally awarded citizenship and in 1870 an amendment went in that stated you could not deny us the right to vote because of our race. (1998) My great-Grandma told us that just when things started looking up†¦It got worse. The Democrats came in and changed everything. They started doing every thing that they could to put us back to having no rights. But we as a race stayed as strong as we could. What you have to remember is that making our way in this world has been and remains a consistent struggle. We made leeway though! A young lady buy the name of Sophia Packard and Harriet Giles were able to establish a college for the â€Å"Negros† as the white folk like to call us. This was the first college for African American females. Spelman College’s goal at the time was merely to teach black women to read and write. And that they have done. But here I sit in 1963. A 33 year old female who isn’t sure what is going to be in her future. They call us free. I have to ask myself daily though, â€Å"Am I really free? † I mean we have separate schools. We eat in separate restaurants. (2010) They give us totally different bathrooms to use and all this is because of the color of my skin. I look at this world and I think to myself, â€Å"I put my clothes on the exact same way as everyone else. † Should the color of our skin really make things so much different for us? Every single day we have leaders out there fighting for what is fair and what is right. Take Martin Luther King for instance. (2007) He is on a mission. He is part of a group called the SCLC. (Southern Christian Leadership Conference) He has made major strides. I mean in Montgomery Alabama the black folks get to ride on the same buses with the same rights as the white folks. I can only hope that by the time that you grow up and are able to read and understand all this that you look at all this and have a hard time believing it. As I sit here and write to you and I look across the street of this tiny little home I live in I see the neighbors and in their front yard is a cross that someone has lit on fire. Why, because today he walked a white girl to school. Rumors started and now everyone knows that this little girl likes him. Yet he is being punished for it. It shouldn’t matter. If there is one thing that you need to know and one thing that I can teach you through this letter it is to be you. Know yourself. Never let anyone tell you that you can not do something. Most importantly, remember that loves has no boundaries. It sees no color. It does not understand hate. It does not segregate nor does it discriminate. I hope that you never have to endure the hardships that we have to endure during these trying times. Always remember to live with no regrets and never look back! I love you with all my heart-. Momma Works Citied Page African American Slavery (1998) Long Island University Retrieved from http://www. liu. edu/cwis/CWP/library/aaslavry. htm#turner Timeline Search for African American History (2010) Google Search Engine http://www. google. com/search? q=african+american+history&hl=en&sa=X&tbo=p&tbs=tl:1,tll:1850,tlh:1899&ei=lrPUS9avLoK78gbfpL3qDw&oi=timeline_histogram_nav&ct=timeline-histogram&cd=8&ved=0CIcBEMkBKAg History of African Americans Information Please Database. (2007) Pearson Education, Inc. Retrieved from http://www. infoplease. com/spot/bhmtimeline. html.

Sex Strict Dimorphism Or Sexual Haploid - 1620 Words

Sex: Strict dimorphism or sexual multiplicity The discussion of genes and gender and the respective roles they play in determining sex and identity have been widely discussed in recent decades. The idea that biology can solely determine ones sex, wherein no external factors impact that determination requires further discussion. The topic of whether there are strictly two distinct genders represented in society has been recognized largely as a western cultural viewpoint. While not everyone agrees with this viewpoint, one biologist that plays a role in this discussion is Anne Fausto-Sterling. She is an expert in gender development and wrote extensively on the subject of gene and gender. In this paper I will discuss Fausto-Sterling’s view on sex and gender, and how she undermines the idea of strict universal dimorphism. Being that sexual dimorphism is the favored view of most in the scientific community, this discussion comes with some controversy. She states that with the understanding of intersexed individuals in so ciety, we as a society must abandon the idea that there are only 2 sexes. In order to best understand what determines sex we must start at the very beginning. In the terms of philosophy, sex is defined in the literature as the biological designation of an individual as either male or female. Biologically speaking, it is widely accepted that all we have to do is look at the complement to the 23rd chromosome to determine the sex of an individual. But