gcse economics - the big picture: remedies for inflation

How to reduce the level of inflation in an economy

1. REDUCE DEMAND PRESSURES

If inflation is caused by high demand then

* Raise interest rates to reduce consumers disposable incomes
* Raise interest rates to discourage borrowing and demand
* Raise taxes to reduce disposable income and spending
* These policies should all reduce peoples ability to spend too much money

2 REDUCE COST PUSH PRESSURES

If inflation is caused by high costs

• Limit wage increases if possible e.g. public sector workers
• Force electricity and gas companies to hold their prices
• Increase the value of £ in order to reduce the cost of importing

3. REDUCE MONEY SUPPLY PRESSURES

If inflation is caused by too much money in the economy

• Print less money
• Withdraw some money from circulation.

Each of the above approaches has its advantages and disadvantages.

POLICY 1 is effective but will be unpopular with consumers and may cause a minor recession

POLICY 2 could be effective but it is very difficult for the government to tell private firms how much to charge for inputs and also how much to pay their workers

ACTION

A Why will a rise in interest rates reduce demand in the economy?

These GCSE Economics revision notes have been kindly provided by Peter Davies of Mill Hill School, Ripley Keep Up-todate with your GCSE Economics - Subscribe Free to Economics in the News by Email

 

© Tutor2u Limited All Rights Reserved. All materials published on www.tutor2u.net are protected by copyright and may not be reproduced in part or in whole, for whatever reason, without the prior written permission of tutor2u. The use of tutor2u content for commercial gain of any kind is strictly forbidden. We reserve the right to take legal action against any party or parties found to have breached our copyright. Damages and other remedies are available to us in respect of copyright infringements. About tutor2u tutor2u is a leading publisher of e-learning resources for Economics, Business, Politics and related subjects. Our materials are used by over 3,500 schools and colleges in the UK and in educational institutions in over 85 other countries. tutor2u was named Online Learning Resource of the Year at the prestigious BETT Show - the World's leading educational show.

Privacy & terms of Use Our privacy policy is published here: www.tutor2u.net/privacy.asp. The terms of use of this website are set out here: www.tutor2u.net/terms.asp. " tutor2u" is a registered trade mark.

Contact us The sales team at tutor2u can be contacted by phone on 0844 800 0085. Orders can be faxed to 01937 529236. The office address is: Tutor2u Limited, Boston House, 214 High Street, Boston Spa, UK LS23 6AD   To contact tutor2u by email, please use this form: Tutor2u - Contact Form

Teacher Newsletters & Subject Blogs tutor2u publishes a variety of free teacher newsletters and blogs for our featured subjects. Teachers can access these materials here: Teacher Newsletters  A daily RSS feed for each of our free subject blogs can be accessed here