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Evaluate the policies that could be used in the UK to meet inflation targets - Essay Example

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From the year 1989 until 2015, the rate of inflation was 2.73%. The highest inflation rate was recorded on April 1991 at 8.50% and lowest February this year at 0%. The low price of fuel and energy caused the rate of…
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Evaluate the policies that could be used in the UK to meet inflation targets
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Download file to see previous pages The UK, just like the US and Germany, has a growing workforce, and its wages has also been increasing. The Europe’s unemployment rate was 9.8 % in March this year while it was 10.4 % last year the same time. In Europe, the lowest unemployment rates in March 2015 were Germany (4.7 %) while the highest was Greece (25.7 %) (Trending Economics 2015).
Demand side Inflation happens when there is a surplus of demand for goods and services over the supply; the supply remains constant. Demand pull inflation involves the rise of inflation as gross domestic product increases. At the same time, the unemployment levels will be expected to fall as witnessed in UK (Thirlwall & Barton 2014).
The situation is contributed by the increase in the government expenditure and no change in the tax structure. The rise in income of households is a major contributor of demand for goods and services. The increase in the supply of the money in the country leaves more non-reusable income with the people causing the demand for products and services (Miles 2014).
A loose monetary policy can cause the increase in money supply. In addition, inflows from other nations because of export will enhance the money supply. In UK, demand-pull inflation may be attributed to increasing disposable of the citizens. As the levels of income of people go up, the demand to buy things also go up (Willett & Laney 2014). When demand goes up, and supply remains stagnant, prices of goods will go up leading to demand pull inflation.
The government must make every effort to ensure that there is a balance between demand and supply to eliminate any case of inflation. When there is a surplus in demand, there should be strategies to ensure that the demand is met expeditiously. Inflation is not good for any country hence the need to maintain it at a low level.
Cost push inflation emanates from supply side; the rise in the cost of production and a constant demand causes ...Download file to see next pagesRead More
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