Black = Patrick Bateman
Red= Me
The current Britain inflation rate is 3,3%. Current Bank rate is 0,5%. Such a difference makes further inflation increase possible and probable. The threat of higher inflation is high and, therefore, some say that increase in interest rate is inevitable.
Current bank rates? Well the current bank rates are more about 3-4 % although yes the Bank of England rate is 0.5%
2) What are the arguments against a rise in Bank rate at the current time?
Higher interest rates may decrease the demand. After all, the higher they are the more expensive the mortagages. British economy is already vulnerable, so increasing the i.r. is a risk of another economic slow down.
Mortagages?
3) What information would you require to decide which of the arguments was the
more powerful?
The type of inflation has to be considered. Todays inflation comes from indirect taxation, food and energy, which , as experts argue, the MPC has not real influence on. So increase of increase rates may be actually a worse solution, regardless the current rate of inflation.
Increase of increase? The questions asked what information you need to decide what argument is more powerful not what the UK government should do.
4) Why is it difficult to decide the size of the output gap?
Because in such difficult and unpredictable economic times it is hard to guess what potential GDP is going to be.
4) Why is it difficult to decide the size of the output gap?
Because in such difficult and unpredictable economic times it is hard to guess what potential GDP is going to be.
It is difficult to decided the size of the output gap because all the data and statistics we receive are already old when we receive them.
5) To what extent do the arguments for and against a rise in Bank rate depend on
the factors determining expectations, and what expectations are important here?
Most of all the increase of the wages is to be considered. If wages are to increase, than the increase of i.r. would be more likely, as people would afford more expensive mortgages.
Yes but why only wages? Are the expectations for inflation important? or interest rates? or normal good?
6) To what extent are exchange rates relevant to the effectiveness of interest rate
policy?
5) To what extent do the arguments for and against a rise in Bank rate depend on
the factors determining expectations, and what expectations are important here?
Most of all the increase of the wages is to be considered. If wages are to increase, than the increase of i.r. would be more likely, as people would afford more expensive mortgages.
Yes but why only wages? Are the expectations for inflation important? or interest rates? or normal good?
6) To what extent are exchange rates relevant to the effectiveness of interest rate
policy?
Well it would be useful if you actually wrote something so i could comment on it. You might have said that when the interest rates are low then the exchange rate is low since there is no demand for the pound. Although on the other hand if the interest rate is high e.g. there is demand for foreign investors to buy the pound and put it into banks in the UK. A strong exchange rate resulting in cheap imports and expensive exports causing leakages therefore at this time point the UK would prefer a low exchange rate, to have expensive imports but cheap exports.
Just a word of advice for your blog, proof read what you write and spell check.
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