This has been a really odd section of the course.
The OU website and study planner has played its part in adding to the general confusion of what to study when. The week numbers bare no relation to the chapter numbers, and given that there have been 2 weeks holiday break plus one week of study completely online, it meant that yesterday at the tutorial everybody, including the tutor, had problems referring back to specific points in previous weeks study, and I wasn't the only person to have studied bits out of order, not that that is a problem in itself.
So far then in summary the chapters have covered,
Chapter 7:
- Supply side reacts to increased demand when
there is spare capacity, and when labour and capital are being wasted.
- Fiscal and monetary policy is demand side
economics.
- CPI = (CPI CURRENT PERIOD – CPI PREVIOUS
PERIOD / CPI PREVIOUS PERIOD) x 100
- Inflation, deflation, zero inflation
- Inflation
erodes what nominal wages can buy, and what GDP represents, they both need to
grow to counter inflation erosion. Wages need appropriate increase
- Nominal wages : actual wages earned, Real wages : purchasing power.
- Real Wage = nominal wage W / price level P
- Pi(inflation) = PiL(lagged inflation) +
alpha[importance usually =1] (Y – Ye) [output – output at equilibrium or output
gap]
- Phillips Curve and Vertical Phillips Curve
Chapter 8:
- Demand shock, supply shock (I found it difficult sometimes to tell the difference between the two, but Demand Shock changes aggregate demand, and therefore inflation, which supply shock changes prices,and therefore causes inflation but without changing aggregate demand)
- Dangers of deflation - real value of
debt increase
- Real interest rate, R = I – pi [where i = nominal rate which
can fall to zero, pi = inflation or deflation]
- Base rate is nominal rate of interest (i), but
what matters is real rate of interest (r), rate of inflation (pi), r = i – pi
- Transmission Mechanism
- The MR curve
is the line showing policy makers chosen path of adjustment to the target rate
of inflation.
- IS Curve : Interest
Rate to Aggregate Demand
- Phillips
Curve : demand pressure to inflation
- Inflation
only stable with no output gap.
- Supply
shock, could be an inflation shock due to an increase in fuel tax.
- Steeper the
MR Curve, gentle inflation aversion, Flatter MR Curve, strong inflation
aversion.
- MR curve
allows gradual adjustments to target inflation by allowing output/interest rates
to return gradually to target after the initial output gap has been created.
- BoE is an independent central bank.
- Credibility, Independence, Transparency
- Conflicts of targets ?
- 100 % Credibility can return inflation vertically down the VPC
without creating output gap and
unemployment.
- Inflation bias and time inconsistency
- Full employment no longer a target
- Credibility, decide what to do and keep doing it. –
consistency brings credibility.
Online week 12 – Describing Economic
Data
- understand the different
ways of defining measures of ‘averages’, also called measures of
central tendency – mean and median - skews
- be able to describe and
interpret data in terms of its variability, in particular using measures
of dispersion – Standard Deviation and Coefficient of Variation
- familiarise yourself with
two ways of presenting data – the frequency table and the frequency chart
or histogram
- consolidate your
understanding of inflation targeting and these data techniques through
applying them to data about inflation in a range of countries
- be able to use Dataplotter
to help you to analyse data.
- Questions
i.
Is median
higher or lower than the mean and by how much and why.
ii.
Is
standard deviation high or low, is coefficient of variation high or low, are
the both high or low if not why not.
Chapter 9 and Chapter 10 to go and then its on to the TMA.
Week 15: Using an economic simulator
