Economics class. Charles Goodhart: ‘We’re in for a fiscal crisis down the road and we don’t know how to solve it’
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Specification:
Monetary policy, inflation, fiscal policy
Click to read the article and then answer the questions:
Charles Goodhart: ‘We’re in for a fiscal crisis down the road and we don’t know how to solve it’
Who is Charles Goodhart?
In his book with Manoj Pradhan, The Great Demographic Reversal, Goodhart identifies three key themes driving upside inflationary pressures: i) the role of China; ii) ageing societies; and iii) a lack of labour supply. Explain how each could potentially drive inflation upwards
“They didn’t see that Covid itself reduced the likelihood of a large return of labour”. Using a diagram, analyse the effects of labour shortages on wages and prices
Identify the factors which Goodhart cites as the main causes of “a fiscal crisis down the road”
What does Goodhart say about rational expectations?
With reference to the role of central banks, Goodhart cites a number of scenarios: i) “What would happen if the Ukraine war came to an end”; and ii) “What is the relatively minor increase in unemployment led to a significant reduction in wage demands, and then in unit labour costs”. Using AS/AD diagrams, analyse the effects of both scenarios on the UK’s real economy
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