19 Deflation Understand that, as with inflation, Use one lesson to explain the impact of deflation on an economy (e.g. a fall deflation may be either demand side in consumer spending, increasing burden of private/public debt), falling or supply side driven and the effects nominal leading to mass unemployment). Use Japan as an example to will depend upon the cause discuss with learners and to understand the problems associated with – deflationary pressure caused by deflation. supply side improvements may be viewed as beneficial under some circumstances. Understand that demand-deflation can create major problems for economies and understand the costs of such deflation to households, governments and firms as well as the difficulties governments face when trying to end deflationary spirals once they have taken hold. 20 The Phillips Explain that there may be a trade-off Revisit the identified at AS level between unemployment and Curve: between inflation and unemployment inflation. Look at data for the UK 1970 to present day, and show that and in the short run and that such between 1980 and 1992 there were clear trade-offs present, but that in the have been observed in the UK. 1970s and post 1992 this trade-off is less apparent. Discuss possible reasons for the break-down of this trade-off, looking at firstly the Argue that Neo-Classical expectations augmented Phillips curve. Show that if unemployment is economists believe that the short consistently held below the NAIRU then inflationary expectations may build, run Phillips curve is not stable due to meaning that when the labour market returns to equilibrium, a higher level the role of expectations; in the long of wage and price inflation will now be locked into the system (and that run, attempts to hold unemployment therefore the LRPC is vertical). Show the impact of the 1973 oil shock in below its natural rate/NAIRU will this context. result in accelerating inflation and
19 Deflation Understand that, as with inflation, deflation may be either demand side or supply side driven and the effects will depend upon the cause – deflationary pressure caused by supply side improvements may be viewed as beneficial under some circumstances. Understand that demand-deflation can create major problems for economies and understand the costs of such deflation to households, governments and firms as well as the difficulties governments face when trying to end deflationary spirals once they have taken hold. Use one lesson to explain the impact of deflation on an economy (e.g. a fall in consumer spending, increasing burden of private/public debt), falling nominal leading to mass unemployment). Use Japan as an example to discuss with learners and to understand the problems associated with deflation. 20 The Phillips Curve: and Explain that there may be a trade-off between inflation and unemployment in the short run and that such have been observed in the UK. Argue that Neo-Classical economists believe that the short run Phillips curve is not stable due to the role of expectations; in the long run, attempts to hold unemployment below its natural rate/NAIRU will result in accelerating inflation and Revisit the identified at AS level between unemployment and inflation. Look at data for the UK 1970 to present day, and show that between 1980 and 1992 there were clear trade-offs present, but that in the 1970s and post 1992 this trade-off is less apparent. Discuss possible reasons for the break-down of this trade-off, looking at firstly the expectations augmented Phillips curve. Show that if unemployment is consistently held below the NAIRU then inflationary expectations may build, meaning that when the labour market returns to equilibrium, a higher level of wage and price inflation will now be locked into the system (and that therefore the LRPC is vertical). Show the impact of the 1973 oil shock in this context.
Eduqas%20Economics%20Course%20Outline%20(from%20September%202015).docx