Government Strategies to Control Inflation

Government Strategies to Control Inflation With reference to the UK, examine and discuss the methods open to a government to control the rate of inflation within an economy. Introduction Inflation refers to an increase in the price level of goods and services in a given economy. Since inflation is concerned with increases in the cost of living rather than increases in the cost of a particular good, it is measured using a price index which monitors the price of a weighted ‘basket’ of goods. In the UK, the main price indices are the Retail Price Index (RPI), the Retail Price Index excluding Mortgage Interest Payments (RPIX) and the Consumer Price Index (CPI). Responsibility for the control of inflation was handed from the Treasury to the Bank of England in 1997 at which time the RPIX was used to measure inflation and the inflation target was set at 2.5%. Since December 2003, the CPI has replaced the RPIX as the main inflation measure and the target has been set at 2%. Diagram 1 (below) depicts annual inflation rates in the UK from 1997 to 2007 as measured by both the RPIX and the CPI. This essay will first outline the main theories put forward to explain the causes of inflation and the methods that each theory suggests would control inflation. The next section considers inflation in the UK from 1997 to date, and then evaluates the measures employed by the Bank of England in order to try to control inflation in that period. Causes of inflation and methods of inflation control There are two main schools of thought on the causes of inflation. The Keynesian school posits that changes in the real supply of or demand for goods and services are the key causes of inflation. Thus in order to reduce inflation, an expansion in supply or a contraction in demand is necessary to reduce the price level. This can be achieved through fiscal or monetary policy or a combination of the two. Fiscal policy such as an increase in income tax rates, has the effect of reducing effective demand for goods and services and thus can be used to lower inflation. Furthermore, a reduction in sales taxes (VAT in the UK) can reduce inflation to the extent that that inflation is caused by an increase in consumer prices. Monetary policy, through an increase in interest rates, can reduce aggregate demand through discouraging borrowing, increasing saving and reducing the disposable income of homeowners as the cost of mortgage repayments increases. The monetarists, on the other hand, argue that inflation is caused primarily by changes in the supply of and demand for money. In this view, then, inflation can be reduced either by reducing the supply of, or increasing the demand for, money. Given that either the government or the central bank (as in the case of the UK where the Bank of England has had independence on monetary policy since 1997) sets the price of money (i.e. the interest rate), they are able to control the supply of and demand for money. This suggests that fiscal policy can be used to affect aggregate supply and aggregate demand while monetary policy can be used to affect aggregate demand (particular in an economy with a high level of mortgaged home-ownership) and the supply of and demand for money. Inflation in the UK and Bank of England control measures from 1997 to 2008 The diagram above shows UK inflation (as measured by RPIX and CPI) from 1997 to 2008 together with the inflation targets set for the Bank of England by the government. This shows that from 1997 to 2003, inflation was held within 0.5% of its target. In 2004, inflation as measured by its (then new) CPI target was on the low side but from 2005 to 2007, it was within a healthy 0.5% range of target. In recent months, however, inflation has been climbing and is predicted to go over 3% at some point before the end of 2008. In order to understand inflation and inflation control in the UK, it is necessary to understand some of the specificities of the UK economy. In the first place, the nature of the UK housing market (which is characterized by high loan-to-value ratios, relatively few long-term fixed rate mortgages, and ease of re-mortgaging) makes house prices particularly responsive to interest rates. Cameron (2005:3) explains that ‘a one percentage point rise in the short-term real interest rate would reduce house prices over a five year period by 2.6% in the UK, 1.8% in the US, and 1.3% in Germany.’ Furthermore, in the UK, house prices have a major impact on consumer spending. Cameron (2005:3) explains that house prices are more volatile in the UK than elsewhere in the developed world, and that the impact of house prices on consumer spending is also particularly heavy in the UK – according to the OECD, a 1% fall in UK housing wealth correlates with a 0.07% fall in consumer spendi ng. This can be seen as due to the high levels of home ownership and the high loan-to-value ratios of mortgages. This demonstrates that while monetary policy can be very effective in reducing aggregate demand via just a small increase in interest rates, the converse is also true – in other words, a small reduction in interest rates will have a significant effect on aggregate demand and so will lead to a significant increase in inflation. This last point is well illustrated by the current situation in the UK. The Bank of England is mandated to control inflation (as mentioned previously the target is 2% as measured by the CPI) but has control only over monetary policy and not over fiscal policy. Monetary policy impacts economic growth as well as inflation and therefore when the economy is slowing (as is currently the case) and potentially heading towards recession, interest rates may be used to stimulate growth even if this may also increase inflation to an unacceptable level (when it goes over 3% the governor of the Bank of England must write an explanatory letter to the Chancellor of the Exchequer). As the Economist (2008:38) explains, in January of this year, ‘consumer prices were 2.2% higher than a year ago—a bit above the governments 2.0% inflation target. The banks central forecast shows inflation heading up to 3% by the third quarter of this year.’ The Bank of England (2008) itself certainly blames the predicted escalation of inflation over the acceptable 3% level on the problem of balancing growth objectives with inflation targets given that monetary policy is the only tool at its disposal, claiming that the ‘combination of slow growth and above-target inflation poses substantial challenges for policy.’ Conclusion The Bank of England (2008) explains that ‘higher energy, food and import prices push inflation up sharply in the near term.’ This is echoed by analysis in the Economist (2008:38) which claims that increasing ‘home-energy bills, which have jumped by nearly 15% so far this year, will add almost half a percentage point to consumer-price inflation in February. Food-price inflation, which is currently 6.6%, is likely to rise further. Import prices will be pushed up by a weaker pound, whose 6% fall in the last three months was the biggest since sterlings ignominious exit from the European exchange-rate mechanism in 1992.’ In order to address this kind of inflation without stifling economic growth at a time when growth is already slowing, policies need to be directed at aggregate supply of goods and services. As was outlined above, monetary policies have an impact on the supply and demand for money and also on aggregate demand for goods and services. However, only fiscal policy impacts the aggregate supply of services. Thus in the context of low levels of growth and high levels of inflation, monetary policy (as controlled by the Bank of England) is not sufficient because if it focuses on controlling inflation it cannot also reverse the slowdown in economic growth, and if it focuses on economic growth, there is a danger that inflation will get out of control. Thus inflation controls should draw on a combination of fiscal and monetary policy. References Bank of England (2008) ‘Overview of the Inflation Report February 2008’ (downloaded from http://www.bankofengland.co.uk/publications/inflationreport/infrep.htm on 4 March 2008) Cameron, G. (2005) ‘The UK Housing Market: Economic Review’ (downloaded from http://hicks.nuff.ox.ac.uk/users/cameron/papers/ukhousingmarket.pdf on 4 March 2008) Economist (2008) ‘Economic woes: Fighting on two fronts: Britain’s central bank gets gloomier about growth and inflation’ in The Economist, February 16th-22nd 2008, p.38 OECD (2005) ‘Economic Survey of the United Kingdom, 2005 (downloaded from http://www.oecd.org/dataoecd/18/34/35473312.pdf on 4 March 2008) Office for National Statistics (2008a) ‘RP07 RPI all items excluding Mortgage Interest Payments (RPIX) percentage change over 12 months (CDKQ)’ (downloaded from http://www.statistics.gov.uk/downloads/theme_economy/RPIX.pdf on 4 March 2008) Office for National Statistics (2008b) ‘CPI12 CPI all items percentage change over 12 months (D7G7)’ (downloaded from http://www.statistics.gov.uk/downloads/theme_economy/CPI.pdf on 4 March 2008)

The Rocking Horse :: essays research papers fc

Within the story entitled The Rocking Horse Winner by D.H. Lawrence, the audience is divulged into the sordid family life of a adolescent boy named Paul, where there are three obvious morals told through the story’s style and symbolism. Also present within The Rocking Horse Winner are elements of supernaturalism and cold harsh reality.   Ã‚  Ã‚  Ã‚  Ã‚  The first distinct moral in The Rocking Horse Winner is that we must not let ourselves be succumbed to greed and the need for materialistic items over our responsibilities in life. The mother and father’s obsession with wealth and material items is at battle with their parenting responsibilities within The Rocking Horse Winner. The mother and father have replaced love with the constant, overwhelming desire for additional money. It is the responsibility of the parents to provide for the children in their family. Especially, where as young children are concerned, they should never feel the need to provide for their parents. The Rocking Horse Winner portrays the financial destruction of an upper class family struggling to maintain their high level status while regularly spending beyond their means. The mother and father have expensive tastes that can not be supported with their mere common jobs. In order to give their family the best and retain their illicit s tatus, both parents embezzle all of their resources to -1- purchase materialistic things. The Rocking Horse Winner depicts how greed and the need possessions and money drives a member of this upper class family to resort to drastic measures. (Lawrence; The Rocking Horse Winner Study Guide)   Ã‚  Ã‚  Ã‚  Ã‚  The second obvious moral to The Rocking Horse Winner is that often one does not realize what they have and how they we feel about it until it is gone. Early on within the story we learned that Paul’s mother had attractive, bonny children. Yet, â€Å"when her children were present she always felt the center of heart go hard†. She knew â€Å"that there was a place in the center of her heart where she could not feel love for anybody, not even her children†. Later on in the story, the mother goes on to show her emotions and love when she has â€Å"seizures of uneasiness† about Paul and finds him fiercely riding his rocking horse into unconsciousness and finally plumaging to his death. When she is presented with losing her child, she realizes what she had, a little too late. (Lawrence p.980, 988)   Ã‚  Ã‚  Ã‚  Ã‚  The third apparent moral to The Rocking Horse Winner is even if you have good luck, eventually it will run out.

Barings Bank’s Failure

When establishments, businesses and organizations are prosperous and very successful, barely anyone anticipates that someday they would fall down. Instead, people tend to envision a more dynamic, booming and more successful business whose position would seem stable that no problem can shake it down. This is exactly the case with the Barings Bank. After its share of success, the bank failed due to organizational architecture.The debacle of the Barings Bank, also called the â€Å"Queen’s Bank† (FundingUniverse, n. d.), became one of the hot topics when it comes to banking, finance, economics and management. The case shows an example of how one powerful company can be ruined by its shortcomings.The Barings Bank achieved success for a long time and was even respected as it was the United Kingdom’s oldest merchant bank (Sungard, 2009). It was established by a team of brothers, Francis and John, in London during the 1700s. During the Napoleonic Wars, the company financ ed military campaigns in Britain and helped France to recover financially.The company was also known for assisting America in buying Louisiana from France. Prosperity also rained down when the bank went into international trade (FundingUniverse, n. d. ). Barings Bank has $900 million in capital, but its share of success suddenly went to a halt in 1995 when it suffered from unauthorized trading losses which amounted to $1 billion (Sungard, 2009). Some experts say that the losses showed the ineffective controls and inappropriate incentives within the company (Hentschel and Smith, 1996).Others think that the demise was a result of financial risk management that went wrong (Riskglossary. com, 1996). For whatever reason, the person responsible behind the bank’s demise was Nick Leeson, a trader promoted as general manager in the Singapore branch. Although he was capable of making millions for the company, he got involved in unauthorized trading activities that initially went unnoti ced because he handled trading and back office functions (Sungard, 2009). Leeson traded and made mistakes which the bank’s management did not notice. The more bets Leeson made, the more money he lost.This indicates that Leeson, who has gained much power and authority, has acted outside the bank’s official authority and worked not in the best interests of the bank’s owners (Hentschel and Smith, 1996). This kind of problem occurs in different settings wherein employees, shareholders and senior management have different interests. It occurs when an agent such as Leeson enjoys private incentives to stray from things that would maximize the company’s value. Also, the structure of the organization can affect employee’s incentives. Thus it can worsen or control the problems.Three facets of organizational architecture that have effects are reward systems, decision rights and control systems. In reward systems, a compensation package must be readily availab le and must have â€Å"strong incentive components. † In Leeson’s case, however, the objective is to generate profits and not to stabilize firm value. Compensation based on the contract’s payoff can have bad side effects. Decision rights, on the other hand, indicate that decision rights must be allocated to treasury employees so that internal controls at low cost will be improved.However, traders and dealers like Leeson have extensive decision rights over their positions. Meanwhile, control systems in the Barings Bank case failed because a difficulty in monitoring within the company existed. The senior management at Barings Bank claimed that they were unaware of Leeson’s activities. To prevent such cases there should be strict control and supervision on business activities. The company could have set position limits so that traders and dealers will not be able to abuse their positions. Another shortcoming of Barings Bank was that it did not separate settl ement and trading responsibilities.Otherwise the company could have monitored all sorts of activities because the separation can facilitate agreement with the set position limits (Hentschel and Smith, 1996). The failure of Barings Bank was attributed to its organizational architecture. Nick Leeson, a trader whose losses caused the bank to go into bankruptcy, worked to generate profits. The power and authority that came with his position blinded him into making bets that he did not win. The bank, on the other hand, failed to make careful control and monitoring over the activities done on its part. References FundingUniverse.(n. d. ). Barings PLC. Retrieved January 8, 2009, from http://www. fundinguniverse. com/company-histories/Barings-PLC-Company-History. html Hentschel, L. and Smith, C. W. (1996). Derivatives regulation: Implications for Central Banks. Retrieved January 8, 2009, from http://www. simon. rochester. edu/fac/Hentschel/PDFs/DRICB. pdf Riskglossary. com. (1996). Barings debacle. Retrieved January 8, 2009, from http://www. riskglossary. com/link/barings_debacle. htm Sungard. (2009). Barings Bank. Retrieved January 8, 2009, from http://www3. sungard. com/bancware/default. aspx? id=4704

Alcohol Abuse Intervention Strategies For College Students

Alcohol Abuse Intervention Strategies Andrew J. Leonard Midland University Alcohol Abuse Intervention Strategies There is no doubt that college campuses are filled with alcohol. Many students engage in alcohol consumption and some also use drugs. Although alcohol use is widely accepted in the college student population there are intervention plans attempting to limit alcohol consumption to protect students from the negative consequences. This is a compilation of a few different strategies for alcohol reduction. According to Dr. Amaro of the Institute on Urban Research at Northeastern University in Boston, Massachusetts and Reed, Rowe, Picci, Mantella, and Prado, (2010), implementation of the â€Å"Brief Alcohol Screening and Intervention†¦show more content†¦357). This intervention aims to reduce both frequency and amount of alcohol consumed regularly by college students. The study focuses primarily on†¦ â€Å"Specific subgroups of university populations such as mandated undergraduates, fraternity and sorority members, and incoming freshman† (Amaro, 2010, p. 357). Th e intervention consisted of two sessions ranging from 45 minutes to 60 minutes in length and â€Å"the student was given alcohol self-monitoring cards to complete with the study nurse between the first and second sessions† (Amaro, 2010, p. 358). On the second session students received a personalized feedback packet that contained different data such as their readiness to change, their alcohol consumption, and other things like their belief about alcohol consumption (Amaro, 2010, p. 358). In order to ensure proper intervention procedures nurses were sat in on by other nurses to ensure proper protocol (Amaro, 2010, p. 358). After completing this intervention students were asked to have one follow-up 6 months later and †¦ â€Å"there was a significant decrease in participants’ reports of past 6-month alcohol use†¦Ã¢â‚¬  (Amaro, 2010, p. 358). Theory Based Intervention From the journal written by Caudwell, Mulan, and Hagger (2016) one way to decrease alcohol use in undergraduates is through developing â€Å"behavioral interventions