Macro: Inflation and Aggregate Demand Essay

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The current state of the United Kingdom’s economy.

Inflation
The Consumer price indices is the change of the general level of the price of goods and services bought from an average household, food and gas and electric etc. The consumer price index made no change from October to November and is currently standing at 2.7% (www.ons.gov.uk, 2012). Most of the upward inflation came from food and non-alcoholic drinks, increasing by 1.1%, i.e. lemonade bread and vegetables. Also gas and electric put a huge pressure on the increase of CPI. The most significant downward pressure came from alcohol and tobacco, transport and furniture and household goods at, -0.5, -1% and -0.1%. Currently the government goes off CPI for benefits and pensions.

RPI and CPI 12-month percentage change
United Kingdom Source: Office for National Statistics

The retail index price is the price is commonly bought goods are compared month by month. The total value is given an index number of 100 and then each month can be compared.
I.e. Basket of goods in year 1 cost £200 meaning the index number is set at 100.
Year 2 prices increase to £240 – a raise of 20% meaning the index equals 120.
Year 3 prices increase to £250 – a raise of 25% meaning the index equals 125.
Currently the retail price index annual inflation stands at 3%, 0.2% down from October 2012. The pressure to decrease the retail price index percentage came from motoring expenditure, housing and house hold goods.
Unemployment
To be classed as unemployed the person has to be without a job, want a job, have actively sought work in the last 4 weeks and are able to start work in the next two weeks. Also someone out of work and have found a job, that are waiting to start within the next two weeks, can be classed as unemployed.
In August to October 2012 the unemployment rate was 7.8%, for those ages 16 to 64. Over all there are 2.51 million people unemployed, this is a staggering number of people but the rate is 0.2% down from May to July 2012, 82000 people. The employment rate is up by 0.1%, 40,000 people. This would suggest that the population has increase. This information states that the population has increased. The reason there is a cut of at the age 64 is because people are often retried by then and make up a very small amount of the unemployed people.
Although employment is growing, one of ten workers in the United Kingdom is now officially under employed, according to a study from the office of national statistics. Most under employment is among the part time workers, were they have asked and want to work more hours but the hours are unavailable. It also shows that over the past five years a lot more part time jobs have been created and filled. Is unemployment really going down if one in ten workers is unhappy with their hour and is unable to increase them?

Unemployment rate (aged 16+), seasonally adjusted Source: Labour Force Survey - Office for National Statistics

Growth in the economy (GDP)
Growth domestic product is a measure of the country’s economic activity, measuring everything produced in the country. The United Kingdom economy has grown by 0.9 per cent according to the official gross domestic product figures, between the second and third quarter of 2012. The output of the production industries increased by 0.7 per cent and the manufacturing output also increased by 0.7 per cent. The service industry rose by 1.2 per cent, whereas the construction industry fell by 2.5 per cent. The theory of the growth in economy is that it may have happened due to the London Olympics. The office of national statistics said the sale of the Olympic tickets alone has added 0.2 per cent to the figures. Source: Office for National Statistics

Fiscal policy
Fiscal policy is the government influencing the economy by government spending and taxation. This influences the pattern of economic activity, the level of growth of aggregate demand, output and employment.
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