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Short question: Two recent trends in the English economy have raised concerns that the Bank of England may have become powerless to control UK inflation:
Short question: Two recent trends in the English economy have raised concerns that the Bank of England may have become powerless to control UK inflation: (i) people carry fewer and fewer pound banknotes in their pockets so the quantity theory no longer holds, and (ii) companies and people's choices and investments seem to depend on more the longer end of the yield curve. Provide an argument against each of these concerns. (Assume, for simplicity, that there are no deposits. ) QUESTIONS COVERED IN CLASS Short question: Centuries ago, countries would often issue both gold and silver coins with some conversion rate fixed by law: say one gold coin being worth 10 silver coins. Imagine that suddenly, because of an influx of silver into the economy and a shortage of gold, melting a gold coin would give you gold content that was worth 100 times more than the silver from melting a silver coin. In other words, silver coins were now of lower quality. Suddenly, only one type of coin is used in trade, and so becomes the single effective money. Which one is it, gold or silver, and why? Discussion question: Three debaters on TV disagree strongly about what is causing runaway high inflation in a small country. One of them says that it is higher money growth, in the present or in the future. Another says that it is a consequence of large fiscal deficits and growing public debt. The third one says that we have inflation because people expect it, creating a self-fulfilling prophecy. Can you put forward an argument backed by economic theory and historical evidence for all three of these arguments
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