Some economists believe that deflation is now a more serious threat than inflation. If this is the case then conventional monetary policy may not be enough to prevent deflation. In the article below, Gavyn Davies argues that the solution is to start thinking like South American dictators and print more money!
We must start thinking like South American dictators Guardian (13/11/08)
Questions
- Explain what is meant by “deflation”.
- Examine the link between deflation and depression.
- Explain why deflation requires a different policy response from inflation.
- Discuss the likely success of a policy of “printing money” in preventing deflation.
- Assess the impact of financing tax cuts through the sale of government bonds in a deflationary situation.
The death of cash has long been forecast, but not yet happened, but is it the case that the next generation technology may finally sound the death knell? With the advent of prepaid cards (e.g. Oyster card in London), payment by mobiles and the continuing growth of ‘plastic’, it may be that cash is on an inexorable downward slide. The articles below look at a range of issues around the possible death of cash (and the introduction of the £20 note with Adam Smith on it).
Why I hate sticky electrons BBC News Online – Robert Peston Blog (19/2/07)
Cash used to be king, but now we pay for paying up Telegraph (9/2/07)
March launch for Smith £20 note BBC News Online (21/2/07)
A cash call The Economist (subscription) (15/2/07)
Questions
| 1. |
Explain the main functions that any form of money has to fulfil. |
| 2. |
Assess the extent to which smartcards (like the Oyster card) can fulfil these functions of money. |
| 3. |
Discuss the implications for the level of consumer spending of increased use of cash substitutes. |