Topic Videos

Raising the Inflation Target (Evaluation Skills Video)

Level:
A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 17 Apr 2017

Here is a short video building three evaluation arguments on the question: "Evaluate the case for the Bank of England increasing their official inflation target"

Raising the Inflation Target (Evaluation Skills Video)

Core Notes:

If the inflation target is raised from 2% to 4%, then banks may start to increase interest rates on savings to attract deposits

Eval: Whether savers see a rise in real interest rates on their money depends on what happens to actual inflation. Savings rates tend to lag other rates.

A higher inflation target helps to reduce the risks of an economy getting stuck with price deflation which can be costly to investment and jobs.

Eval: Inflation is unpopular with nearly all households especially if they feel the rewards from their hard work are being undermined by rising prices which lowers their real incomes.

Tolerating a higher rate of inflation will help to reduce the real value of debt especially mortgage & government debt. This will help the economy in the long run.

Eval: Lenders will start to expect / anticipate a higher rate of inflation in the future and may decide to increase  the interest rates they charge on loans

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