The document discusses policy options for addressing inflation that is currently at 5%. It examines choosing how much priority to place on lowering inflation and potential conflicts with other economic objectives. The causes of inflation, such as rising aggregate demand from money supply, oil prices, or wages, determine the appropriate policy response through demand management, controls on lending or wages, inflation targeting, or supply-side policies. The document considers comparing these policy choices based on the cause of inflation, speed of reducing inflation, effectiveness, and effects on other economic goals.

1. Inflation policies

2. Inflation rate is currently 5%

3. Choice of policy How much priority on inflation as an economic objective? (UK = key objective. Low/stable inflation provides stability for decision makers and a basis for achievement of other objectives) Conflicts = how large are they? Are they a price worth paying …… ?? Policy - depends on cause ….

4. Due to rising AD Money supply rising Higher oil prices Falling value of currency Wage rates rising rapidly Shortages of labour/products Demand management Controls on bank lending Harder to control Controls on wage increases? Demand management Inflation targetting (to reduce expectations) Supply-side policies

5. Comparing policies Causes Speed of outcome Effectiveness Effects on other objectives (conflicts )