UK inflation rose to 4.2% Consumer Prices Index 4.2% 4% 3% Bank of England target 2% 1% 0% - 1% 2013 2015 Source: Office

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Uk Inflation Rose To 4 2 Consumer Prices Index 4 2 4 3 Bank Of England Target 2 1 0 1 2013 2015 Source Office 1 (102.11 KiB) Viewed 20 times

UK inflation rose to 4.2% Consumer Prices Index 4.2% 4% 3% Bank of England target 2% 1% 0% - 1% 2013 2015 Source: Office for National Statistics 2017 2019 2021 BBC a) One of the reasons mentioned for the increase in the inflation rate is the difficulty to hire lorry drivers and hospitality staff. Explain how a reduction in available workers in the economy can explain an increase in prices in the medium run. In your answer plot what happens to the wage setting curve and the Philips Curve compared to an initial equilibrium. (6 marks) b) Can you think of other supply side shocks than can also explain an increase in prices? (2 marks) c) The figure shows the Central Bank (CB) inflation target. Explain what that is and which instruments can the CB use to meet this target. (3 marks) d) Imagine there is a new governor of the Central Bank with political ambitions. Explain why this might raise concerns about the efficacy of monetary policy.