Answer Happy

Read the following adjusted text taken from an FT article. UK inflation climbs to 30-year high of 5.5% - Rise in consumer prices adds to pressure on Bank of England to raise interest rates again, by Valentina Romei in London FEBRUARY 16 2022 UK inflation has accelerated to the highest rate in 30 years, further squeezing living standards and increasing pressure on the Bank of England to raise interest rates again. Consumer prices rose at an annual rate of 5.5 per cent last month, up from 5.4 per cent in December and well above the 0.7 per cent recorded in January 2021, data published by the Office for National Statistics showed on Wednesday. Inflation in January was more than double the BoE target of 2 per cent — the highest since March 1992 when it reached 7.1 per cent. Jack Leslie, economist at the Resolution Foundation think-tank, warned that high inflation “could drive the deepest squeeze on living standards in six decades”. Core inflation, which excludes energy, food, alcohol and tobacco - goods with the more volatile prices — rose to 4.4 per cent in January, up from 4.2 per cent in the previous month. The figures exceeded forecasts by economists polled by Reuters, who expected CPI inflation to remain at 5.4 per cent and core inflation to increase to 4.3 per cent. [...] Together with the strong employment data published on Tuesday, high inflation supports economists' expectations that the Bank of England will raise borrowing costs again this year. "With inflation now tracking above expectations on a consistent basis and no further CPI report set for release ahead of March's BoE meeting, markets are likely to run with the idea of a 50 basis point hike from the bank at their next meeting," said Simon Harvey, head of FX Analysis at Monex Europe, a foreign exchange company. Samuel Tombs, economist at Pantheon Macroeconomics, said the strength in CPI inflation will persuade the BoE's Monetary Policy Committee to increase bank rates to 0.75 per cent in March and 1 per cent in May. Martins said there could be an additional rate rise in August, while wider market expectations are that policy rates will climb above 2 per cent within a year. The central bank raised rates in December and February from their historic low of 0.1 per cent to 0.5 per cent. [...]
A) As reported in the abbreviated FT article, in recent months, the major pandemic and other external shocks (Brexit and the war in Ukraine) have created immense inflationary pressures for the UK and other macro-economies around the world. Explain how this might impact the economy. Show (draw) the impact of this scenario using the Classical 4x4 diagrams and the Classical aggregate supply and demand diagram. Explain the changes (shifting elements) as well as causes and effects in the diagrams. [45 marks] B) Explain the four channels of the monetary policy transition mechanism. How is contractionary monetary policy supposed to work through the four channels to tackle inflation [20 marks] C) Though the price level P is not explicitly included in it, explain and illustrate the theoretical impact of contractionary monetary policy using the Keynesian Cross diagram. Explain the multiplier effect as well as the effect on employment and show both in your diagram. [30 marks] D) Explain how one of the alternative indicators (HDI, GNHI, Ecological Footprint and Time Use Indicator) measures welfare. Drawing on the alternative welfare indicator you have explained, evaluate the usefulness of GDP as an appropriate measure of welfare for the two countries. Make sure to respond to the following questions in your answer: • Based on what kind of welfare criteria and theoretical concepts is the alternative indicator constructed? How is the indicator measured empirically? What is the critical observation of GDP's inadequacy or limit as a welfare indicator the alternative indicator does try to address? . .