Posts Tagged ‘reserve bank’

Why Can’t The Reserve Bank Lower Interest Rates Below 0%?

06 Sep

The reserve bank uses interest rates to keep the economy growing, but not too fast. Without them, we’d go through uncontrolled waves of unemployment (when things slowed down) and inflation (when things sped up). Interest rates are not a perfect tool for this, but they are what we have.

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Combating Employment

23 May

In my last post, I explained how inflation can be caused by people getting payrises without producing anything extra. If people can do this, it leads to a “prisoner’s dilemma” situation – if both players demand a payrise, both are worse off. If neither do, both are better off. If only one does, the guy who gets a payrise is better off, and the guy who showed restraint is worse off.

If there were only two workers in the economy, they could negotiate and come to some agreement. Unfortunately, in the real economy, there are more than two workers, and the payrise-inflation game becomes a multi-player prisoner’s dilemma.

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