University Economics Report: Inflation Targeting Analysis

This report examines the principles of economics, focusing on inflation targeting as a monetary policy tool in developed economies, specifically the United Kingdom and Sweden. The study investigates the context and purpose of inflation targeting, analyzing factors influencing inflation and its impact on GDP, employment, and resource utilization. It explores the interplay between GDP, inflation, and unemployment, highlighting the role of monetary and fiscal policies, including central bank actions and fiscal interventions. The report delves into critical arguments surrounding inflation targeting, discussing its advantages, such as price stability, and disadvantages, such as potential impacts on interest rates. It uses qualitative and quantitative evidence, including comparisons of inflation rates and survey responses, to evaluate the effectiveness of inflation targeting. The analysis synthesizes new knowledge by examining the relationship between inflation targeting, IT advancements, and economic outcomes, offering insights into policy implications for promoting sustainable economic growth and stability. The report also includes graphical representations and data analysis to support its arguments and findings.

Running head: Principles of economics
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Table of Contents
Introduction......................................................................................................................................2
Context and purpose of the study....................................................................................................2
Knowledge and understanding........................................................................................................3
Critical argument regarding the study.............................................................................................4
Analysis and Application with synthesis of new knowledge..........................................................4
Effective communication.................................................................................................................4
Conclusion.......................................................................................................................................4
Reference list...................................................................................................................................5

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Introduction
Modern and develop economies are targeting the inflation control policy as part of their
monetary policy that is helping them to utilize the monetary resources available within the
economy. Developed countries like UK and Sweden will be aiming to increase the inflation
targeting policy as a part of the monetary policy that will actually allow them to indulge in better
business in the economy. On the other hand, the study has chosen these two countries are facing
different speed of economic growth. In 2005, the annual inflation growth of Sweden was about
0.5 that increased to merely 1.8 in 2017. Similarly, the inflation rate of the UK was 2.0 in 2005
and that increased to 2.6 in 2017 (Data, 2019). The above figure is clearly saying the fact that in
order to make the economy run smoothly, minimization of the inflation targeting will be a key
monetary policy that the government of these two countries will be aiming to like.
Context and purpose of the study
The main purpose of the study will be to identify the factors that will be aiming mainly to
incorporate inflation planning that will be helping in the development of inflation targeting that
is actually helpful for the countries like Sweden and United Kingdom in improving their resource
utilization and increasing their production ability. The context of the study is to highlight the
policies that the government will be taking so that both the economy will be able to maximize
their GDP production and increase their employment rate (Laibson & List, 2015). It is extremely
important in the sense that through the development of the inflation targeting policies, the
incorporation of better understanding of the activities that are prevailing within the economy.
The inflation growth is one of the negative aspects that will actually minimize the development
and growth of the economy. The main essence of the study is to identify the development of pros

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and cons regarding the inflation targeting policy that government of these two countries will be
aiming to identify. Through the incorporation of better monetary and fiscal policy that will be
able to highlight the incorporation of better developmental policies. Through the incorporation of
better involvement of the policies, the chosen countries will be able to identifythe factors of the
inflation that is helping in the development of better policy (Goodwin, Harris, Nelson, Roach &
Torras, 2015). The main aim of this study is to identify the factors of the policies that will not
only indulge the government support but will also identify the economic situations that will
definitely identify the resource that will easily identify the resources that are mainly available in
the economy. On the other hand, taking inflation targeting policy will be mainly helpful for the
government to implement long run goals. The study will be able to identify how the two
countries will be able to focus more on the economic growth.
Knowledge and understanding
The economic concept of GDP and the inflation is closely related. Developed countries
like Sweden and United Kingdom is mainly targeting of the concepts like GDP, inflation rate
because of the fact that through the expansion of the economy the major problem of
unemployment will be minimized. The economy will be able to perform in a better and effective
way. It is important for the developed economy to implement strong mo0netray policy that will
not only indulge the development of better resource allocation but will also highlight the
importance of resource distribution (Cooter & Ulen, 2016). Through the term of monetary
policy, the provision of better level of the discount and the interest rate will allow the central
banks to indulge in better and smooth transactions. Another monetary policy that is important in
the concept of economic development is the roles and responsibility that is played by central
banks in determining the cash reserves.

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Along with the monetary policy, the moderation and implementation of fiscal policy is
also important for an economy to develop in an efficient manner. This is important in the sense
that through the development of fiscal policies, the economy will mainly focus on the process to
increase the employment within the economy. This is important in the sense that through the
development of highly skilled employees, the economy will automatically perform better and
they will be allowing the allocation of resources in an effective and innovative way. Through the
increase in the knowledge of the employees, the investment will come more within the country
like Sweden and United Kingdom (Fath, Fiscus, Goerner, Berea & Ulanowicz, 2019). On the
other hand, through the innovation in the production, technologies that are being used will
generate better drift of revenue and the economy will continuously move in the positive
direction. For example, the growth of GDP of Sweden was around 4.7% in the year 2000 and
that reached to a declining amount of 2.3% annually in the year 2017. Similarly, the United
Kingdom also faced similar kind of problems. In the year 2000, the annual percentage growth of
GDP was around 3.7% and that decreased to about 1.8% annually (Data, 2019). The fall in the
GDP in both the country is showing that the country has failed to indulge the development of
policies that could have brought more amounts of investments.
Fiscal policies will be aiming to identify the ways and strategies through which the
economy will be able to increase the employment within the economy. Through the
incorporation of better resource, development will be willing to identify the potential skills and
capability that the human resource of both the company is possessing. The interlink and
interconnection among the GDP, inflation rate and unemployment rate is significant in the sense
that strong and increasing rate of inflation will always help in the maximization of
unemployment as the demand for the money will fall since the price of money will go increase.

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Critical argument regarding the study
As opined by Calafell (2014) the main aim of inflation targeting policies that are taken by
the government of the developed nations is to aim the long and short run inflations expectations
so that the price stability within the economy can be reached with less cost compared to the
economic activities. The inflation targeting regimes and the growth of the IT cells within any
economy is directly linked up with each other. Through the development of this inflation
targeting regimes, the development of low sensitivity of inflation and more aggressive interest
rate cuts will definitely lead to the development of real depreciations will definitely fall. In
countries like UK, the inflation targeting regimes has allowed the authorities to take the
unconventional monetary policies that will definitely allow the countries to indulge in the
development of better accessibility to the monetary resources. Even today, many debates lie
around the world regarding the achievement of monetary stability through tthe process of
monetary policies. Making a control on the expected inflation rate and forming price mechanism
has allowed many countries to indulge long and stable inflation rate that will be mainly looking
to indulge in the development of better business environment.
One of the major advantages of inflation targeting is that the economy is able to get a
benchmark regarding the bars of price setting and through this policy; they will be able to
highlight the incorporation of better monetary policies. On the other hand, a long debate always
remains same in the sense that whether it will be possible for the country like Sweden to indulge
in lowering the price of inflation or just taking the long run low rate of interest as granted. This is
to indulge in the sense that through the development of this kind of policies countries like
Sweden and UK will be able to understand, the skills and potentiality that their capital resources
is having (Bis.org, 2019). Implementation of digitization in lowering the long run inflation rate

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will be crucial and in countries like UK and Sweden, it has been seen that inflation rate has fallen
sharply as the energy prices in both the countries are falling and exchange rate is getting
appreciated. Through the indulgence of better economic activities, the indulgence of better
innovation in the monetary policy will definitely lead to the development of better activities that
will no doubt indulge in the innovation.
Figure 1: Inflation rate in UK, US and Sweden
(Source: Bis.org, 2019)
The above diagram is showing the fact Sweden inflation rate is gradually decreasing in
nature. However, on the other hand, the UK inflation rate is taking high leap in the sense that it
will definitely go on increasing as trend is going to increase. During first half of 2013, the
Swedish economy was experiencing inflation and the rate was quite low compared to the
forecasted trend in 2014.
Sweden’s price stability norm in 2013, lasted for about few years and the economy had to return
back to the fixed price regime. This is important aspect in the sense that taking the in the

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economy the flexible price regime is showing more benefit for the development of the global
business.
Analysis and Application with synthesis of new knowledge
Qualitative evidence
Through the evidence of the person living in the world bank it can be seen that most of
the developed countries will be willing to indulge in the flexible rate of inflation will be willing
to indulge in the development of the better business organization. On the other hand, the
development of flexible rate of inflation among the country Sweden and United Kingdom. The
development of the flexible exchange rate is definitely helpful in the sense that through the
development of the inflation targeting policy, the government will be looking to indulge the
development of better information technology and will be willing to identify the information
within the business.

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0.899
2.4062.1581.926
0.3740.453
1.36
2.212
3.437
-0.494
1.158
2.961
0.888
-0.044-0.18 -0.047
0.984
1.7940.797
1.2381.2341.376
1.346
2.023
2.456
2.387
3.521
1.962
2.493
3.856
2.573
2.292
1.451
0.368
1.008
2.558
Comparison of inflation rate
inflation rate in Sweden inflation rate in United Kingdom
Figure 2: Comparison among the inflation rate in UK and Sweden
(Source: Data.worldbank.org, 2019)
In the above diagram, the year wise comparison has been shown on the inflation rate.
This is important in the sense that through the development of inflation targeting the government
will be able to highlight the importance of the long run objectives and will be able to identify the
pros and cons of the inflation targeting. In the above diagram, the development of the inflation
targeting will be willing to identify the resource distribution that the economy will be aiming to
implement in order to increase the development of the economy especially economies like
Sweden and United Kingdom.

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Quantitative evidences
strongly Agree Agree Neutral Diagree strongly
disagree
33.33
16.67
6.67
26.67
16.67
Do you belive that inflation targeting is
good policy
Series1
Figure 3: Responses regarding the inflation targeting is good policy
(Source: Created by Author)
In the above diagram, about 34% of the respondents claimed that inflation targeting is a good
policy that will definitely allow the innovation technologies to implement by the government.
Through the incorporated technologies, it will be important for the government to increase their
policy stabilization.
Effective communication
Effective communication will be important for both government and the economy
regarding the setting of the policies. It is important for the government to make a discussion with
the reserve bank of that particular country regarding the improvement in the development of the
business. It is important for the indulgence of policies in the form of inflation targeting and will
be relevant for the development of better actions that will increase the economic environment. It
is important for the development of better innovation that will not only indulge the development

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of better accessibility to the economic development. Through the indulgence of the incorporation
of better accessibility of communication, the economy of both the chosen country will be moving
for the development of the business. It is important in the sense that through the incorporation of
better involvement of government policies that will bring the effectiveness of the policy. Even
the communication with the policymakers will make the economy to perform better even in the
domestic and international perspective. Through the incorporation of better indulgent of the
better innovations will definitely bring the incorporation of better innovations in the technology.
Through the effective communication, the involvement of better technology will bring the
innovation in the stakeholders.
Conclusion
The study is taking consideration in the sense that it will highlight the information
technology that the IT will be taking so that the economy will be able to grow. Considering the
fact of unemployment and the inflation along with the growth of the GDP, the countries like
Sweden and United Kingdom is planning to indulge in the development of the business. The
study has taken into consideration regarding the fact that in order to indulge the fiscal and
monitoring policy will be aiming to increase the resource utilsation.

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Reference list
Bis.org. (2019). Retrieved 10 April 2019, from https://www.bis.org/review/r151119a.pdf
Bis.org. (2019). Retrieved 10 April 2019, from https://www.bis.org/review/r000619a.pdf
Calafell, J. (2014). Javier Guzmán Calafell: Inflation targeting. Bis.org. Retrieved 10 April 2019,
from https://www.bis.org/review/r140827e.htm
Data. (2019). Data.worldbank.org. Retrieved 8 April 2019, from
https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?end=2017&locations=SE-
GB&start=2005
Inflation, consumer prices (annual %) | Data. (2019). Data.worldbank.org. Retrieved 10 April
2019, from: https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?
end=2017&locations=SE-GB&start=2000
Laibson, D., & List, J. A. (2015). Principles of (behavioral) economics. American Economic
Review, 105(5), 385-90.
Goodwin, N., Harris, J. M., Nelson, J. A., Roach, B., & Torras, M. (2015). Principles of
economics in context. Routledge.
Cooter, R., & Ulen, T. (2016). Law and economics. Addison-Wesley.
Fath, B. D., Fiscus, D. A., Goerner, S. J., Berea, A., & Ulanowicz, R. E. (2019). Measuring
Regenerative Economics: 10 principles and measures undergirding systemic economic
health. Global Transitions.
Bartholomew, E., Gold, J., Pitts, D. G., & Pollack, L. (2018). Financial Economics Principles
Applied to Public Pension Plans. Available at SSRN 3120726.
Fenelon, K. G. (2017). Railway Economics. Routledge.