Price stability

• Price stability:

  • If prices are stable this means they are changing little and the rate of inflation is low and relatively predictable
• Why is price stability q macroeconomic objective:

  • If UK inflation is high in comparison to other countries, it reduces the competitiveness of UK products so exports fall and imports increase.
  • Consumers spend more time researching constantly changing prices and businesses devote more time and money to updating prices.
  • Inflation hits the poor more than the rich as the poor are often in a weaker position to gain income increases to match price rises
• Why is price stability q macroeconomic objective?

  • Deflation is more often a greater problem than inflation as when prices fall, people postpone spending and businesses invest less in new facilities resulting in fewer economic goods being produced and fewer jobs.
• • If price stability is achieved , and there are low and predictable rates of inflation the businesses will have greater confidence in the future stability of the economy and which encourages them to invest in factories, machinery and other resources, leading to the economy growing and more jobs becoming available resulting in the incomes and standard of livings to rise.