t falls in inflation would seen to bear out the Quantity Theory of Money. The biggest costs to the UK from the inflation of the’70’s and ‘80’s was unemployment through recession – it was the contractionary policies of the Government which brought about the slumps in consumption that cause unemployment. It is the Boom and Bust business cycle which has been a feature of market economies for so long: boom = inflation = high interest rates = bust.It is what Margaret Thatcher tried to avoid with the creation of supply side policies to make the markets more responsive to increases and decreases in demand. The problem has been that costs of recession (ie unemployment) are lagged – they do not respond until after the damage has been done, and so, in the example of the Lawson Boom, because consumer demand did not respond swiftly to interest rate increases, rates were put up too much, which stifled growth instead of merely slowing it.Some people are now suggesting that the cycle of boom and bust has ended with the advent of e-commerce, as more and more firms employ increasingly fewer people, and are far more responsive to changes in demand. There is some empirical evidence to suggest this as inflation seems to have been fairly constant for the last few years (see appendix 2). However, whether this is due to e-commerce, the Bank of England having semi-autonomous control over interest rates, or some other factor, has yet to be seen.WORD COUNT: 2483BibliographyIntroductory Economics - GF Stanlake Chapter 11Principles of Economics – Lipsey and Chrystal Chapters 26- 32 Macroeconomics – Greenaway and Shawwww.tutor2u.net – inflation, income and unemployment statisticswww.answersleuth.com/numbers/1970.shmtl – chronology of oil priceswww.thebankofengland.co.uk -The Bank of England – interest rate statistics ...
