7.3 Macro Flashcards
What is Fisher’s equation?
MV=PQ
What is inflation?
A continuous rise in the price level or continuing fall in the value of money.
What is deflation?
Price level falling or the value of money rise
What is disinflation?
Rising price level but at a slower rate
What is reflation?
An increase in economic activity and output
What is demand-pull inflation?
A rise in price level caused by an increase in AD shown by a shift in the demand curve
What is cost-push inflation?
A rise in price level caused by an increase in the costs of production shown by a leftward shift in the supply curve
What does the M stand for in Fisher’s equation?
Money supply
What does the V stand for in Fisher’s equation?
Velocity of Circulation of Money
What does the P stand for in Fisher’s equation?
Price level
What does the Q stand for in Fisher’s equation?
Output produced in an economy
What does PxQ equal?
Nominal national income
What are V and Q?
Constant
What are the consequences of inflation?
Wage price spirals Shoe leather costs Menu costs International competitiveness Investment Fixed costs Savings Income redistribution
What are the two types of deflation?
Benign- caused by increase in AS, which leads to a lower price level and higher GDP - typically caused by falls in commodity prices or technological advances, decreasing costs of production
Malign- caused by falling AD leads to falling prices and also falling real GDP (cyclical) - causes a downward multiplier effect
What are the consequences deflation?
Delayed purchases and consumer spending Wages and unemployment Debts Confidence International competitiveness Real interest rates Entrenchment
What are commodity prices?
Volatile with purposes of making profits through speculation on future price changes
How can other economies affect inflation in the UK?
Growth in foreign companies will increase the demand for UK exports- demand-pull inflation
Growth or increased growth will lead to more demand for commodities and other basic production materials, causing cost push inflation
As imports rise cost-push inflation will increase- Changes in the exchange rate
