7.3 Macro

Question 1

What is Fisher’s equation?

Answer 1

MV=PQ

Question 2

What is inflation?

Answer 2

A continuous rise in the price level or continuing fall in the value of money.

Question 3

What is deflation?

Answer 3

Price level falling or the value of money rise

Question 4

What is disinflation?

Answer 4

Rising price level but at a slower rate

Question 5

What is reflation?

Answer 5

An increase in economic activity and output

Question 6

What is demand-pull inflation?

Answer 6

A rise in price level caused by an increase in AD shown by a shift in the demand curve

Question 7

What is cost-push inflation?

Answer 7

A rise in price level caused by an increase in the costs of production shown by a leftward shift in the supply curve

Question 8

What does the M stand for in Fisher’s equation?

Answer 8

Money supply

Question 9

What does the V stand for in Fisher’s equation?

Answer 9

Velocity of Circulation of Money

Question 10

What does the P stand for in Fisher’s equation?

Answer 10

Price level

Question 11

What does the Q stand for in Fisher’s equation?

Answer 11

Output produced in an economy

Question 12

What does PxQ equal?

Answer 12

Nominal national income

Question 13

What are V and Q?

Answer 13

Constant

Question 14

What are the consequences of inflation?

Answer 14

Wage price spirals
Shoe leather costs
Menu costs
International competitiveness 
Investment 
Fixed costs 
Savings 
Income redistribution

Question 15

What are the two types of deflation?

Answer 15

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

Question 16

What are the consequences deflation?

Answer 16

Delayed purchases and consumer spending 
Wages and unemployment 
Debts 
Confidence 
International competitiveness 
Real interest rates 
Entrenchment

Question 17

What are commodity prices?

Answer 17

Volatile with purposes of making profits through speculation on future price changes

Question 18

How can other economies affect inflation in the UK?

Answer 18

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