causes of inflation Flashcards
what is demand pull inflatino
when AD shift to the right
what happens when we see demand pull inflaiton
price level rises (demand pull inflationary pressure)
higher econ growth
a* point why does demand pull inflatino occur
when AD shifts right we see greater presre on exosting FOP to produce more output
more output made so we get closer to YFE
therfore existing FOp become scarcer, mroe pressure is put on them so they go up in price (e.g wages increase,land)
increasing COP for firms
firms pass on via highe rprices of g/s in end
what ar the 5 reasons for deamnd pull inflation
lower IR
lower income corp tax
increased consumer/business confidence
increased gov spending
weaker ER
How does lower IR lead to DPI
cheaper to borrow and spend - C
cheaper business to borrow and invest - I
casues weaker ER so boost net exports (EXPORTS CHEAPER AND MORE COMP . IMPORTS EXPENSIVE )becuase hot moeny flows exit UK savings looking for a better IR , suply of £ increases pushing downward pressure on ER
How does lower income and corp tax lead to DPI
increases disposable Y for consumers to spend c
increases retained profits for firms to invest I
How does increased consumer and business confidence lead to DPI
means higher MPC and MPI
Increases consumption
increases investmetn
how does gov spending ead to DPI
shifts AD ot right as gov spending incrases
how does a weaker ER cause DPI
boost net exports
exports cheaper , LOD increases QD , increases export revenue
improts expensive , reduces deamdn , reduce import expenidture
boost net exports
causing AD to shift right
what is cost push inflation
SRAS shifts left
what do we see on graph with cost push inflation
sras left
p1-p2 rises
as COP increases , pass this onto consumes via higher prices
SRAS shifts left wehn
icnrease in COP for majortity of firms in econ
what can lead to SRAS shift to lefft (4)
increase RM prices
increase in wages
increase in bs taxes e.g VAT
*increased price of imported RM due to wekaer ER *
