Consequences of inflation Flashcards
1
Q
State 3 benefits for inflation
A
- May reflect economic growth
- Borrowers gain
- National debt reduced
2
Q
State 3 consequences of inflation on business costs
A
- Menu costs
- Admin costs
- Shoes-leather costs
3
Q
Why is menu costs a consequence towards inflation?
A
business keep updating prices lists and it costs to update new catalogues
4
Q
Why is admin costs a consequence towards inflation?
A
workers are busy doing this instead of doing more productive things e.g selling
5
Q
Why are Shoe-leather costs a consequence towards inflation?
A
managers spend time looking for different ways to protect value of their assets e.g holding bonds instead of keeping money in bank
6
Q
What is Fiscal drag
A
taxpayers are paid more because of inflation which puts them into a higher tax bracket so therefore they pay more tax. overall their money is worth less
7
Q
how may high inflation be disastrous?
A
- our economy may be highly uncompetitive against the rest of the world as British goods are too expensive - exports fall so lower AD
- Banks also refuse to lend money/they will lose out on the true value of money which leads to credit crunch / businesses cant borrow so cant expand
