cost push inflation

Question 1

when does cost push inflation occur

Answer 1

cost of production are increasing

Question 2

what are causes of cost push inflation

Answer 2

external shocks, a depreciation in the exchange rate and acceleration in wages

Question 3

what does it lead to in the SRAS curve

Answer 3

an inward shift

Question 4

why does it lead to an inward shift

Answer 4

firms raise prices maintaining profit margins better able to do this when market demand is price inelastic

Question 5

what does a rise in inflation lead to

Answer 5

rising inflationary expectations

Question 6

explain why we don’t want high inflation because of loss of international competitiveness

Answer 6

raising prices in Uk makes our goods less competitive compared to other countries, leading to fall in demand for Uk goods both overseas and here. Bad for our balance of payments and unemployment

Question 7

explain why we don’t want high inflation because of people on fixed incomes loses out

Answer 7

people on benefits have no control over them, in times of inflation they experience a fall in living standards, losing out.

Question 8

explain why we don’t want high inflation because of businesses finding it difficult to plan

Answer 8

a business can’t predict the cost of raw materials and it can’t predict what prices to charger leading to investment decisions being delayed and foreign firms refusing to come to Britain

Question 9

explain why we don’t want high inflation because of lenders losing out

Answer 9

if we save money in a bank account our money buys fewer things when withdrawn because prices risen.