inflation

Question 1

two types of inflation

Answer 1

cost push

demand pull

Question 2

what causes inflation cost push

Answer 2

rise in wages (higher cost of production)
rise in raw materials prices
rise in indirect taxes (higher cost of production)

Question 3

what causes demand pull inflation

Answer 3

high consumer spending
high demand for exports
maximum production capacity but demand rises

Question 4

problems/consequences of inflation

Answer 4

fixed income people have lower standard of living eg pensioners
competitiveness reduced in trade as exports will cost more to buy for foreign countries - deficit in bop caused
discourages saving so further incentivises spending which further worsens inflation
interest rates go up to counter but this hinders investments for firms
uncertainty = less investment

Question 5

solutions to inflation

Answer 5

raise interest rates
higher income tax for less disposable income
supply side policies to make supply catch up