Inflation Flashcards

1
Q

Two reasons for inflation?

A

Demand pull

Cost Push

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2
Q

What causes Demand Pull inflation?

A
Lower interest rates 
Lower income or corporate tax 
Increase in consumer business confidence 
Government spending 
Weak exchange rate
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3
Q

What is Demand push inflation?

A

Inflation caused by increased production as consumption increases

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4
Q

How would you illustrate inflation?

A

Keynsian Graph

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5
Q

Cost push inflation causes

A

Raw material prices
Wages
Business taxes
Price of imported raw materials increases because of weaker exchange rate

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6
Q

What causes Cost push inflation?

A

Increased in production costs not caused by consumption i.e. raw materials become more expensive

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7
Q

Cons of inflation

A
Reduction in purchasing power 
Menu costs 
Shoe leather costs 
Fiscal Drag 
Reduced International competitiveness
Anticipated inflation (inflation spiral) 
Consumers will buy more now
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8
Q

Benefits of Inflation

A

Workers can get an increase in pay
Incentivises production
Less unemployment in recession (firms will hold their workers)
Promotes more healthy consumption (buy it now or loose it)

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9
Q

Monetary Policies to reduce inflation

A

Interest rates, cost of deposit for mortgage, Quantitative easing

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10
Q

Fiscal policies to reduce inflation

A

Taxes, government spending/ loaning, subsidies

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11
Q

Why might fiscal policies not be effective in reducing inflation?

A

It’s possible to wait it out, it’s very difficult to change a change in supply such as a raw material becoming more expensive as it becomes more rare.

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12
Q

Inflation

A

A persistent increases of prices in a year in an economy

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