inflation

Question 1

inflation

Answer 1

rise in prices

Question 1

two types of inflation

Answer 1

demand pull inflation, cost push inflation

Question 2

what causes increase in AD (aggregate demand)

Answer 2

(CGI,X-M)
consumer spending
government spying
investments (firms)
-Exports and imports

Question 3

demand pull inflation

Answer 3

inflation caused by too much demand in the economy

Question 4

Cost push inflation

Answer 4

inflation caused by rising business cost

Question 5

Which group of people think there is a relationship between inflation and the growth in the money supply?

Answer 5

monetarists

Question 6

What is the money supply?

Answer 6

the stock of notes and coins,bank deposits and other financial assets in the economy

Question 7

How can inflation affect the money supply?

Answer 7

As money supply increases,Ad increases (C,G,I) leading to demand pull inflation

Question 8

Is demand pull inflation likely to happen when the interest rate is high or low? Why?

Answer 8

low, this is because borrowing is likely to increase when interest rates are low

Question 9

prices

Answer 9

inflation reduces purchasing power,this means people can buy less and households mahy have a fall in living standars

Question 10

wages

Answer 10

when prices are rising,workers need to increase their wages HOWEVER,as a result,firms may need to raise prices-causing further inflation

Question 11

exports

Answer 11

Inflation will cause the price of exports to rise,resulting in falling demand for exports.May lead to job losses

Question 12

unemployment

Answer 12

high inflation means that AD is rising, leading to more jobs to keep output rising

Question 13

shoe-leather cost

Answer 13

increase prices cause customers to ‘shop-around’ to get the best value for money-takes time and wears out the leather on shoes

Question 13

menu-cost

Answer 13

Cost of re-printing prices,as a result of inflation

Question 14

uncertainty

Answer 14

if inflation is high and varying,difficult to predict future prices-make it difficult to plan for the future

Question 14

business and consumer confidence

Answer 14

inflation may make consumers anxious-they may start to save more and spend less,reducing deman.Businesses may lose confidence and delay plans to grow.Economic growth may fall

Question 15

investments

Answer 15

Investment requires large amounts of spending in the hope of future returns.Investment therefore likely to be postponed; negatively affecting economic growth

Question 16

inflation impacts:-

Answer 16

prices
wages
exports
unemployment
menue cost
shoe leather cost
uncertinity
business and confidence
investments