Inflation Flashcards
Demand Pull Inflation
Increase in the average price level, from the excessive increases in aggregate demand.
Why inflation increases (Demand Pull)
Increase in aggregate demand, causes an increase in the aggregate price.
Demand moves closer to YFE
More pressure on the factors of production
As demand increases…because
Increases the pressure on the factors of production. Workers want higher wages Price of capital increases as it become scarcer Price of land increases as it become scarcer
Inflation occurs
When the total aggregate demand for the goods/services exceed the aggregate supply for the goods/services.
Cost push inflation
Occurs when firms increase prices to maintain/protect profit margins after a rise in their costs of production.
Cost push inflation definition
Increase in the price levels resulting from the increases in costs of production.
Cost push inflation diagram
Demand Push inflation diagram
Factor affecting Cost push
Wages
Import taxation
Anything that affects production, increases or decreases it.
Costs of Inflation
Loss of international Competitivenes (exports)
Redistribution of income and wealth (debtors, fixed incomes)
Loss of business confidence
Fall in exports
Benefits of Inflation
Wages are increased
