Inflation Flashcards
How is inflation measured
The consumer price index
What are the two causes of inflation
Demand pull inflation and cost push inflation
When does demand pull inflation happen
When there is nearly full employment
Cycle of demand pull inflation
Excess demand 👉🏾prices increases👉🏾wage demands 👉🏾wage increases👉🏾money income increases 👉🏾excess demand
Cycle of cost push inflation
Cost rise👉🏾prices rise👉🏾wage demands👉🏾wages increase👉🏾cost rise
Benefits of price stability
We know the price of things
Can plan our spending
We can save to make larger purchases at a later date
Benefits of inflation
Incentive for businesses to invest
Your debt loses it values
Costs of inflation
Loss of jobs
Shoes leather costs
Random redistribution of income
Menu costs
What are shoe leather costs
When households and firms make an additional effort to seek out best deals
What are menu costs
Costs associated with having to regularly re-price products to bring them in line with general inflation
