Inflation

Question 1

Phillips Curve

Answer 1

Idea that you can’t have both high employment and low inflation. Not always seen to be true, but worked well between ‘59 and ‘69. Doesn’t seem to work well nowadays.

Question 2

Definition of Inflation

Answer 2

% change in the price level

Question 3

How is inflation measured?

Answer 3

Baskets of Goods: CPI, PPI, GDP deflator

Question 4

Types of Inflation:

Answer 4

Pure v Impure and Anticipated V Unanticipated.

Question 5

Social and Econ costs of inflation?

Answer 5

Unanticipated: purchasing power of money eroded, one side of any contract will lose and the other will win (Especially important for old people!). Anticipated: people will have to spend more time trying to keep up when managing their assets, prices will be constantly in flux and hard to keep track of.

Question 6

Problem with Impure, unanticipated inflation

Answer 6

leads to a potential mis-allocation of resources, wrong signals are sent, wrong things are produced.

Question 7

Why do we pay so much attention to inflation if it is really not that bad?

Answer 7

To aid corporations who profit from the stability. `

Question 8

Why did economists start to abandon the Phillips Curve?

Answer 8

Because during the 1970’s it didn’t work very well as there was both inflation and unemployment…