Inflation and Deflation

Question 1

When does demand pull inflation occur?

Answer 1

AD Rises, as we get close to full capacity costs rise leading to full capacity.

Question 2

What do firms look to when we are below nominal capacity?

Answer 2

Rising prices.

Question 3

What do firms need higher prices for?

Answer 3

To cover higher costs and incentivise firms to produce more.

Question 4

What is reflationary growth?

Answer 4

Stimulating the economy by reducing taxes or by increasing the money supply.

Question 5

What are some causes of demand pull inflation?

Answer 5

Consumer Boom
Increase in Gov Spending
Increase in net exports (export led demand pull inflation)
Money supply growing faster than output.

Question 6

When does cost push inflation occur?

Answer 6

When the price level is pushed up by increasing production costs.

Question 7

How do you display cost push inflation on a graph?

Answer 7

Leftward shift on SRAS.

Question 8

When does a wage squeeze occur?

Answer 8

When prices rise more quickly than wages.

Question 9

What causes cost push inflation?

Answer 9

Wages rising
Increase in raw materials costs
Fall in exchange rate
Increase in profit margins.