inflation and deflation Flashcards
what is inflation
is a sustained rise in an economy’s general price level
what does inflation cause in the price of goods/services
it causes the prices of goods and services to go up
what is hyper inflation
is a phase of extremely rapid inflation
what are the two most likely reasons for hyper inflation
- overprinting of money so assets become worthless
- a collapse in real output/ supply
what is deflation
a sustained period where the general price level is falling
what affect does deflation have on AD
AD falls - creating a negative output gap where the level of production GDP is well below potential
what is disinflation
a fall in the percentage rate of inflation - consumer prices are still rising but at a slower rate e.g.( from 7% to 2%)
what are inflation expectations
describes what people and businesses expect to happen to consumer prices in the future
what is the wage-price spiral
when workers bid for higher wages as their real income is eroded by fast-rising prices
how can the wage-price spiral affect inflation
it can lead to more cost-push inflation
what causes the wage-price spiral
when there is a high inflation as people expect higher prices so they have higher wage claims
what is stagflation
stagnant (slow) economic growth, rising unemployment, and a high rising inflation.
