Inflation and Exchange Rates Flashcards
What is inflation?
It is the increase in the price of goods and services
What are the two types of inflation
Demand-pull inflation, and
Cost-push inflation
What is demand-pull inflation
Inflation caused by too much demand.
Increase in disposable income and companies can’t supply quick enough and increase prices.
What is cost-push inflation
Rising costs pushing up prices
Wage rises can make prices go up.
It can make profit margins go down.
When inflation is high what also increases?
Spending
What happens when a business expects its suppliers to increase prices?
They put up their prices. Then employees demand higher wages so prices go up.
What is one of the main causes of cost-push inflation?
Wage-price spiral
What happens to exports when UK inflation is high?
UK exports are expensive abroad
What happens to businesses when UK inflation is low?
They gain a competitive advantage globally
Which goods are most likely to be affected by inflation?
Luxury
Why are luxury goods affected more by inflation?
As customers have less to spend so they look at alternative products.
What is deflation?
It is the decrease in the price of goods and services
When does deflation occur?
When there isn’t enough demand.
What does deflation cause?
Fall in productivity, as less goods are needed. Meaning less workers are needed, leading to unemployment
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