Inflation/Deflation Flashcards
What is inflation
A sustained increase in the general price level over a period of time
What are the two types of inflation
Demand-pull
Cost-push
How does demand pull inflation affect an AD curve
It shifts to the right
What is demand-pull inflation
When AD increases pulling up the price level
What is cost-push inflation
When an increase in costs reduces supply shifting SRAS to the left and increasing GPL
What is a deflationary spiral
When the price level drops
Consumers save and wait for the prices to drop further
Consumption decreases as a result
Which means AD decreases
This keeps on happening
What is a deflation
When there is a sustained decrease in the general price level
If there is deflation how would it show on a SRAS curve
It would shift to the left
What could be the possible causes of deflation
Decrease in AD
Increase in AS
What happens to the value of money if there is deflation
It increases
What is real income
Shows how much your income is actually worth in terms of the amount of goods that you can purchase
What is nominal income
The amount you actually earn
