Low and Stable Rate of Inflation Flashcards
1
Q
Inflation
A
A sustained rise in the general price level of an economy over time.
2
Q
Deflation
A
A sustained decrease in the general price level of an economy over time.
3
Q
Disinflation
A
A fall in the rate of inflation.
4
Q
Stagflation
A
rising inflation but falling real GDP.
5
Q
Demand-pull inflation
What happens to GDP and price?
What sort of inflation is it considered as?
What is it caused by?
A
Considered ‘good’ inflation due to both rise in price AND real GPD.
Inflation caused by higher demand.
6
Q
Cost-push inflation
What happens to GDP and price?
What sort of inflation is it considered as?
What is it caused by?
A
- Considered ‘bad’ inflation because prices rise but real GDP shrinks.
- Inflation caused by higher costs of production.
7
Q
What are the costs of high inflation?
A
- Uncertainty
- Damage to export competitiveness
- Impact on economic growth - Workers are likely to want raises, raising costs of production, decreasing AS
- Inefficient resource allocation
