Macro 2.4 Inflation Flashcards
What is demand pull inflation
When AD shifts to the right
How to show demand pull inflation on a graph and analyse
AD shifts right on LRAS
There is more pressure on FOP to produce more
FOP become scarcer closer to YFE
FOP will therefore go up in price
Higher costs on firms will be passed on by higher prices of goods
How to show cost push inflation
Price level increases from p1-p2
SRAS shifts to the left as costs of production increase
6 costs of inflation
- purchasing power increases
-(menu costs)
-fiscal drag (moving to higher tax brackets but not gain sing the benefits)
- reduced international competitiveness
- anticipated inflation (may cause wage price spiral)
- uncertainty
-more saving lesson consumption
What are some possible benefits of inflation
- workers can demand higher wages
- more production and firms increase profitability by charging more
-lead to less unemployment
What is deflation
When there is negative inflation and there’s a decrease in price level
What may happen if there is deflation
Consumers may delay consumption to wait for more deflation
Increase in real value of debt
De incentivising people to borrow
What is disinflation
Decrease in the rate of inflation
What is Hyperinflation
When price level rises uncontrollably
What is CPI
statistical measurement of how prices for a basket of goods and services change over time for urban consumers
What is the retail prices index
(RPI)
a measure of inflation, specifically the rate at which prices for goods and services are rising, in the UK
What is the difference between CPI and PPI
The Consumer Price Index (CPI) measures inflation from the consumer’s perspective, tracking prices of goods and services purchased by households, while the Producer Price Index (PPI) measures inflation from the producer’s perspective, tracking prices received by domestic producers for their goods and service
