Macro YR 1- Govt Objectives pt1 Flashcards
Inflation?
A sustained increase in the general price level, decreasing the value of money
Two types of inflation?
demand-pull and cost-push
Demand-pull inflation?
Long run
No spare capacity, causes AD to increase
Pulls up the price level
Cost-push inflation?
Short run
Increase in production costs
Reduces SRAS
Pushes up price to make profit
Hyperinflation?
Inflation over 50%
Deflation?
A sustained decrease in the general price level
increases debt and the value of money
deflationary spiral?
Investor confidence falls
Price Level falls
Consumers delay purchases
Savings rise
AD and price level fall furtherQ
Two types of deflation?
Benign and malignant
Benign deflation?
Occurs when AS rises, as firm costs fall
NO Negative effects
Raises economic growth
Malignant Deflation?
A persistent fall in the general price level, output and employment brought about by a steep fall in and then persistently low levels of aggregate demand.
Causes deflationary spiral
Nominal income?
Amount actually earned
Real income?
How much your income is worth in terms of the amount of goods you can purchase
Basket of goods?
650 most common goods and services in the economy
How to calculate basket of goods?
Office of national stats living costs and food survey:
find basket of goods
7000 households asked to find % of spending on each of these products
ONS conducts price survey to find avg price of each good
ONS finds the weighted avg of all prices
Price index pros?
Easier to calculate inflation rates
