Types of Inflation

Question 1

what is demand pull inflation

Answer 1

high demand caused by high levels of agg exp “too much money chasing too few goods”

Question 2

what are 3 aggregate demand indicators

Answer 2

1. high levels of spending on construction/consumer durables in boom or late upswing
2. excess labour demand in some sectors, forcing up wages in such sectors and thus prices
3. excess money supply - rate of growth of money supply is faster than rate of growth of real output

Question 3

What was the effect of the resources boom on wages?

Answer 3

• high levels of ‘limited resource’ demand implies competition, so their prices rise
• if labor demand is high, the relative shortage of workers forces their wages up
• some sectors are affected more than others

Question 4

describe this demand pull inflation with the construction boom

Answer 4

booms prices lead to price in the building sector from 2011 - 2014, high demand created relative shortage of skilled tradies so contract prices for skilled labour rose sharply

Question 5

what is cost pull inflation

Answer 5

when rising production costs are passed on to consumers (who then pay more for g/s)

Question 6

list 5 events that increase price of outputs

Answer 6

1. wages rising faster than worker productivity
2. rising import prices due to depreciation in currency
3. rising oil/petrol prices (used in prodo)
4. rising energy prices
5. natural disasters, cause shortage in agricultural products

Question 7

what is it hard to distinguish between demand pull and cost push inflation

Answer 7

a wage rise will increase cost of supply but also increase income of households