23352085
Description
Flashcards by Sophia Lynch, updated more than 1 year ago
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Created by Sophia Lynch
almost 4 years ago
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| Question | Answer |
| What is the inflation fallacy? | Inflation erodes the purchasing power of a dollar. It doesn't necessarily erode the standard of living if prices and wages are changing with inflation. |
| The costs of inflation: Inflation Tax | Inflation itself does not reduce purchasing power. |
| The costs of inflation: Shoe Leather Costs | Resources wasted when inflation encourages people to reduce their money holdings. |
| The five costs of inflation: Menu Costs | The costs of changing prices. |
| The costs of inflation: Relative Price Variability | Loss in efficiency when inflation is either unanticipated or where menu costs imply infrequent price changes. |
| The four costs of inflation: Inflation Induces Tax Distortion | It raises the tax burden on income from savings (which depresses the economy's long-run growth) |
| The costs of inflation: Confusion and Inconvenience | The inflation rate is usually more volatile in periods of high inflation. (People don't know the worth of goods due to changing prices) |
| The costs of inflation: Arbitrary Redistribution of Wealth | Unexpected inflation redistributes wealth not on basis or either merit or need. (Money is directed to lenders and borrowers) |
| How does the Reserve Bank keep price stability? | By keeping inflation between 1% - 3% (In the 1960's-70's inflation reached as high as 18%) |
| What agreement insures inflation is kept between 1% and 3%? | The Policy Targets Agreement. |
| Why not target 0% inflation? | 1. Because its such a fine line, the result could be DEFLATIONARY 2. A fall in real wages can be achieved by raising nominal wages by LESS THAN inflation. 3. In a deep recession, interest rates might need to be cut making them negative. |
| What is the difference between real and nominal wages? | Nominal wage = The wage you are paid. Real wages = Wages that take inflation into consideration. |
| Why do people care about unemployment? (3) | 1. Economic Costs 2. Psychological Costs 3. Social Costs |
| Does a decrease in employment always result in an increase in unemployment? | No, because people retire and hence EXIT the workforce. (Employed, Unemployed & Not in the Labour Force) |
| What is the official measure of Unemployment and Employment in NZ? | The Household Labour Force Survey (HLFS) 1985 - done quarterly |
| HLFS uses? (3) | 1. Indicates the overall HEALTH of the economy with the unemployment rate being a key indicator. 2. Identifies PATTERNS that help predict the future direction of the labour market. 3. Makes COMPARISONS of labour force variables across demographic characteristics. |
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