3701627
Description
Macro: Inflation
- DEFINITION: constant rise in prices over a given time period.
- weighted basket system
- Consumer Price Index (CPI)
- Consumer Price Index (CPI)
- but shouldn't mortgage payments and indirect
tax also be included?
- weighted basket system
- DISINFLATION
- fall in the rate of inflation
- fall in the rate of inflation
- CORE/ UNDERLZING INFLATION
- excludes the impact of volatile prices
- oil and food are goood examples
- oil and food are goood examples
- excludes the impact of volatile prices
- PRODUCER PRICE INDEX (PPI)
- basket of factores used in production
- eg. capital, raw material and energy prices
- gives indication of extent to which SRAS might be affected by price changes
- eg. capital, raw material and energy prices
- basket of factores used in production
- CONSEQUENCES OF INFLATION (7)
- redistribution of income
savers vs. borrowers
- Devaluation of monez/ loss of purchasing power
- Reduction of investment
- Reduction of international competitivness
- potential for wage/price spiral
if out of cotrol
- shoe-lether and menu costs
- potential wage/price spirals
- redistribution of income
savers vs. borrowers
- CAUSES OF INFLATION
- COST-PUSH INFLATION
- Rising raw material cost
- Rising labour costs
- Increased indirect taxation
- Macro policies are ineffective to cure cost push in short
run,
- Rising raw material cost
- DEMAND-PULL INFLATION
- Reduced taxation
- Increased government spending
- Reduced interest rates
- Rising consumer confidence
- Economic growth in other countries
- Depriciation of a country's
exchange rate
- Cure should focus on reducing the rate of growth of AD, in extreme case also reduce
national income
- Reduced taxation
- COST-PUSH INFLATION
- CURES FOR INFLATION
- Demand side
- Monetary Policy
- an increase in intrest rates
- an increase in intrest rates
- Fiscal Policy
- reducing government
spending and/or incresing
direct taxation
- reducing government
spending and/or incresing
direct taxation
- Monetary Policy
- Supply side
- Policies to increase the total
supply of goods and services
by an economy
- Policies to increase the total
supply of goods and services
by an economy
- Demand side
- DEFLATION
- DEFINITION; constant fall in prices over a
given time period
- Demand-side
- DAngerous tzpe of deflation
and is caused by a fall in AD
linked to a time of recession
- Delayed consumption
causes further
inflation
- DAngerous tzpe of deflation
and is caused by a fall in AD
linked to a time of recession
- Supply-side
- lower commoditz and oil prices
- lower wages
- lower indirect tax
- desirable
- lower commoditz and oil prices
- DEFINITION; constant fall in prices over a
given time period
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