3867683
Description
Inflation By Joe
Patton
- The steady and persistent rise in the general level of prices,
resulting in a reduction in the purchasing power of money
- Measured using the
Consumer Price Index
- Limitations
- Based on average pattern of spending
- Weights used apply in base year only
- Changes in quality of goods not measured
- New products on market not included
- Switch to new brands not measured
- Based on average pattern of spending
- Uses of Consumer Price Index
- Measure inflation
- Wage negotiations
- Widen tax bands
- Indexation of Investments
- Measure of International Competitiveness
- Measure inflation
- Limitations
- Causes of Inflation
- Demand- Pull Inflation
- Occurs when price levels
rise because of an
imbalance in the aggregate
supply and demand. When
the aggregate demand in an
economy strongly outweighs
the aggregate supply, prices
increase.
- Occurs when price levels
rise because of an
imbalance in the aggregate
supply and demand. When
the aggregate demand in an
economy strongly outweighs
the aggregate supply, prices
increase.
- Cost-Push Inflation
- Occurs when we
experience rising prices due
to higher costs of
production and higher costs
of raw materials
- Occurs when we
experience rising prices due
to higher costs of
production and higher costs
of raw materials
- Demand- Pull Inflation
- Economic Effects of Inflation
- Production/Consumption
Encouraged
- People on Fixed
Incomes Lose Out
- Speculation Encouraged
- Loss of International
Competitiveness
- Benefits to Government
- Production/Consumption
Encouraged
- Costs of Inflation
- Psychological Costs
- People feel they are worse off, even if their
income rises beyond the rate of real inflation
- People feel they are worse off, even if their
income rises beyond the rate of real inflation
- Re-distributional Costs
- Inflation can redistribute incomes and wealth
between firms, households and the state
- Inflation can redistribute incomes and wealth
between firms, households and the state
- Unemployment and Growth
- Increases the costs of production of firms
- Inflation creates uncertainty around job safety
and makes obtaining a new job much harder
- Increases the costs of production of firms
- Psychological Costs
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