4.8 Inflation and Deflation

Question 1

Define inflation

Answer 1

Inflation is the general and sustained rise in the level of prices of goods and services in an economy over a period of time.

Question 2

what is demand pull inflatin caused by?

Answer 2

increase in aggregate demand

Question 3

what is cost push inflation caused by?

Answer 3

an increase in cost of production

Question 4

3 consequences of inlfiaton

Answer 4

• low purchasing power
• inflation causing inflation
• exports less internationally competitive

Question 5

3 policies t control inflation

Answer 5

Contractionary monetary policy
Contractionary fiscal policy
supply side

Question 6

what s delfation

Answer 6

Deflation is the general fall in the price level.

Question 7

3 Causes of deflation

Answer 7

Aggregate supply exceeding aggregate demand

Demand has fallen

Technological advance has reduced cost of production, pulling down cost-push inflation.

Question 8

2 Consequences of deflation

Answer 8

Lower prices will discourage production, resulting in unemployment.

Deflation can cause recession as demand and prices continue to fall and firms are forced to close down as enough profits are not being made.

Question 9

2 Policies to control deflation

Answer 9

Expansionary monetary policy
Expansionary fiscal policy