Inflation and deflation

Question 1

What are the four components of aggregate demand?

Answer 1

Consumption
Investment
Gov spending
Net exports

Question 2

What does aggregate demand measure?

Answer 2

measures the total amount of demand for all finished goods and services produced in an economy

Question 3

How does aggregate demand link to inflation?

Answer 3

when the total demand for goods and services increases to exceed the supply of goods and services that can be sustainably produced - this causes inflation

Question 4

What is consumption when relating to AD?

Answer 4

Spending by household son goods and services

Question 5

List a few factors level of consumptions be affected by?

Answer 5

Interest rates
Consumer confidence

Question 6

What is investment when relating to AD?

Answer 6

Spending by business on capital goods

Question 7

What are capital goods?

Answer 7

Goods used to produce other goods

Question 8

List a few factors that can influence investment?

Answer 8

Gov policies
Business expectations
Interest rates

Question 9

List a few examples of gov spending?

Answer 9

Education
Defence
Infrastructure

Question 10

What is gov spending relating to AD?

Answer 10

government expenditure on public goods and services

Question 11

What is Net Exports when relating to AD?

Answer 11

difference between country’s exports and imports

Question 12

What can a positive value of net exports indicate?

Answer 12

Trade surplus

Question 13

What is a trade surplus?

Answer 13

The amount of exports exceed imports

Question 14

What can a negative value of net exports indicate?

Answer 14

Trade deficit

Question 15

What country is clearly in a trade surplus?

Answer 15

China

Question 16

What is a trade deficit?

Answer 16

The amount of imports exceed imports

Question 17

When do movements occur along the AD curve?

Answer 17

When there is a change in price level

Question 18

When do shifts occur along the AD curve?

Answer 18

When other factors other than price level change

Question 19

What factors change other than price?

Answer 19

Components of AD:
Consumption
Net exports
Gov spending
Investment

Question 20

What does a change in price lead to on an AD curve graph?

Answer 20

change in quantity of real GDP demanded

Question 21

What is spare capacity?

Answer 21

When a business is not making full use of its available capacity

Question 22

One reason why some inflation beneficial to the economy?

Answer 22

Need inflation within an economy so people consume before prices become too high

Question 23

Deflation definition?

Answer 23

General decline in prices for goods and services

Question 24

What happens to purchasing power during deflation?

Answer 24

increases as people can purchase more with their money

Question 25

What is demand pull inflation?

Answer 25

When inflation is caused by an increase in demand for goods and services within an economy

Question 26

What is cost push inflation?

Answer 26

When inflation is caused by an increase in the costs of production

Question 27

What is another term for good inflation?

Answer 27

Benign

Question 28

What is another term for bad inflation?

Answer 28

Malign

Question 29

What is bad inflation (Malign)?

Answer 29

When there is a shock to the economy

Question 30

What is good inflation (Benign)?

Answer 30

Mild, stable inflation

Question 31

What can benign inflation be caused by?

Answer 31

Economic growth

Question 32

Quantity of money supply fisher equation?

Answer 32

MV=PY

Question 33

What does m stand for in the fisher equation?

Answer 33

money supply

Question 34

what does v stand for in the fisher equation?

Answer 34

velocity (how many times money is used)

Question 35

what does p stand for in fisher equation?

Answer 35

price level

Question 36

what does y stand for in the fisher equation?

Answer 36

real gdp