Inflatipn Flashcards
(5 cards)
What is demand pull inflation?
Inflation caused by excessive growth in AD when compared to supply:
High consumer spending - due to confidence or low interest rates
Excess money in the economy - too much chasing too few goods
What is cost-push inflation?
Inflation caused by the rising costs of inputs to production:
A rise in wages
A rise in imported raw materials
A rise in Taxes
Costs of inflation?
Cause the standard of living to fall - biggest impact on low income persons.
Countries competitiveness reduced - exports cost more, imports cost less - balance of payments deficit
Discourages saving - can lead to shortage of funds for borrowers and investors
Is deflation good?
Often a sign the economy is doing badly - people may not spend and wait for further price falls. This means lower profits for firms and reduced economic growth
What is an acceptable inflation rate?
2%