MONPOL L1 - FINALS 3RD TERM

Inflation

is the sustained increase in the general price level of goods and services, reducing purchasing power.

Economic growth; Investment confidence; Household welfare

Maintaining low and stable inflation is essential for:

Food supply shocks; Global oil price spikes; Peso depreciation

Inflation surge causes

Demand-Pull Inflation

"Too much demand, too little supply"

Demand-Pull Inflation

Occurs during economic recovery when spending rises faster than production

Demand-Pull Inflation

After lockdowns → increased consumption → higher prices

Cost-Push Inflation

"Increasing production costs push prices up"

Cost-Push Inflation

Oil price hikes; Wage increases; Supply shortages

Cost-Push Inflation

Transport fare hikes due to fuel prices → food prices increase

Built-In Inflation

"Wage-price spiral"

Built-In Inflation

Workers demand higher wages; Firms raise prices → cycle repeats

Imported Inflation

"External price shocks affect domestic prices"

Imported Inflation

Weak peso → imported fuel becomes expensive; Leads to higher inflation locally

Deflation

is the persistent decline in the general price level, often linked to weak demand. It is dangerous because it signals economic slowdown.

Demand-Driven Deflation

Low consumer demand; Falling prices

Supply-Driven Deflation

Increased productivity; Lower production costs

Debt Deflation

Falling prices increase real debt burden; Leads to financial instability

Erosion of Purchasing Power, Income Inequality, Economic Uncertainty, Distortion of Economic Decisions

These are the COSTS OF INFLATION

Delayed Consumption; Rising Unemployment; Debt Burden Increases; Economic Stagnation

These are the COSTS OF DEFLATION

Exchange rate

is the price of one currency in terms of another.

Global dollar strength; Inflation differences; Trade balance

Philippine Fluctuates Depending on:

Monetary policy; Foreign exchange interventions

Bangko Sentral ng Pilipinas role in exchange rate Manages volatility through:

Factors Affecting Exchange Rate

Interest rates; Inflation rates; Foreign investments; Political stability

Effects of Weak Peso

Imports become expensive; Inflation increases; Cost of living rises

Effects of Strong Peso

Imports cheaper; Exports less competitive; May slow economic growth