NCEA Level 2 Economics - Inflation

Inflation causes

loss of purchasing power

inflation

a rise in the general level of prices

disinflation

decrease in the rate of inflation

deflation

decrease in the general level of prices

Four stages of business cycle

Boom, downturn, trough, recovery

cost push inflation

increase in costs of production leads to decrease in aggregate supply

demand pull inflation

increase in aggregate demand

real dollars

constant dollars (adjusted for inflation)

nominal dollars

current dollars of day (not adjusted for inflation

quantity theory of money

MV=PQ

two variables of QTOM that always change

money supply and price level

change in velocity of circulation

time of year, inflationary expectations

change in output level

is there spare capacity, or close to full

aggregate demand equation

C + I + G + (X-M)

aggregate supply equation

W + Im + P + I + T + G + C

when talking about demand pull inflation

must say ____ is a component of ____

when talking about cost push inflation

must say maintain profit margins

disposable income

gross income - taxes

discretionary income

disposable - essential spending

recession

two consecutive periods of negative economic growth

C (AD)

consumer spending

I (AD)

investment spending

G (AD)

government spending

X (AD)

export receipts

M (AD)

import payments

W (AS)

nominal wages

Im (AS)

cost of imported raw materials

P (AS)

productivity

I (AS)

indirect taxes

T (AS)

technology

G (AS)

government charges

C (AS)

compliance costs