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AD shifters
CIGX, consumer spending, investment spending, government spending, net exports-imports
SRAS shifters
PEGP: change in price level, expectations of inflation, government action(taxes/subsidies), change in productivity
Positive output gap
inflation
What is inflation
Rate when the general price level of goods and services increases which decrease purchasing power
Causes of Inflation
Demand pull inflation: inc demand for products and services
Cost push inflation: rising production costs which inc price level
Effects of inflation
Reduces purchasing power, decreases AD, increase interest rates,inc unemployment, inc output in short run
inc IR because lenders(banks) demand more money to compensate for dec purchasing power
Inc unemployment because higher costs prevent employers from paying employees