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Inflation (Deflation (Decline in national output, rise in cyclical…

- - - - fixed income earners suffer
    - - DD- pull inflation: gain
      - Cost-push inflation: suffer (no excess DD)
- - - - Allows identification of the existence of inflation, and comparison of price trends between cities and countries
      - Useful in forming wage policies and social welfare schemes
      - Useful for firms to estimate revenue, costs, and profit potential in planning future investment
      - Different households have different consumption patterns
      - Variations within different regions of a country
      - Changes in consumption habits (those reflected in CPI inhibit it from being compared over time) (eg. UK lipstick to lip gloss 2010)
      - Errors in data collection
      - Improvements in quality not reflected (overstatement)
- - - - Minimum wage
      - Demand by trade unions
      - Labour crunch
    - - Restriction of global supply
      - Weakening exchange rate
- - - - Increase interest rates
        
        increase C, I, may appreciate currency
    - - Increase tax rates
      - reduced government spending
  - - - Lowering/removing min wage
      - lower personal income tax
        
        substitution effect must > income effect
      - Improving quality of labour
        
        time lag
        
        costly
        
        resistance
      - Govt spending in developing technology
        
        increase labour productivity, cushion rising unit labour costs
      - Reducing power of trade unions
    - - Revalue/appreciate currency
        
        Disrupts trade balance