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Inflation (Cost-push inflation (Profit push (Solutions (Short run (Price…

- - - - When firms have too much market power and goods are more price-inelastic in demand, firms will be able to set high prices to earn more profits, resulting in inflation.
    - - Short run
        
        Price Control Government intervention such as MC-pricing can lower the prices of the goods and lower inflation.
      - Long Run
        
        Legislation and Deregulation: This ensures that firms do not abuse their market power. Deregulation introduces competition into the market so that competitive pressure will lower the price of goods.
  - - - Increases in indirect taxes on goods and services raises the cost of living (e.g. GST)
    - - No remedy available. The government can only give out packages to cushion the rise in prices.
  - - - Occurs when wages rises faster than labour productivity, increasing the cost of production.
    - - Short run
        
        Income policy: The government intervenes directly or indirectly to set wages. Low inflation can then be maintained and investment is stimulated.
      - Long Run
        
        Supply policies such as education and retraining: Productive capacity increases when workers become more skilled and efficient. This lowers the cost of production and GPL.
  - - - Due to an increase in inflation in foreign country or depreciation from the importing country, raw materials and imported inputs increase in price and increases domestic cost of production. This results in a higher end in end products.
    - - Short run
        
        1) Exchange Rate Policy: Appreciation of domestic currency makes imports relatively cheaper in terms of domestic currency and lowers the price of imported inputs
        
        2) Price ceiling: Price controls implemented by the government prevent cost-push inflation
      - Long Run
        
        1) Developing cheaper alternatives: R&D results in cheaper alternatives to lower cost of production and GPL
        
        2) Supply side policies such as education and retraining: Productive capacity increases when workers become more skilled and efficient. This lowers the cost of production and GPL.
  - - - 1) A sudden fall in supply due to natural disasters results in a hike in prices as demand and cost of production rises.
    - - Short run
        
        Price ceiling: Price controls implemented by the government prevent cost-push inflation.
      - Long Run
        
        Develop cheaper alternatives: R&D results in cheaper alternatives to lower cost of production and GPL
- - - - Contractionary Fiscal Policy: A reduction in government spending and increase in taxation causes a fall in AD and subsequently fall in GPC
      - Contractionary Monetary Policy A reduction in money supply results in a rise in interest rates, reducing consumption and investment, which lowers AD and GPL.
    - - Supply Side Policy Buffer labour policy, currently implemented in Singapore, increases foreign workers and cost of production falls due to a fall in wages. However, this may result income disparities and limited resources