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low and stable level of inflation, excess monetary inflation - Coggle…
low and stable level of inflation
contractionary monetary policy (decreasing supply of money)
Result: decreased AD
Limitations: The more elastic SRAS is, the less effective the policy is; possibly ineffective in a recession; may not be able to deal with cost-push inflation and stagflation; slowing the economy down may lead to unemployment
Benefits: No or rather short time lags; flexibility; no crowding out (HL); a way to deal with inflation;
demand-pull inflation
contractionary monetary policy
increasing interest rates
Benefits:
Limitations:
Result:
decreasing money supply
Benefits: decreases the level of inflation by lowering AD; decreased consumer spending
Limitations:
Result: lower AD
contractionary fiscal policy
decreasing government spending
Benefits: lower budget debt
Limitations: the unemployed are worse off, possibly higher poverty (lower social and unemployment benefits), violated economic well-being of the society because of lower disposable income of its members
Result: decreased AD (lower G and C)
increasing income / sales taxes
Benefits: lower budget debt thanks to higher governmet revenues
Limitations: possibly higher poverty due to lower disposable income, violated economic well-being
Result: decreased AD (lower C)
cost-push inflation
wages-push
market-based supply-side policy (reducing power of labour unions, decreasing minimum wages)
Benefits: possibly reducing unemployment, especially among the youth; encouraging employers to do business;
Limitations: worse working conditions for employees;
Result:
depletion of resources (increased costs of production)
interventionist supply-side policy (investment in research)
Benefits: technological progress and possibly long-term growth, restored well-being of producers
Limitations: higher budget debt because of goverment spending on research, structural unemployment, geographical allocative inefficiency of industry, time lags (it takes time to find an alternative way of production)
Result: technologial progres (invention how to use the resurces more efficiently or to replace them with some other resources) -> decreased costs of preduction
profit-push
market-based supply-side policy (anti-monopoly regulation)
Benefits: consumers' well-being is protected, better competition, market-forces can act freely to establish an equilibrium
Limitations: businesses can find some gap in the regulation and it may be unsuccessful, after decreasing prices consumption may increase aggravating inflation
Result: producers cannot push prices up artificially
tax-push
contractionary fiscal policy
Benefits: can target specific sectors of the economy
Limitations: time lags; higher inflation rate thus possibly lower living conditions for inhabitants; slowing the economy down may worsen the effects of inflation during a recession
Result: lower average price level
import-price-push
interventionist supply-side policy
(subsidies for domestic firms, investment in infrastracture)
Limitations:
Result: better international competitiveness
Benefits: focused more on domestic production
excess monetary inflation