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Inflation/deflation - Coggle Diagram

- - - - When the eocnomy is near to productive capacity an increase in aggregate demand will push the price up. Usually associated with overheating in the economy.
        Prices increase because aggregate supply cannot rise enough to meed the increase in AD as its production is inelastic.
    - - it is the worst form of inflation as costs like oil prices and import prices are rising thus increasing cost of production. Its bad because its much harder to reduce.
    - - Inflation is measured by index like the consumer price index and retail price index. Comparing the base year prices with current year prices are used to find out rate of inflation.
        Rate of change in inflation is measured by the % increase.
        (new figure-old figure)/ old figure x 100
        
        The governments role is to control inflation. THe target is 2% +- 1
        Keeping this rate controlled is called inflation targeting.
        Inflation rates are controlled by changing the interest rates.
        
        The transmission mechanism is the process by which monetary policy decisions affect the economy in general and the price level in particular.
- - - - Deflation is such abig problem as it puts consumers of consumption as they delay there purchase as they think it will be cheaper tomrrow.
        
        Leads to lower prices and lower profits and reduced eg
        
        Low and stable infaliton is the best option because it enables eocnomic growth, price stability and the goernment to tackle other issues without having negative effects of disinfaltion or inflation.
- - - - Good deflation, they maintain, occurs when aggregate supply of goods (say from technological advances, improved productivity, and the like) increases faster than aggregate demand, resulting in falling prices. Bad deflation in turn occurs when aggregate demand falls faster than any growth in aggregate supply.