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Inflation - Coggle Diagram
Inflation
Types
Demand-pull
Inflation caused by excess demand
Cost-push
Inflation caused by increased costs of production
Inflation
General rise in prices
Deflation
Fall in the price level
Hyperinflation
Very large increase in the price level
Disinflation
Fall in the rate of inflation
Downsides of high inflation
Menu costs
Restaurants have to change their menus whenever inflation changes
Competitiveness from international firms
This can be dangerous for small domestic firms
Growth + unemployment
High inflation is hard to predict so firms invest less. Consumers are confused and so they may increase or decrease their spending. GDP falls and unemployment rises as a result.
Causes of...
…demand-pull
Increase in investment
Increase Gov. spending
Sudden/excessive rise in consumer spending
Reduced taxes
Increase world demand for exports
...cost-push
Imports can cause a rise in price
Profits can be increased when firms raise price
Increase in wages (as the count for 50% of national income)
Governments can reduce subsidies/increase indirect tax
Solutions
Do the opposite of the causes listed
Inflation is ALWAYS caused by either: too much demand OR rising costs!!!