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Inflation - Coggle Diagram

- - - - GPL increase but not proportinate to increase in income, consumers cannot buy as much G&S (If they work more hours, non material SOL drops)
    - - People who depend on savings find they have lower PP now because of inflation
      - Encourages spending instead of saving, to reduce amount of money they have on hand
  - - - Low confidence, due to high volatility in interest rates, future SOL may be affected by drop in I
    - - Producers have to keep updating their price catalogues, known as menu costs (time wasted?)
    - - Initial dd pull inflation encourages employment
      - However, sustained increase may make rate of returns not as favourable, leading to unemployment
      - Persistent increase leads to country's exports less price competitive, fall in demand
  - - - Actual EG
        
        Consumption: Consumers tend to withhold spending due to uncertainty
        
        Investment: Reduced investor confidence, greater fear when investing
        
        Net Exports (Decrease Export, Increase Imports)
      - Potential EG
        
        Fall in investment = lesser capital accumulation, slower potential EG
    - - Drop in demand= drop in production of G&S, increase unemployment as workers laid off
      - More seen in economies reliant on export market
    - - Imports cheaper than local goods
      - Assuming that imports are good substitutes for local goods, imports will increase
      - If PED of exports larger than 1, more than proportionate fall in quantity demand for exports, exports drop.