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  • Created by: FunkyFrog
  • Created on: 12-05-14 23:06
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  • 0/3: Extract C (2-3) suggests that the 'large degree of spare capacity should keep inflation low'
    • Spare capacity implies that there is likely to be exces supply (or lack of demand)
    • Excess supply - prices likely to fall
    • Manufactures and retailers opereate in a competitive environment
    • Prices will be cut to increase sales
      • If all firms cut costs, then the rate of rising prices will fall
    • Spare Capacity - negative output gap/unemployment
      • Wage increases (labour costs) are less likely to increase
        • 0/3: Extract C (2-3) suggests that the 'large degree of spare capacity should keep inflation low'
          • Spare capacity implies that there is likely to be exces supply (or lack of demand)
          • Excess supply - prices likely to fall
          • Manufactures and retailers opereate in a competitive environment
          • Prices will be cut to increase sales
            • If all firms cut costs, then the rate of rising prices will fall
          • Spare Capacity - negative output gap/unemployment
            • Wage increases (labour costs) are less likely to increase
              • Less likely to demand goods if unemployed
          • Less likely to demand goods if unemployed

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