Government Aims

HideShow resource information
View mindmap
  • Aim to prevent overheating
    • Too much money chasing too few goods.
      • Results in higher prices, businesses know consumers will pay = INFLATION
    • Government Aims
      • Types of Inflation
        • Demand Pull
          • Occurs when total demand for goods and services exceeds total supply.
            • Happens when there is excessive growth in aggregate demand, and there is an inflationary gap = overheating.
        • Cost Push
          • Occurs when firms increase prices to maintain/protect profit margins after experiencing a rise in their costs of production
          • Sources: Rising Labour Costs
            • Caused by wage increase > productivity, especially important in industries, which are labour intensive.
      • CPI
        • Based on the HCIP - means inflatoin is internationally agreed standards throughout Europe.
  • Types of Inflation
    • Demand Pull
      • Occurs when total demand for goods and services exceeds total supply.
        • Happens when there is excessive growth in aggregate demand, and there is an inflationary gap = overheating.
    • Cost Push
      • Occurs when firms increase prices to maintain/protect profit margins after experiencing a rise in their costs of production
      • Sources: Rising Labour Costs
        • Caused by wage increase > productivity, especially important in industries, which are labour intensive.
  • CPI measured through basket of goods. Tends to be lower than RPI except when interest rates are cut.
    • Does not include Mortgage interest payments, solicitors etc.
    • Based on the HCIP - means inflatoin is internationally agreed standards throughout Europe.

Comments

No comments have yet been made

Similar Economics resources:

See all Economics resources »See all Inflation and deflation resources »