inflation

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  • INFLATION
    • DEFINITION
      • rising prices over a year, value of the pound falls
    • PROBLEMS
      • may cause unemployment
        • uncertainty- business people wont buy into the economy
      • rich dont mind inflation as it is the poor who suffer
        • hyperinflation- money becomes worthless
          • worsens our balance of payments; exports get cheaper, imports get dearer
            • savers lose, borrowers gain
    • MESUREMENT
      • 2 baskets of 650 items, one from the current year and the other from the year before, they measure the basket of good and compare the prices to calculate inflation.
    • CAUSES/TYPES
      • cost push inflation- costs increase ; imports cause inflation
        • demand pull inflation- government boost demand to lower unemployment
          • too much money in the economy (quantitative easing) so money becomes worthless if you print too much  money
    • CURE
      • decrease demand using monetary and fiscal polices
        • monetary policy; increase interest rates and decrease quantitative easing
        • fiscal policy; increase taxes and lower government spending

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