Price Stability

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  • Price Stability
    • Inflation
      • A rise in general price levels
      • Hyper Inflation
        • Inflation rising too quickly and uncontrollably, money practically worthless
      • Causes
        • Demand Pull
          • aggregate demand risesat/nearing full employment, cannot satisfy increased demand (all resources employed, cannot increase productivity)
          • hence prices go up due to scarcityso workers demand higher wages so they can pay for stuff and demand increases (repeat)
        • Cost Push
          • rising costs of productionfirms increase prices to keep profits uphence prices go up
        • Monetarism
          • banks increase amount lent outpeople have more to spend hence aggregate demand increases
          • however at full employment, maximum productivity already reached cannot spend extra money as no goods to spend it on goods are scarce, hence prices go up
    • Deflation
      • A decrease in general price levels
      • Causes
        • Market supply increased relative to demand
        • Competion Increased
        • Labour Productivity Rises
    • Government Policies
      • Fiscal
        • Govt spending & taxation to manipulate AD
      • Monetary
        • Interest rates to manipulate AD
    • A state of economy with steady prices of goods and services
      • Low and steady inflation
      • Steady unemployment
      • Steady economic growith

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