2.5 Economic Growth

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Inflation Cost- Shoe Leather Costs
Stable prices make consumers and firms able to have some knowledge of what a fair price is and which suppliers are cheaper.
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Inflation Cost- Menu Costs
Inflation causes restaurants to change menus to show increased prices.
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Inflation Cost- Psychological and Political Costs
Price increases are unpopular and make people feel less wealthy.
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Inflation Cost- Redistributional Costs
Inflation can redistribute income and wealth between economic agents, and anyone on a fixed income will suffer.
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Inflation Cost- Unemployment and Growth
Inflation is typically unpredictable and therefore firms will be less willing to take risks and invest in an unstable economy.
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Inflation Benefits
Real value of debt falls (consumers); real wages could fall (firms); Real value of public debt falls (Gov); New employment opportunities.
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Quantitative Easing
Where a central bank purchases government securities in order to lower interest rates and increase the money supply.
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Other cards in this set

Card 2

Front

Inflation causes restaurants to change menus to show increased prices.

Back

Inflation Cost- Menu Costs

Card 3

Front

Price increases are unpopular and make people feel less wealthy.

Back

Preview of the back of card 3

Card 4

Front

Inflation can redistribute income and wealth between economic agents, and anyone on a fixed income will suffer.

Back

Preview of the back of card 4

Card 5

Front

Inflation is typically unpredictable and therefore firms will be less willing to take risks and invest in an unstable economy.

Back

Preview of the back of card 5
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