Inflation

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Define inflation
a sustained increase in the general price level of the economy
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What is the inflation target?
2%
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how is inflation calculated?
the CPI measure of the price change in the basket of goods
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What is the Basket of goods?
650-700 goods and services. not equally weighted. it changes every year
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what is cost push inflation?
when costs of production increase
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What is demand pull inflation?
when theres excess AD.
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What type of policies reduce demand pull inflation?
monetry and fiscal.
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How can increased income taxes could reduce inflation?
less disposable income = decreased consumer spending = reduced AD
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why is high and volatile inflation bad for firms?
high menu costs. not internationally competitive
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why is high inflation bad for taxpayers
wgaes increase but the bands dont change so have to pay more in tax = fiscal drag
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why is high inflation bad for thoes on fixed incomes?
their living costs increase so they have less money.
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Card 2

Front

What is the inflation target?

Back

2%

Card 3

Front

how is inflation calculated?

Back

Preview of the front of card 3

Card 4

Front

What is the Basket of goods?

Back

Preview of the front of card 4

Card 5

Front

what is cost push inflation?

Back

Preview of the front of card 5
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