Inflation Chapter 17

What is cost-push inflation? What is demand-pull inflation?

1. Cost-Push Inflation- A rise in the general price level resulting from an increase in the cost of production. Cost push involves the AS curve and input prices in the production process 2. Demand-Pull Inflation- A rise in the general price level resulting from an excess of total spending (demand). Demand pull involves general excess demand and involves the AD curve

What is inflation? What is the CPI?

1. Inflation is an increase in the general (average) price level of goods and services in the economy. 2. CPI- An index that measures changes in the average prices of consumer goods/services. (is a measure of the overall cost of the goods and services bought by a typical consumer.) The CPI is the generally accepted measurement of inflation in our economy.

What is an example of cost-push inflation?

1. Oil prices spikes affect all industries and consumers. 2. This means that upward pressure on prices can be caused by cost increases for labor, raw materials, construction, equipment, borrowing, and so on. 3. An increase in workers wages raises the production of cost of cars, and car prices as a result. 4. Businesses can also contribute to cost-push inflation by raising prices to increase profits.

When does demand-pull inflation generally occur?

Demand-pull inflation occurs at or close to full employment, when the economy is operating at or near full capacity.

How does inflation affect real income?

When prices rise quickly than people's income, people suffer from the stresses of inflation and uncertainties. The dollar loses value, and people's standard of living will fall.