ECN 211 L14 Inflation and AD_BB

ECN 211 L14 Inflation and AD_BB - ECN 211 Macroeconomic...

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10/05/09 1 ECN 211 Macroeconomic Principles L14: Inflation and Aggregate Demand
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10/05/09 2 Inflation … a __________ increase in the average level of prices The higher the price level the _________ the ______ value of money Purchasing power of a dollar is eroded. Standard argument with parents and allowances…. _________________ … an extremely high rate of inflation E.g. Zimbabwe. Can cause a “flight from money”.
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10/05/09 3 Types of Inflation _____________ Inflation ….. Increases in total spending that are not off set by increases in the supply of goods and services at the ____________________ therefore the average level of prices must ___________ Tends to happen when an economy is at/near maximum capacity. Prices have to increase ration the goods …. “too much ______ chasing too _____________”
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_________ Inflation _______________ in production costs that cause firms to raise prices to avoid losses cost _____________ are passed on to buyers leading to a spiral in prices. (wage/price spiral) Oil shocks in the 70’s (and recently) 10/05/09 4
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10/05/09 5 Costs of Inflation _______________ Costs associated with firms having to introduce changes in prices. E.g. print new menus. E.g. Gas Pumps that can only show $3.99!
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_____________________ Costs associated with consumers spending time updating their information regarding prices of goods/Services. Internet searches etc.
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This note was uploaded on 03/16/2009 for the course ECN 211 taught by Professor Kingston during the Spring '08 term at ASU.

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ECN 211 L14 Inflation and AD_BB - ECN 211 Macroeconomic...

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